Labour productivity growth halts in latest quarterly report

33
Image credit: Aleksandr Ivasenko/stock.adobe.com

The latest productivity bulletin from the Productivity Commission has revealed that labour productivity stagnated in the March quarter, with a 0.1 per cent increase in output matched by a similar rise in hours worked.

The commission said this stagnation means there was no growth in labour productivity over the 12 months to March 2024, with levels remaining just above the 2015–2019 average.

“With the end of the COVID-19 productivity bubble, labour productivity seems to have reverted to the stagnation we’ve seen for most of the past decade,” said Deputy Chair Dr Alex Robson.

The non-market sector performed significantly worse than the market sector in terms of productivity during the March quarter.

While labour productivity in the market sector grew by 0.5 per cent, it was offset by a 1.3 per cent decline in the smaller non-market sector.

Over the past year, a substantial increase in employment in the non-market sector, which includes education and training, health care and social assistance, and public administration and safety, has dragged down overall productivity.

“We have seen a major increase in employment in the non-market sector since March last year, but it has not been matched by an equivalent increase in output,” said Dr Robson.

From March 2023 to March 2024, productivity in the non-market sector fell by 2.2 per cent, while it increased by 0.8 per cent in the market sector.

This period also saw strong growth in hours worked in the non-market sector (5.5 per cent) compared to the market sector (0.5 per cent).

More than half of the increase in filled jobs across the economy during this period occurred in the health care and social assistance industry, which includes childcare, disability, and aged care services.

“Many of these jobs likely went to people who are new to these industries and need time to learn and upskill – putting temporary downward pressure on productivity,” noted Dr Robson.

Despite strong employment growth in the non-market sector, hours worked across the entire economy rose by only 0.1 per cent in the March quarter.

This suggests a slowdown in labour demand from its historical heights in June 2023. The easing of labour demand has been due to a reduction in hours worked rather than a drop in total employment.

Since June 2023, hours per worker have decreased by 2.7% (or 51 minutes less per week), alongside growing part-time employment.

However, job vacancies remain 60 per cent above pre-COVID-19 levels, indicating that the labour market is still relatively tight.

The latest Quarterly Productivity Bulletin is available at www.pc.gov.au/productivity-insights.