Productivity takes hit from COVID crisis

The Productivity Commission says the impact of the COVID-19 recession was unprecedented and may have lasting effects on the economy's structure.
AAP / Politics

Some industries, including computer services, benefitted from the COVID-led switch to home working.

The impact of last year's COVID-19 crisis on productivity was unprecedented and its lingering effects may alter the structure of the economy in the long term, the Productivity Commission says.

In a new report, the commission says the 2020 recession was much shorter and sharper than on previous occasions.

During the initial lockdown, output fell faster than previous recessions, but by December employment and output had nearly returned to pre-COVID levels.


The commission found that while overall labour productivity rose weakly, multifactor productivity - a measure of how well the economy uses its resources to produce output - fell for the first time in nearly a decade.

"Productivity growth is a key contributor to our long-run prosperity. Our high standard of living is a direct result of gains in productivity over many decades," Productivity Commission chair Michael Brennan says.

However, even through these difficult times, some industries boomed.

"The strong growth in the output of computer systems and related services was driven by the needs of a workforce adapting to working from home due to COVID-19," Mr Brennan said.

The mining industry, especially oil and gas extraction, also experienced strong growth.

Improvements in unemployment figures reflect the containment of the virus and the removal of most domestic restrictions, combined with extraordinary levels of government assistance, primarily the JobKeeper wage subsidy and the cashflow booster program.

"Preventing business closures during the pandemic undoubtedly cushioned the downturn and helped smooth the recovery," Mr Brennan said.

"As the recovery proceeds, there will inevitably be some reallocation of labour and capital across firms and industries, which is part and parcel of a dynamic economy."

The report found some responses to the pandemic that emerged in 2020 may affect the structure of the economy and long-term productivity growth.

While there were fewer business closures than in previous recessions, which was likely due to changes in insolvency laws and subsidies, such as JobKeeper, they are now likely to rise as these programs have ended.

The commission expects more employees will likely work from home more frequently post-COVID, although it says it is unclear at this stage what the ramifications of this will be for productivity.

It also notes there was a surge in online retailing during the 2019/20 financial year, but it is unclear whether this is a temporary blip or an acceleration of a trend.