Productivity still below pre-Covid level

Labour productivity across small and medium-sized enterprises is keeping pace with big business but remains below pre-Covid levels, according to a new report from accounting software provider Xero.

Xero’s latest Small Business Insights report reveals there’s been a clear slowdown in small business labour productivity over the past year, piling more pressure on operators facing inflationary headwinds and a tight labour market.

According to data from more than 240,000 Xero small business customers, labour productivity – measured by comparing sales to hours worked – slipped to $100.30 per hour in December, down from its most recent peak of $110.40 in November 2022.

The measure generally tracked between $100 and $104 per hour in the three years prior to Covid-19, before plunging to as low as $89.90 in May 2020 amid business closures and disruptions that hit many during the pandemic.

Xero economist Louise Southall said the findings were a worry for the broader economy, with productivity declines likely adding to inflationary pressures and limiting economic growth.

“Xero’s data shows there’s been a distinct slowdown in productivity over the past year,” she said. “This decline was likely driven by both a softer sales performance and, with the labour market still tight, small businesses wanting to keep the staff they’ve trained to avoid the skills shortages.

“This has likely put pressure on already struggling small businesses, making it harder to increase profits, lift wages for staff and to keep prices low.”