Labour shortages & rising costs stall Australia’s productivity

New research indicates that labour shortages, low employee engagement, and the rising cost of technology and supplies are key factors contributing to Australia's stagnating productivity. The findings suggest that many businesses lack the staff, resources, and investment capacity needed to lift efficiency, with one in three reporting difficulties recruiting skilled workers.

Labour shortages

Almost a third (31%) of businesses surveyed said sourcing skilled staff is their main productivity challenge. Low employee engagement is also taking a toll, affecting 24% of businesses. The survey, conducted with a nationally representative sample of 226 business owners and decision-makers, highlights significant people-related constraints across sectors.

Alon Rajic, Founder of Small Business Loans Australia, said:

"Our research shows that people are key to Australia's productivity problem. They're working harder with fewer resources, while businesses struggle to source the people, stock and technology to grow."

Technology costs

One in five businesses reported that the high cost or lack of investment in technology and equipment is holding back productivity. The data points to a cycle where reduced profitability and staffing pressures hinder the ability to adopt tools that could enable greater efficiency. Supply and stock delays, along with falling customer demand, remain constant challenges for around 20% of respondents each.

Growth barriers

Australia's productivity faces continued downward pressure. According to official data, the 20-year average annual growth rate of labour productivity was just 0.8% for 2023-24, compared with 1.8% in 2003-04. External economic factors combined with internal business constraints are hampering potential output and competitiveness across the economy.

Policy needs

Asked what would most assist productivity, over one-third (38%) of businesses nominated more affordable access to technology. A similar proportion (36%) said reducing administrative burdens and introducing stronger productivity incentives would offer tangible benefits. Training in AI and digital tools was cited by 29%, while 24% wanted improved access to finance or a greater pool of skilled workers.

"Businesses will do their part to lift productivity, but they need industry and Government to make it easier, not harder. Running a business is becoming increasingly challenging, and businesses are telling us they need the right regulatory environment and access to skilled talent and affordable technology to remain competitive," said Rajic.