Australia’s 4.6% decline in labour productivity driven by pandemic, low unemployment rate

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The Productivity Commission’s 2023 Bulletin has revealed that the 4.6 per cent fall in labour productivity for the 12 months to March 2023 is brought about by the unwinding of COVID-19-related effects and historically low unemployment rate.

Productivity Commission Chair Michael Brennan said the COVID-19 pandemic resulted in a brief increase in measured labour productivity, but with limits affecting the service sector, many less productive enterprises ceased operations, while higher productivity sectors accounted for a bigger share of total hours worked in the economy.

Growth in productivity also grew across most industries from 2021 to 2022, as revealed in a press release.

Agriculture productivity increased as a result of favourable weather conditions. Other industries’ growth, such as transportation, postal and warehousing, and information, media, and telecommunications, may indicate the long-term influence of technology adoption.

Brennan, citing the recent five-year Productivity Enquiry, stated that the additional digital capabilities Australia acquired under COVID-19 might result in a long-term productivity dividend.

“Government and business should continue to embrace innovation and invest in upskilling the workforce to maintain that momentum,” he said. 

The Bulletin also addressed Australia’s stagnating non-mining investment.

The research examined various potential explanations for the problem, such as structural changes in the economy, adjustments in risk appetite, and changes in capital mix.

According to the Bulletin, the mining industry witnessed a decrease in real output and productivity for the second year in a row in 2021-22. 

There are indicators that this could change, indicating a rise in mining investment, with ramifications for productivity.

“Higher commodity prices and the global demand for critical minerals could see the start of a new investment phase for mining, which could help drive longer-term productivity,” concluded Brennan.