A new Xero Small Business Insights special report reveals that Australian small-business labour productivity is keeping pace with the national productivity growth, though it remains below pre-pandemic levels.
The Small business productivity: Trends, implications and strategies report highlights the fact that labour productivity in Australia was valued to be at $100.30/hour as of December 2023, which was within the 100-104/hour range in the three years prior to the pandemic. While this figure was above the $89.90/hour rate recorded at the height of the pandemic in May 2020, this was a decline from a high of $110.40/hour recorded in November 2022.
“As the main contributor to both GDP and employment, big businesses tend to have a strong influence on national level productivity, making it a reasonable proxy for big business productivity,” Louise Southall, Xero Economist, said. “Xero’s data shows thereʼs been a distinct slowdown in productivity over the past year. This decline was likely driven by both a slower sales performance and, with the labour market still tight, small businesses wanting to keep the staff they’ve trained to avoid the skills shortages they had post-pandemic.
“This has likely put pressure on already struggling small businesses, making it harder to increase profits, lift wages for staff and to keep prices low for customers,” Southall added. “At the economy level, the productivity decline is likely adding to inflationary pressures, and limiting economic growth.
“The finding that small-business productivity growth is equal to or higher than national productivity growth is unusual,” she continued. “A key reason that the results depart from other studies is most likely the make-up of the XSBI sample. All the small businesses in this data set use digital technology to help them run their business. This highlights how powerful digital adoption can be in boosting productivity.”
The report also notes that for the majority of the time from January 2017 to December 2023, New Zealand small businesses had the highest productivity of the three countries, followed by Australia and the UK. This contrasts the latest OECD’s national level productivity report, which ranks Australia ahead, followed by the UK and then New Zealand. The different rankings are likely due to differences in methodology, with the XSBI series measuring productivity for wage-earners only and the OECD measuring productivity for all employed.
“Small businesses are known as the engine room of our economy, and for very good reason,” Anthony Drury, Managing Director ANZ, at Xero, said. “They work hard, they are our nation’s biggest employer, and they drive connection in our communities. But the report shows that, since the pandemic, it’s getting harder to create the same amount of value for hours worked. We need small businesses to work smarter, not harder, and one action to improve productivity is to digitalise. Government can play a crucial role here by ensuring there are targeted incentives for businesses to digitalise and enabling them to embrace technology to drive.”
