Why job mobility could be the key to the productivity slowdown

Productivity across Australia has taken a big hit in the past few years. Job switching may be an effective way to help deal with this economic trouble.

The Treasury noted that between 2010 and 2020, Australia’s labour productivity growth was the slowest in 60 years, with the average growth in productivity over the last 20 years hitting around 1.2 per cent.

A key factor in this decline, according to the government, is a decline in “business dynamism”. This term is described as “a vital process to continued productivity and sustained economic growth. Typically, it is measured by the rate at which firms enter the market, grow, shrink, and then leave the market.”

The results of this decline have reportedly resulted in a loss in innovation and tech adoption, causing a lack of productivity growth for many businesses. The Treasury claimed boosting the nation’s productivity “will require investing in Australians’ skills, improving business dynamism, boosting digital adoption, and realising the opportunities of the net zero transformation and growth of the care economy”.

Research from e61 Institute suggests that job switching could be an effective tool in improving Australia’s productivity growth issue.

“When a worker moves to a more productive firm, this can make them more productive if the higher productivity of their new firm is due to better management, firm-specific know-how or more and better use of capital (computers, machines, etc.). If this is the case, then workers switching to more productive firms could help boost aggregate productivity,” said e61 Institute chief executive Michael Brennan.

According to e61 Institute’s research, when switching jobs, workers, on average, move to companies that are 13.1 per cent more productive than those they leave. Young workers were more likely to take advantage of this.

This suggests that improved job mobility options could help tackle the productivity growth stagnation. Mr Brennan believes it’s up to policymakers to see the benefits in this opportunity.

“There are policy levers available to governments that could decrease barriers for workers looking to switch jobs and move to better-performing firms. In turn, this could help boost Australia’s productivity growth,” said Mr Brennan.

“Better regulation to limit the use of non-compete clauses would remove one growing source of friction. Reforms to occupational licensing and the replacement of stamp duty taxes with a land tax could also help create a more mobile labour force.”

Jack Buckley, e61 Institute’s research author, has utilised this data to expose these trends, highlighting his concern.

“Our research shows that the difference between the productivity of the firms’ workers leave and the firms they join has fallen over time. We’ve seen the margin shrink from 14.9 per cent in the mid-2000s to just 6.7 per cent in the late 2010s,” Mr Buckley explained.

“Our research also found that the share of workers moving to more productive firms when they switch jobs is falling. So, while workers still tend to move to more productive firms, this tendency is weakening. Between 2003 and 2006, the share of workers that moved to higher-performing firms was 54.2 per cent, falling to 52.8 per cent between 2015 and 2019.”

Jack Campbell

Jack is the editor at HR Leader.