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However, further reforms are needed to achieve sustainable, long-term growth, the Productivity Commission says.
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Productivity turnaround ‘halts post-COVID freefall’
22 December 2023
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A turnaround in labour productivity last quarter has halted a post-pandemic “freefall” but sluggish long-term growth remains a cause for concern, the Productivity Commission says.
Labour productivity crept up 0.9 per cent during the September quarter, the first increase since March 2022, according to the commission’s latest report.
This was driven by a 0.7 per cent decline in hours worked and GDP growth of 0.2 per cent.
Deputy chair Alex Robson said workers clocked in fewer hours last quarter without an accompanying decline in output.
“The amount of hours worked has increased every month since September 2021. Now that growth in hours worked appears to have peaked, productivity has slightly recovered,” he said.
Thirteen out of 19 industries analysed recorded an increase in productivity, with the construction and professional, scientific and technical services industry contributing 0.7 per cent points to growth.
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However, the commission said productivity was still down 2.1 per cent annually and short-term gains needed to be viewed against the pandemic’s effects on the economy.
“The COVID-19 pandemic created a ‘productivity bubble’ as workers temporarily moved away from low-productivity sectors, like hospitality, towards higher productivity sectors,” Mr Robson said.
“That bubble burst as workers returned to those lower productivity sectors when pandemic-related restrictions eased. In the wake of this, we are only now seeing labour productivity approach pre-COVID levels.”
This was mirrored in the capital-labour ratio, a determinant of labour productivity, which rose during the pandemic as capital-intensive industries laid off workers without disposing of capital such as machines and equipment.
The trend was shortly reversed as employment rose post-pandemic, the commission said.
While productivity growth improving to match pre-pandemic levels was a positive sign, it also said that “this was unlikely to reflect the beginning of a return to healthy long-term productivity growth”.
“Australia’s productivity returning to 2019 levels is no cause for complacency, as that level came at the end of a decade of relatively weak productivity growth,” Mr Robson said.
He said achieving long-term productivity growth that lifted incomes and living standards would only come through implementing reforms outlined by the commission in March.
The five-year productivity inquiry, Advancing Prosperity, made 71 recommendations to improve the workforce, adopt digital technology, create a more dynamic economy and achieve net-zero targets.
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