Remember those early pandemic days when everything went online, Zoom was life, and we were told productivity was through the roof? Turns out, it was all a bit of a mirage.

New research from the Productivity Commission (PC) has revealed that Australia’s record-breaking labour productivity gains between 2020 and 2022 were part of a short-lived “COVID productivity bubble”, and that bubble has well and truly burst.

“The COVID-19 pandemic was a rollercoaster for productivity, but we are now back to the stagnant status quo,” said Productivity Commission Deputy Chair Dr Alex Robson.

The new report, Productivity before and after COVID-19, digs into the data and unpacks the three stages of this productivity rollercoaster. There are several key takeaways for small businesses looking to grow sustainably.

Phase one: The productivity ‘reallocation’ illusion

Between December 2019 and December 2020, productivity appeared to surge. But it wasn’t because we were all suddenly working harder or smarter — it was because lockdowns shut down low-productivity industries like hospitality, tourism, and the arts.

With the economy skewed towards sectors that naturally produce more per hour (like finance and tech), it looked like we were getting more done. In reality, it was just a shift in who was working and where.

So if you were a café owner wondering why the headlines were saying productivity was booming while you were scrubbing tables and delivering takeaway lattes, now you know: it wasn’t you, it was the numbers.

Phase two: Real gains, briefly

From December 2020 to March 2022, we did see some genuine productivity growth. As lockdowns eased and businesses reopened, output started bouncing back faster than employment. Fewer workers, more output = boomtime.

Fifteen out of 19 industries clocked productivity gains during this period. But, here’s the rub: only two industries managed to hold onto those gains a year later: information media and telecommunications, and admin support.

Phase three: Reality check

From mid-2022 to mid-2023, the productivity bubble popped. As the economy surged back and businesses scrambled to hire, productivity tanked back to pre-pandemic levels.

There are a couple of reasons why.

Too many hours, not enough support: Capital (like new tech, equipment, and machinery) didn’t keep up with the hours worked. Basically, people had more work, but not the tools to do it faster or better.

Fresh faces = slower output: Lots of new (and often younger) workers joined the workforce. This was great for employment figures, but new hires naturally take time to get up to speed.

According to Dr 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,” Robson said.

So, what can Aussie entrepreneurs and small business owners take from all this?

Don’t chase quick fixes
The COVID boost was a fluke, not a formula. Sustainable growth means investing in the right tools, tech, and training — not relying on one-off shifts.

Invest in your people
As new workers join your team, give them time and support to build their skills. A smart onboarding plan today could mean big gains tomorrow.

Think long-term, not crisis-mode
The businesses that come out strongest are the ones that play the long game. Look beyond lockdown pivots and focus on improving processes, systems and innovation.

Push for policy support
With the PC promising five new productivity inquiries this year, now’s a good time to keep an eye on reforms that could make life easier for small business.

Australia’s productivity has returned to its pre-pandemic level. So if small business owners want to boost their productivity, there are a few lessons to be gleaned from the report. Work smarter, invest in tools and skills and lobby for reforms to cut red tape and make higher productivity easier to achieve.

There are no shortcuts…

Want more? Get our newsletter delivered straight to your inbox!  Follow Business Builders on Facebook , X , Instagram , and LinkedIn.