A new report from the Productivity Commission has revealed some of the underlying reasons for a sharp labour productivity slump in 2022-23.
A record-breaking increase in worked hours failed to generate the expected positive response in economic output, highlighting underlying structural issues in recent economic development.
“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.
The 2022-23 year marked the highest annual increase in hours worked by Australians in history, a 6.9% jump, but labour productivity over the same period fell 3.7%, in sharp contrast to the long-term average growth rate of 1.3%.
Despite the decline in labour productivity and slow hourly wage growth over the year, average incomes did increase, likely largely due to significantly higher hours worked.
Investment in productivity vital
“Australians’ incomes grew in 2022-23, mostly because they worked more hours, but productivity growth is about working smarter, not working harder or longer,” said Robson.
“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.
“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.”
On average, workers and labour productivity were weighed down by a lack of access to capital, as the capital-to-labour ratio fell by 4.9% in 2022-23, with the decline representing another record shift in Australian labour data.
“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,” said Robson.
“Further capital investment would help turn our strong employment growth into strong productivity growth.”