Service sector key to future wages growth

Australia’s economy, like that of almost all other rich countries, is increasingly dominated by its service sector.

If Australians are to experience ongoing wage and productivity growth, it will have to come largely from service industries, which account for 90 per cent of Australian employment and 80 per cent of output.

Slowing productivity and wage growth is a source of concern across the developed world, which has only been amplified by the economic challenges imposed by the COVID-19 pandemic.

The Productivity Commission’s report Things you can’t drop on your feet: an overview of Australia’s services sector productivity sheds light on the evolution of the services sector in Australia, busts some common misconceptions about services, and highlights the challenges associated with services productivity measurement and growth.

Services are very diverse. From cleaning to medicine, the skills service workers require vary tremendously, as have the sub-sectors’ productivity changes.

Some perceive service sector work as being poorly paid, yet services employees are paid more on average per hour than manufacturing workers. And services sector jobs overall are no more likely to be casual than other jobs in the economy.

Characteristics of some services can limit scope for their productivity growth. Many services are delivered face-to-face, improved business practices can be harder to implement and the quality of a service can be difficult to establish before purchase.

Digitisation is increasingly being used to overcome barriers to improvements in service sector productivity.

Technology is enabling services to be provided remotely, accelerated by forced changes during the COVID-19 pandemic. For example, increasingly, doctors are providing telehealth consulting, restaurants are joining online delivery platforms and office workers are using flexible work arrangements.

These are the sorts of technological innovations that increase household and firm choice, driving productivity and quality-of-life improvements.

The paper launches a new Productivity Commission series looking at individual service industries, their unique features and factors affecting their productivity performance with bespoke analysis.

The full report Things you can’t drop on your feet: an overview of Australia’s services sector productivity can be found at www.pc.gov.au

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