COVID 'masked' issues at core of productivity problem: PC

The COVID-19 pandemic led to a "productivity bubble", in which measured labour productivity rose to a record high between January 2020 and March 2022 before returning to pre-pandemic levels in June 2023, the Productivity Commission (PC) has revealed.

New research from the PC investigated the causes of the bubble and found that it "only served to mask the issues" at the heart of Australia's ongoing productivity problem.

"The COVID-19 pandemic was a rollercoaster for productivity, but we are now back to the stagnant status quo," PC deputy chair Alex Robson said.

The report, Productivity before and after COVID-19, broke the COVID-19 productivity bubble down into three phases.

It found that in the initial "reallocation phase", from December 2019 to December 2020, productivity grew as lockdowns shifted the workforce away from industries with lower labour productivity, such as accommodation and food services, towards more productive sectors.

In the second phase, between December 2020 and March 2022, labour productivity continued to rise due to genuine improvements in output per worker. The labour market gradually recovered as lockdowns wound down and output returned faster than employment grew.

In the "productivity loss phase" of the bubble, between June 2022 and June 2023, earlier productivity gains disappeared as the labour market surged, the report found.

The report said over the loss phase, growth in the capital stock - investment in the equipment, tools and resources needed to get the most out of work - did not keep pace with the growth in hours worked.

Additionally, many younger and less experienced workers joined the workforce during the period. Those workers required time to gain the skills and experience needed to match the output of more experienced colleagues.

"The big lesson of the COVID productivity bubble is that there are no shortcuts to sustainable productivity growth. Tackling our productivity problem will require dedicated effort and reform from business and government," Robson said.

"The PC will be handing five productivity inquiries to government this year with recommendations that can guide us on the path to sustainable productivity growth."