Hybrid and remote working arrangement were not the culprit for declines in productivity in the aftermath of the Covid-19 pandemic, a new report from Australia’s Productivity Commission has found.

The reports details the temporary rise in labour productivity during the COVID-19 pandemic, which it describes as a ‘productivity bubble’. This period saw productivity reach record highs from January 2020 to March 2022, before returning to pre-pandemic levels by June 2023.

The report, titled ‘Productivity before and after COVID-19’, outlines three distinct phases of this productivity bubble: ‘reallocation’, ‘genuine improvements’, and ‘productivity loss’. During the ‘reallocation’ phase, from December 2019 to December 2020, productivity increased as the workforce shifted from lower productivity industries to more productive sectors, largely due to lockdowns.

In the subsequent phase, from December 2020 to March 2022, productivity continued to grow. This was attributed to genuine improvements in output per worker as the labour market began to recover. However, the final phase, termed ‘productivity loss’, saw these gains dissipate between June 2022 and June 2023. This was due to the labour market’s rapid expansion, with capital stock growth failing to keep pace with the increase in hours worked.

“The COVID-19 pandemic was a rollercoaster for productivity, but we are now back to the stagnant status quo,” said Deputy Chair of the Productivity Commission, Dr Alex Robson. “The big lesson of the COVID productivity bubble is that there are no shortcuts to sustainable productivity growth. Tackling our productivity problem will require dedicated effort and reform from business and government.”

The report challenges widely held beliefs among business leaders that work from home arrangements have had a negative impact on productivity. While evidence on the impact of working from home is still evolving, most studies cited in the report find hybrid work to be neutral or positive for productivity.

The report also highlights the challenges faced during the ‘productivity loss’ phase, particularly with the influx of younger and less experienced workers who require time to develop skills and experience.

“The PC will be handing five productivity inquiries to government this year with recommendations that can guide us on the path to sustainable productivity growth,” said Dr Robson.