Australia's Looming Productivity Crisis: Unseen Consequences Unveiled

Australia's Looming Productivity Crisis: Unseen Consequences Unveiled

Productivity Mar 24, 2025

Australia is on the brink of a productivity crisis, driven largely by a surge in non-market job sectors like healthcare and social assistance. According to Harry Ottley, economist at CBA, this shift has significant implications for the nation’s labour productivity and overall economic health. As stated in MacroBusiness, the emergence of 364,000 non-market jobs within a year dwarfs the growth within the market sector. This transformation is mostly fueled by the expanding health sector, a trend seen less in other developed nations.

Healthcare Boom: Growth or Gloom?

The rapid increase in health employment across Australia has overtaken many traditional industries, with health growing by 235,000 roles per year. This has left industries like hospitality and education grappling with job vacancies. Yet, what’s intriguing is that these roles, typically characterized by low productivity, cushion the workforce’s shift towards less productive areas.

Internal Shifts and External Results

With a reliance on initiatives such as the National Disability Insurance Scheme (NDIS), the healthcare employment boom appears sustainable yet problematic for productivity growth. Ottley warned about the dual drag caused by compositional shifts and stagnant productivity growth within non-market sectors.

Capital Conundrums and Economic Balance

The plight worsens with Australia’s capital stock growth lagging behind the population boom. Michael Plumb from the Reserve Bank of Australia highlights the slow growth in labour productivity due to stagnation in capital per worker. This imbalance is further exacerbated by high immigration, as Ross Gittins argues, demanding urgent capital investments to maintain living standards.

A Future Uncertain: Reforms or Stagnation?

If Australia remains passive in addressing these productivity issues, the nation’s standard of living may continue to flounder. The need for “capital deepening” and strategic improvements in infrastructure investment has become more urgent than ever.

The pressing question now is whether policy makers can implement necessary reforms in time to curb the adverse effects of these unfolding trends on Australia’s economy. Without intervention, the seeds sown today may indeed blossom into the productivity disaster Ottley fears.

Leith van Onselen, Chief Economist at the MB Fund and MB Super, offers a critical perspective on these ongoing developments. Having served with both the Australian and Victorian Treasuries, van Onselen’s insights carry a profound resonance with Australia’s economic trajectory.

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