Australia’s labour productivity rebounds in Q3, but challenges loom

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The Productivity Commission’s latest research indicates that Australia’s labour productivity, which had been in a prolonged decline, has shown a modest increase of 0.9 per cent in the September 2023 quarter.

This marks the first quarter of positive growth since March 2022. However, the report underscored that this improvement is primarily attributed to a 0.7 per cent decline in hours worked during the quarter, coupled with relatively minor growth in GDP at 0.2 per cent.

Despite the recent uptick, labour productivity remains down by 2.1 per cent over the 12 months leading up to September, the government said in a media release.

Deputy Chair of the Productivity Commission Dr Alex Robson noted that the increase in productivity is linked to a temporary decline in hours worked, which had been consistently rising since September 2021.

The growth in hours worked appears to have peaked without a corresponding decline in output, contributing to a slight recovery in productivity.

The report identified that out of 19 industries, 13 experienced productivity growth in the September quarter.

Notably, the construction industry and professional, scientific, and technical services industry were significant contributors to this growth, adding 0.7 percentage points.

However, the administrative and support services industry detracted 0.2 percentage points from labour productivity.

“The COVID-19 pandemic created a ‘productivity bubble’ as workers temporarily moved away from low-productivity sectors, like hospitality, towards higher productivity sectors,” said Dr Robson.

As pandemic-related restrictions eased, workers returned to lower productivity sectors, leading to the bursting of this bubble. The recent increase in productivity suggests a gradual return to pre-COVID levels.

Despite this positive development, the report cautions against complacency, emphasising that a return to 2019 levels is insufficient for sustained long-term productivity growth.

Dr Robson emphasised the need for policy reforms, as outlined in the Productivity Commission’s Advancing Prosperity inquiry report, to foster the kind of productivity growth essential for Australia’s economic prosperity.

For more detailed insights, the Quarterly Productivity Bulletin is available on the Productivity Commission’s official website.