Government Job Surge Slows National Productivity Growth

Australia's focus on expanding care and bureaucratic roles is increasing employment but weakening national productivity. This trend raises concerns about the long-term sustainability of the current growth model without triggering broader economic issues. Government-funded services have experienced a wave of new hiring, supported by more than $50 billion in annual spending from initiatives like the NDIS. However, productivity across the wider economy is beginning to suffer.

Over the past two years, 80% of new jobs have been created in sectors that rely heavily on government funding such as healthcare, education and public administration. These sectors are described as non-market because they are less responsive to economic forces like competition and pricing. The expansion aligns with election promises to strengthen public services and avoid cuts to government jobs.

Although these sectors provide essential services, they typically have lower productivity compared to private industry. Reserve Bank analysis shows that the rising share of non-market employment has reduced overall productivity growth by about 0.3 percentage points over the last seven years. Since 2000, private sector productivity has increased by 35% while non-market productivity has grown by just 2%. This growing gap helps explain why wage growth has remained sluggish in spite of record job creation.

Australia’s leading economic advisors are now warning that an ongoing dependence on public sector employment could hold back long-term growth unless productivity improves. Experts argue that improving care quality should not compromise economic outcomes. At the same time, they recognize the challenge of balancing social investment with responsible management of national income.

Treasury is preparing for a major roundtable in August to address the productivity shortfall. This meeting will involve policymakers, business leaders and unions. The government is seeking solutions that support both social and economic goals, with a focus on smarter use of technology, better training and more targeted investment in public services. Initial findings suggest some sectors, including parts of healthcare, may be delivering hidden productivity gains. However, many of these improvements are still not adequately measured.

Source: Australian Financial Review, Australian Institute, Reserve Bank of Australia

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