Treasury Secretary Warns of Decreased Productivity Due to High Number of New Workers Joining Company
Treasury Secretary Steven Kennedy disclosed that Australia had integrated a significant number of new workers into the workforce in a short period, resulting in lower productivity.
The Treasury has identified the surge in new workers as the cause of Australia’s productivity decline over the past year.
During a recent Budget Estimates hearing, Treasury Secretary Steven Kennedy shared his department’s insights on the country’s economy.
While the government remained optimistic about the job market’s strength, Kennedy acknowledged the productivity challenge, attributing it to a different factor.
Recent data from the Australian Bureau of Statistics revealed a rise of 434,900 jobs in the 12 months leading up to September 2024, compared to 394,300 the previous year.
Additionally, a Productivity Commission report indicated a 0.8 percent decrease in labor productivity across the economy in the June quarter, with a 0.5 percent increase in the 12-month period ending in June 2024.
“Labor productivity remained stagnant in 2023-24,” Kennedy stated. “This is partly due to cyclical productivity weaknesses caused by the robust labor market.”
“Initially, the influx of new workers is less productive on average than the existing workforce,” Kennedy explained.
“However, as these workers acquire skills and secure positions that align better with their abilities, their productivity will improve, leading to enhanced labor productivity outcomes.”
Another contributing factor to the productivity decline, according to Kennedy, is “capital shallowing,” where labor inputs outpace capital inputs.
“The capital supply cannot adapt quickly to the rapid employment growth due to the time required for investment decisions, construction, and installation of capital assets,” he noted.
Nevertheless, the secretary indicated that adjusting capital inputs and slowing down employment growth would result in an uptick in labor productivity growth.
While the workforce has expanded, a significant portion has been linked to taxpayer-funded government services such as the National Disability Insurance Scheme.
Improving Government Service Delivery Important: Secretary
Concurrently, Kennedy highlighted that Australia is not immune to the global decline in productivity.
“Other nations have also been experiencing prolonged productivity declines,” he remarked.
“Global productivity trends will impact us. If there is a worldwide productivity slowdown, it will reflect in Australia.”
Kennedy mentioned that the Treasury had revised Australia’s long-term productivity growth, lowering it from 1.5 to 1.2 percent given the prevailing economic conditions.
In light of global trends’ influence, the secretary stressed the importance of concentrating on controllable aspects like the efficiency of government service delivery to boost productivity.
“This will enhance the overall economy’s productivity, bringing us closer to optimal efficiency on a global scale, resulting in increased income for all Australians,” he emphasized.
