Productivity Commission report reveals signs of recovery after COVID-19

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Labour productivity has shown signs of recovery for the second consecutive quarter in the December 2023 period, marking a potential return to ‘productivity normalcy’ post the COVID-19 pandemic’s impact.

The March Productivity Bulletin, released by the Productivity Commission, reveals a 0.5 per cent increase in labour productivity during the December quarter, as hours worked dipped by 0.3 per cent while output saw a 0.2 per cent uptick.

Deputy Chair Alex Robson noted, “For two quarters in a row Australians produced more while working fewer hours. And while monthly labour force data is volatile, we can now say with a bit more confidence that the freefall in labour productivity that began in June 2022 has likely bottomed out.”

Despite this recent quarterly uptick, labour productivity witnessed a 0.4 per cent decline over the 12 months leading to December 2023.

“The sharp decline in productivity since June 2022 was due mostly to the end of the COVID-19 ‘productivity bubble’. Labour productivity rose significantly at the start of the pandemic, as workers temporarily moved from relatively low productivity sectors towards high productivity sectors, before declining as lockdown restrictions eased,” explained Deputy Chair Robson.

The reduction in hours worked in the December quarter was primarily propelled by employed individuals working fewer hours.

Although the number of employed people rose by 0.5 per cent, hours worked per worker decreased by 0.8 per cent, equivalent to approximately 15 minutes per week.

Deputy Chair Robson pointed out, “Historically high labour demand in recent years has led to an influx of newer, less experienced workers into the job market. This likely exerted temporary downward pressure on labour productivity growth, as new workers require time to adapt and acquire skills.”

Moreover, the surge in hours worked contributed to a record drop in the capital-labour ratio in 2022-23, as the expansion in the capital stock failed to keep pace with workforce increases.

Labour productivity observed notable growth in half of the market sector industries, primarily driven by reductions in hours worked rather than output increases.

Notably, the information, media, and telecommunications sector witnessed the highest labour productivity growth (11.9%), followed by accommodation and food services (6.0%), both of which also recorded significant declines in hours worked.

“There are positive signs in this data, but productivity still sits just above the average from 2015 to 2019. Governments will need to continue advancing productivity enhancing reforms to see these green shoots flourish into more meaningful productivity growth,” concluded Deputy Chair Robson.

The latest Quarterly Productivity Bulletin is accessible by clicking this link.