Drop in job switching holding back the economy

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Australians aren’t moving between jobs as often as they used to and research suggests the drop-off is hurting productivity and making the entire country worse off.

The non-partisan think tank e61, in a paper to be published on Monday, found that impediments to job switching such as non-compete clauses and interstate differences between occupational licences were making it harder for businesses to become more efficient and productive.

Workers aged 25 to 34 are more likely to move and be more productive than older workers.Credit: Alamy

The federal government has launched a two-year competition review, headed by public infrastructure and finance expert Kerry Schott, to examine possible impediments to competition across the economy.

There are growing concerns globally that the domination of certain sectors, from technology to supermarkets, by a handful of businesses is reducing competition, which in turn is curbing productivity improvements.

e61 analyst Jack Buckley said there was traditionally a large productivity gap between the company a worker left and the one they joined. On average, the new firm was 13.1 per cent more productive than the old one.

Workers aged 25 to 34 were more likely to move and be more productive than older workers.

But Buckley said there had been a slowdown in the movement of people to different jobs, which was contributing to Australia’s drop in productivity.

The productivity gap between firms people left and then joined has halved since the mid-2000s in a sign that the gains from workers moving between businesses were being lost.

“Declining labour mobility could have contributed to Australia’s aggregate productivity slowdown. Our work shows that workers tend to move to firms that are [on average] more productive. But this tendency appears to have weakened,” he said.

“Making it easier for workers to switch jobs could help boost productivity. Australian workers currently face a number of barriers when looking to move to a more productive firm.”

Last week, the International Monetary Fund used its review of the Australian economy to urge governments to develop new structural policies to boost productivity.

It said the competition policy review, the review of skilled migration settings and the development of a migration strategy would all help to boost dynamism across the economy.

“Efforts to jump-start productivity growth should be a priority. Like in many advanced economies, Australia has experienced a sustained decline in productivity growth in recent decades,” it said.

“This has contributed to higher unit labour costs, reducing Australia’s competitiveness.”

Treasury secretary Steven Kennedy recently revealed to a Senate committee that a lack of competition in some parts of the economy and the use of non-compete clauses might be contributing to the slowdown in productivity growth.

Treasury secretary Steven Kennedy says a lack of competition in parts of the economy may be holding back productivity growth.Credit: Alex Ellinghausen

“We do take seriously what appears to be declining dynamism over time in the Australian economy. There’s some evidence of concentration in markets,” he said.

Buckley said the growth of non-compete clauses, which prohibit a person from moving from one company to another in the same field, had accelerated over the past 15 years and were now a default option in many employment contracts.

He said such clauses hindered employees moving to firms that might be better managed or use capital more efficiently.

“Removing or limiting the use of non-compete clauses would help remove one source of friction behind the decline in job mobility,” he said.

Buckley said other impediments to job movement included different job licences between states as well as property stamp duties.

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