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Productivity growth remains below pre-pandemic levels for Australia’s small suppliers

Small Business Productivity

Australian small businesses are seeing labour productivity keep pace with big business but growth remains below the pre-pandemic average, according to a new report from Xero.

Based on aggregated data from more than 240,000 Xero small business customers, the report examines the current state of small business labour productivity across Australia, New Zealand and the UK.

Productivity, adjusted for inflation, was found to generally be between $100.00 per hour and $104.00 per hour in the three years prior to the pandemic, according to the findings, but temporary business closures and disruptions saw it plunge as low as $89.90 per hour in May 2020.

Peaking in November 2022 at $110.40 per hour, productivity then fell to $100.30 per hour in December 2023, which sits at the lower end of the pre-pandemic range.

Louise Southall, Xero economist, said Xero’s data shows there’s been a distinct slowdown in productivity over the past year.

“This decline was likely driven by both a softer 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,” said Southall. 

“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. At the economy level, the productivity decline is likely adding to inflationary pressures and limiting economic growth.”

Elsewhere, the report found that small business productivity growth, as measured by the Xero Small Business Insights (XSBI) data, is equal to or higher than national level productivity growth – which was consistent across all three regions.

Southall said that this is “unusual” and suggested 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,” she said.

Anthony Drury, managing director ANZ, Xero, said small businesses are known as the engine room of our economy and for good reason, but they need to examine the way in which they work.

“They work hard, they are our nation’s biggest employer, and they drive connection in our communities. But Xero’s 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,” he said. 

“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 efficiency. By lifting small businesses up, we can strengthen the economy overall.”

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