The Productivity Commission has unveiled a report shedding light on Australia’s productivity decline, with labour productivity experiencing a sharp downturn in the 2022-23 period.
Despite a record-breaking surge in hours worked, economic output failed to match the same level of increase, the government said in a media release.
Titled the Annual Productivity Bulletin 2024, the report offers comprehensive insights into the factors driving Australia’s productivity slump during the specified timeframe.
Deputy Chair of the Productivity Commission Alex Robson expressed the importance of addressing Australia’s productivity challenges.
“We now have a clearer understanding of what’s behind Australia’s productivity slump. Sharp increases in working hours have seen productivity decline, but this makes policies to boost productivity even more important,” Robson remarked.
Labour productivity plummeted by 3.7 per cent, significantly below the long-term average growth rate of 1.3 per cent.
This decline was propelled by a staggering 6.9 per cent surge in hours worked by Australians, marking the highest annual increase in history.
Accompanying the decline in labour productivity was sluggish hourly wage growth, despite an overall increase in average incomes.
“Australians’ incomes grew in 2022-23, mostly because they worked more hours. But productivity growth is about working smarter, not working harder or longer,” Deputy Chair Robson emphasised.
“Given our labour force participation rate is near its historical high, we won’t be able to rely on working harder or longer as a source of income growth moving forward.”
Moreover, the report highlighted a concerning trend in the capital-to-labour ratio, which witnessed a 4.9 per cent decline – the highest recorded in Australia’s history.
This meant that each worker had access to a diminishing amount of capital, further weighing down labour productivity.
Deputy Chair Robson underscored the importance of capital investment in boosting productivity growth, stating, “Further capital investment would help turn our strong employment growth into strong productivity growth.”
The report also addressed the reversal of productivity gains observed during the initial stages of the COVID-19 pandemic, attributing the subsequent decline to various factors.
Additionally, wage decoupling – the disconnection between productivity growth and real wage growth – was found to be slightly higher than previously estimated, highlighting the need for sustained productivity growth to drive long-term wage increases.
More information can be accessed through the Productivity Commission’s website at www.pc.gov.au.
