Productivity back to lacklustre pre-pandemic levels: report
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The news: Productivity has slumped back to pre-pandemic levels, with labour productivity dropping 0.8% in the June quarter.
The numbers: In the year to June, 2024, labour productivity improved 0.5%, which the Productivity Commission in its latest quarterly bulletin described as "modest" and a return to the weak growth trend seen in the five years before the pandemic.
The number of hours worked increased 1.1% in the three months to June, which significantly outpaced the 0.2% output increase. The increase in the number of hours worked aligned with a 0.8% increase in the number of people employed, with the hours worked per person up 0.3%.
The biggest rise in hours worked was in administrative and support services roles, with retail trade, education and training also experiencing big rises in hours worked. The labour market remains tight.
In the 12 months to June, non-market sector productivity declined 0.7%. Market sector productivity increased 1%.
Half of the 16 market sectors measured recorded labour productivity growth in the June quarter, but only three drove the majority of the headline decrease.
The biggest labour productivity increase was recorded in the arts and recreation sector, followed by electricity, gas, water and waste services. The slump was most pronounced for administrative and support services, retail trade and education and training.
The context: Productivity is becoming a more significant focus for economic policymakers as the improvements during Covid-19 fade away. Productivity is linked to higher wages and improved living standards.
The Reserve Bank noted in its latest meeting minutes that productivity remains at 2016 levels. RBA governor Michele Bullock has previously warned that sluggish productivity levels mean businesses are unable to pass through wage rises. There are concerns this could risk higher interest rates.
What they said: "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," Productivity Commission deputy chair Alex Robson said.
"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.
"Increasing productivity is still the surest path to sustainable increases in real wages and higher living standards.
"Our productivity challenge is broad-based, but it is even greater and more pressing in the non-market sector."
