Australians are working longer hours, all while productivity declines.

According to the Australian Government’s Productivity Commission’s quarterly bulletin, productivity decreased by 2 per cent in the June 2023 quarter, as record-high growth in hours worked outpaced growth.

The June quarter also revealed that Australians worked more hours than ever.

This was predominantly due to the result of employed workers working longer hours rather than an influx of new entrants.

The increase can be attributed to:

• more hours worked by people already in employment, possibly to compensate for the significant recent decline in inflation-adjusted household net wealth.

• a historically tight labour market which was associated with record high participation rates, with more people entering the workforce and working longer.

• an unwinding of the COVID-19 pandemic restrictions in 2021-22, resulting in workers returning to work.

Expect to work longer and earn less

Earlier this year, Australian Treasurer Jim Chalmers warned that if the productivity trajectory remains on its current course, working weeks will be 5 per cent longer and incomes will be 40 per cent lower in 2063.

Productivity commission acting chair Alex Robson said productivity growth is about working smarter, not working longer or harder.

“Negative productive growth means that on average, Australians worked more hours just to produce and buy the same amount of goods and services.

“In other words, Australians have been running to stand still,” Dr Robson said.

“Our productivity challenge has been urgent for many years. We will only see sustainable, long-term productivity growth if we increase investment and innovation.”

The research found 15 out of 19 industries experienced a decline in labour productivity over the 2023 June quarter.

Media and telecommunications industries, mining, electricity, gas, water, and waste services drove a 1.4 percentage point fall in total labour productivity – collectively accounting for 46 per cent of the overall labour productivity decline.

The arts and recreation services industry saw the largest decline in productivity (-7.6 per cent), as hours worked increased by 9.3 per cent while output rose only 0.9 per cent.

Chamber of Commerce issues dire warning

Australian Chamber of Commerce and Industry (ACCI) chief executive Andrew McKellar said Australia will enter a twilight era of economic lethargy and lower standards of living if the productivity commissions stark warnings go unheeded.

“The Productivity Commission is telling us what we already knew – productivity has been going backwards in the past year,” said McKellar. 

Also, he adds that Australia slipped behind other nations, down ten places in the OECD’s productivity rankings in the five decades to 2020.

“Australia needs to get back on a path of strong productivity growth to sustain a high level of economic activity over the long term. We need to be doing much better than what has been the case for the past 20 years.”

The ACCI recommends removing impediments, and better incentivising individuals and businesses to be innovative and invest.

“Businesses require a greater certainty and more support for investment, particularly in a period of rising interest rates and increasing uncertainty due to slowing demand. 

“Lifting productivity is the only way we will be able to afford the healthcare, education and disability support programs that Australians expect.”

Tax reform is fundamental

McKellar is calling for a tax system that delivers a mix of incentives that will make them globally competitive, stimulate investment in research and development, and support in becoming more efficient and productive.

“We need a regulatory system to make it easy for businesses to establish, operate and grow in a dynamic, technology-driven economy, rather than the complicated and prescriptive current process.

He said the ongoing digitisation of the economy is another enabler of productivity.

“[We need to] encourage more investment in software, information technology, digital literacy and innovation, particularly for newer firms, and small and medium enterprises.”