Productivity before and after COVID-19
Research paper
This paper examines the rapid rise, and subsequent rapid decline, in labour productivity over the COVID-19 pandemic.
It finds that this ‘productivity bubble’ can be divided into three phases:
- a ‘reallocation’ phase, where labour productivity rose as lockdowns were most severe and labour was diverted into relatively productive industries
- a ‘productivity gain’ phase, where labour productivity continued to rise as lockdowns eased and economic activity slowly rebounded
- a ‘productivity loss’ phase, where labour productivity declined rapidly and returned to its December 2019 level.
Australia’s productivity performance during the pandemic presents no clear long-term implications. This further emphasises the need to address Australia’s long-run productivity problem.
The big lesson of the COVID productivity bubble
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. New research from the Productivity Commission unpacks the causes of the bubble and finds 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,” said Deputy Chair Dr Alex Robson.
The report, Productivity before and after COVID-19, breaks the COVID-19 productivity bubble down into three phases.
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, these earlier productivity gains disappeared as the labour market surged.
Over the ‘productivity loss’ phase, growth in the capital stock (investment in the equipment, tools and resources we need to get the most out of our work) did not keep pace with the growth in hours worked. Additionally, many younger and less experienced workers joined the workforce in this period. These workers require time to gain the skills and experience needed to match the output of their 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,” said Dr Robson.
“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.”
Media requests
Media team – 02 6240 3330 / media@pc.gov.au
- Preliminaries: Cover, Copyright and publication detail, Contents, and Acknowledgments
- Overview
- Summary of the research
- Our approach
-
1. Industry composition
- 1.1 Why does industry composition matter to productivity?
- 1.2 Industry composition through the pandemic
- 1.3 Conclusion and potential for future work
-
2. The capital-to-labour ratio
- 2.1 Why does capital matter for productivity?
- 2.2 Capital and investment growth through the pandemic
- 2.3 Conclusion and potential for future work
-
3. The quality of the labour force
- 3.1 Why does labour quality matter to productivity?
- 3.2 The quality of the labour force through the pandemic
- 3.3 Conclusion and potential for future work
-
4. Growth in the care economy
- 4.1 Why does the care economy matter for productivity?
- 4.2 Changes to the care sector through the pandemic
- 4.3 Conclusion and potential for future work
-
5. Creative destruction, and firm entry and exit
- 5.1 Why does firm entry and exit matter to productivity?
- 5.2 Firm entry and exit through the pandemic
- 5.3 Conclusion and potential for future work
-
6. Labour mobility
- 6.1 Why does labour mobility matter for productivity?
- 6.2 Labour mobility through the pandemic
- 6.3 Conclusion and potential for future work
-
7. Supply chain disruptions
- 7.1 Why do supply chains matter for productivity?
- 7.2 Supply chain disruptions through the pandemic and the war in Ukraine
- 7.3 Conclusion and potential for future work
-
8. Changes to how people work
- 8.1 Remote work and hybrid work arrangements
- 8.2 COVID-19 restrictions at workplaces
- Conclusion and next steps
-
A. Measuring the effects of supply chain disruptions on labour productivity
- A.1 Price and quantity measure of supply chain disruptions
- A.2 Survey measure of supply chain disruptions
- Abbreviations
- References
We value your comments about this publication and encourage you to provide feedback.
