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New insights into Australia’s productivity problem

Productivity Commission Media Release

A new report from the Productivity Commission shows that labour productivity fell sharply in 2022-23, as a record-breaking increase in hours worked failed to generate a similar increase in economic output.

The Annual productivity bulletin 2024 provides the most complete picture to-date of the drivers of Australia’s productivity decline over 2022-23.

“We now have a clearer understanding of what’s behind Australia’s productivity slump. Sharp increases in working hours have seen productivity decline, but this makes policies to boost productivity even more important,” said Productivity Commission Deputy Chair Alex Robson.

Labour productivity fell by 3.7% – well below the long-term average growth rate of 1.3%. This result was driven by a 6.9% increase in hours worked by Australians – the highest annual increase in history.

The decline in labour productivity was accompanied by slow hourly wage growth over the year. Despite this, average incomes increased.

“Australians’ incomes grew in 2022-23, mostly because they worked more hours. But productivity growth is about working smarter, not working harder or longer. Given our labour force participation rate is near its historical high, we won’t be able to rely on working harder or longer as a source of income growth moving forward,” said Deputy Chair Robson.

“What’s worse, we know nominal wage growth without productivity growth can fuel inflation. Sustainable, long-term wage growth can only be realised by securing productivity gains.”

The capital-to-labour ratio fell by 4.9% in 2022-23 – the highest recorded decline in Australia’s history. This meant on average, each worker had access to a shrinking amount of capital, which weighed down labour productivity.

“Employment growth easily outpaced capital deepening in 2022-23. So while a record number of Australians had jobs, employers didn’t invest in the equipment, tools and resources that are needed to make the most of employees’ skills and talents. Further capital investment would help turn our strong employment growth into strong productivity growth,” said Deputy Chair Robson.

The decline in labour productivity over 2022-23 reversed the gains seen during the earlier stages of the COVID-19 pandemic.

“Measured productivity rose rapidly during COVID-19, mostly due to a temporary sectoral shift in employment, away from low productivity industries to higher productivity industries. This data shows that this pandemic ‘productivity bubble’ has well and truly burst,” said Deputy Chair Robson.

The report also found that wage decoupling – the extent to which productivity growth fails to drive growth in real wages – was slightly higher than previously thought for most Australians, partly due to revisions in the Australian Bureau of Statistics historical data.

“The relationship between wages and productivity weakened slightly, but it is still strong over the long run. This reminds us that productivity growth is still the only path to sustainable growth in real wages over time,” said Deputy Chair Robson.

 

When released, this publication can be accessed from the Commission’s website at www.pc.gov.au

 

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3 comments

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  1. Pingback: New insights into Australia’s productivity problem - independent news and commentary Australia

  2. Clakka

    As an estimator / quantity surveyor / project manager for 40 years, and a forensic specialist in delay / disruption and CPM for a multiplicity of clients. The report states emphatically, what has stuck out like dogs balls to me for many years. The main reasons for ‘productivity’ decline rests with the reckless rush to capitalize with inadequate specs and (loophole filled) contracts, the feckless corporate boards and toady managers, and their greedy eyes on treasury raiding and playing on money & hedge markets and buy-outs, whist disregarding project plant & equip needs and treating employees as mere cannon fodder.

    It is all about the massive churn, and is endemic in Oz and other (1st world) ‘pirate’ economies.

    The honest managers / engineer and the like either leave to start cafes, florists and the like (the brain drain), or become corrupted into the system.

    This attitude (unknown to most outsiders) and guileful reportage of losses to workers is used as a whipping post. But ultimately the worker instinctively knows, and the whole deception massively disincentivizes the workforce who understandably become cynical, whilst otherwise wishing to be part of success.

  3. Caz

    Can we stop using averages to analyse and start using median especially when talking about wages. More analysis needed.

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