Xero data reveals the Australian industries and regions falling behind in small business labor productivity

Melbourne — 13 June, 2024 —Xero, the global small business platform, today released a Xero Small Business Insights (XSBI) special report, uncovering notable disparities in small business labor productivity across key Australian industries and regions.

The report, Small business productivity: Industry and regional trends, serves as a follow-up to the first XSBI productivity report released in April 2024, which highlighted a nationwide decline in small business productivity throughout 2023.

Key findings include:

• The most productive Australian industry in 2023 was wholesale trade (A$214.20/hour), while hospitality lagged at A$40.20/hour
• While a decline in productivity was experienced across all industries, 10 sectors, including manufacturing, agriculture and construction, surpassed the national productivity average (A$100.30)
• Western Australia emerged as the most productive state (A$102.50/hour), with average productivity 15% higher than Tasmania (A$89.00/hour), the least productive state

Louise Southall, Xero Economist, said: “Xero’s new productivity data offers timely insights into small business productivity trends, due to its focus on small businesses, speed to market, monthly measurement cadence, and objective, anonymised, aggregated data. This is in contrast to other productivity data which is generally broader, slower to be released and covers a longer time period. What the report reveals is differences in small business labor productivity, varying significantly across industries and states.”

Industry data highlights the importance of embracing technology and investing in skills

Despite being traditional industries, agriculture and construction were two of Australia's most productive industries between 2017 and 2023. Agriculture operators appear to have embraced innovation, achieving a productivity rate of A$120.60/hour in 2023, while construction businesses have seemingly prioritised skill development, recording A$117.00/hour — the fourth most productive industry.

Conversely, hospitality had one of the lowest levels of productivity at A$40.20/hour in 2023, but Xero’s data suggests the industry is embracing technology to lift productivity in response to ongoing staff shortages.

“The hospitality industry has been able to lift its productivity post-pandemic, and it’s promising to see some operators turning to other solutions to boost efficiencies, such as QR codes or online ordering,” Southall added.

All Australian regions experienced fall in productivity

The variation in labor productivity across states and the Australian Capital Territory was smaller than it was across the industries in 2023, with Victoria (A$101.90/hr) and New South Wales (A$101.10/hr) only marginally behind the most productive state, Western Australia (A$102.50/hour). All regions tracked in the XSBI data experienced a decline in productivity, compared to 2022. Queensland experienced the smallest decline in productivity (-2.3%), a few percentage points higher than the average national decline (-2.5%). Interestingly, the largest decline was seen in Western Australia (-4.0%).

“The decline in productivity in Western Australia over 2023 is surprising and most likely just a small pull-back in a state that has outperformed other areas of Australia in recent years. Western Australia is one of only two states that had higher productivity post-pandemic - average over 2022 and 2023 - than it did in the three years prior to the pandemic,” said Southall.

Small businesses can take steps to lift productivity

For practical tips on boosting productivity, Xero has compiled a guide covering key areas such as investing in better tools, refining processes, upskilling employees, and leveraging entrepreneurship skills.

Anthony Drury, Managing Director ANZ, Xero, said: “Labor productivity is an important indicator of small business success, and it’s clear some industries and states are thriving while others lag. We encourage small businesses to look at ways to digitalise to drive greater efficiencies in their day-to-day operations. This is particularly crucial for service-based businesses like hospitality and healthcare, which are currently tracking below the national productivity average.”

“Looking ahead, sustained productivity growth is critical for small businesses and the broader economy, and the government must introduce smarter policies that have widespread application for any location or industry,” Drury concluded.

You can find a copy of Small business productivity: Industry and regional trends here.

ENDS

Media contact

Jess Brophy | Head of Communications, Australia | +61 431 268 549 | jess.brophy@xero.com

About Xero

Xero is a global small business platform with 4.2 million subscribers. Xero’s smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xero’s extensive ecosystem of connected apps and connections to banks and other financial institutions provide a range of solutions from within Xero’s open platform to help small businesses run their business and manage their finances more efficiently.