Small business productivity slipping below pre-COVID levels
Small business labour productivity is managing to keep pace with big businesses but remains below pre-pandemic output, Xero data has revealed.
Productivity among small businesses across New Zealand, Australia and the UK has rebounded since the pandemic period but all three countries remain below their pre-pandemic average, based on research by Xero.
The research was based on aggregated data from more than 240,000 Xero small business customers. Based on average sales per hour worked productivity in Australian small businesses was generally between $100 per hour and $104 per hour in the three years before the pandemic.
Temporary business closures and disruptions saw this plunge as low as $89.90 per hour in May 2020, the report said.
As the disruption from the pandemic eased, productivity began to rebuild and reached its most recent peak in November 2022 of $110.40 per hour.
“This rise was most likely due to small business owners struggling to recruit new staff in the immediate aftermath of the pandemic, with many owners reporting difficulty in finding the right staff. This meant existing staff would need to work harder and be more productive,” it said.
More recently, during 2023, productivity fell again to $100.30 per hour at the most recent reading in December 2023.
“This is at the lower end of the pre-pandemic range. The decline in productivity during 2023 could be caused by the combination of a softer sales performance and still reasonably buoyant employment, as well as the impact of hiring staff when the unemployment rate is at historically low levels,” said Xero.
Xero economist Louise Southall said Xero’s data shows there has been a distinct slowdown in productivity over the past year.
“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 they had post-pandemic,” said Southall.
“This has likely put pressure on already struggling small businesses, making it harder to increase profits, lift wages for staff and keep prices low for customers. At the economy level, the productivity decline is likely adding to inflationary pressures, and limiting economic growth.”
As part of its analysis, Xero also compared small business productivity with that of large businesses.
“To do this comparison the XSBI data was adjusted to local currency, current prices and quarterly data so that it is on the same basis as the national-level GDP-based productivity measures,” the report said.
The analysis by Xero found that small business productivity growth, as measured by the XSBI data, tends to be equal to or higher than national-level (GDP/employee) productivity growth.
