OBJECTIVE: Recent studies suggest that diabetes may impact work productivity. In the current study, we sought to estimate the lifetime and population impact of diabetes on productivity using the novel measure of "productivity-adjusted life years" (PALYs). RESEARCH DESIGN AND METHODS: Using age-specific mortality rates and a productivity index attributable to diabetes (akin to the quality of life index, but which adjusts for reduction in productivity) and life table modeling, we estimated years of life and PALYs lost to diabetes among Australians with diabetes currently aged 20-65 years, with follow-up until 69 years. Life tables were first constructed for the cohort with diabetes and then repeated for the same cohort but with the assumption that they no longer had diabetes. The "nondiabetic" cohort had lower mortality rates and improved productivity. The differences in total years of life lived and PALYs lived between the two cohorts reflected the impact of diabetes. RESULTS: Overall, diabetes reduced total years of life lived by the cohort by 190,219 years or almost 3%. Diabetes reduced PALYs by 11.6% and 10.5% among men and women, respectively. For both sexes, the impact of diabetes on productivity was lowest in those aged 65-69 years and highest in those 20-24 years. Among the latter, PALYs were reduced by 12.2% and 11.0% for men and women, respectively. CONCLUSIONS: Elimination of diabetes can prolong life years lived by the whole population and increase the amount of productive years lived. Employers and government should be aware that having diabetes affects work force productivity and implement prevention programs to reduce the impact of diabetes on the workforce.