Australia’s Productivity Deadlock Persists

Productivity Commission

Labour productivity fell by 0.8% across the economy in the June quarter, but rose by a modest 0.5% over the year to June 2024. This marks a return to the weak productivity growth trend of the five years leading up to the COVID-19 pandemic.

“During the pandemic, aggregate productivity rose but then fell as restrictions were eased. This bubble has now well and truly burst, and our productivity level remains at about its 2015–2019 average,” said Deputy Chair Dr Alex Robson.

The Productivity Commission’s Quarterly productivity bulletin – September 2024 shows the rise in the number of hours worked (1.1%) outpaced growth in output (0.2%) in the three months to June.

“Increasing productivity is still the surest path to sustainable increases in real wages and higher living standards,” said Dr Robson.

The report notes that while our overall productivity performance has reverted to pre-pandemic levels, the macroeconomic environment is different from five years ago, with higher levels of labour force participation and a lower unemployment rate.

Hours worked increased by 1.1% in the June 2024 quarter, regaining momentum after falling in the September and December 2023 quarters. Growth in hours worked reflected a 0.8% rise in the number of employed persons and a 0.3% increase in average work hours.

“While there was a brief interruption during COVID, Australia’s productivity deadlock has persisted through two very different economic environments. This suggests policymakers need to pay closer attention to the deeper structural issues at play,” said Dr Robson.

Over the 12 months to June, productivity in the non-market sector declined by 0.7%, while productivity in the market sector rose by 1%.

“Our productivity challenge is broad-based, but it is even greater and more pressing in the non-market sector,” said Dr Robson.

Key points
	A year has passed since the ‘COVID-19 productivity bubble’ and Australian productivity growth appears to have reverted to the same stagnant pattern as before the pandemic, despite the very different economic conditions.
	Labour productivity declined by 0.8% for the whole economy in the June 2024 quarter (an increase of 0.5% over the 12 months to June 2024). Growth in hours worked (1.1%) outpaced growth in output (0.2%) resulting in a decline in labour productivity. Labour productivity decreased in both the market sector (-0.7%) and the non-market sector (-0.9%).
	Hours worked has regained momentum after two quarters of negative growth in the September and December 2023 quarters, suggesting the labour market remains tight. Hours worked increased as the number of people employed increased by 0.8%, and hours worked per worker increased by 0.3%. Administrative and support services contributed to largest increase in hours worked growth, followed by retail trade and education and training.
	Labour productivity increased in half of the market sector industries. Labour productivity grew the most in arts and recreation services (7.6%) and electricity, gas, water and waste services (6.1%). In contrast, the largest falls were in administrative and support services (-4.2%) and retail trade (-3.6%).