Productivity-Enhancing Labour Reallocation in Australia†

Using firm-level data, we examine the efficiency of labour reallocation in Australia over the period 2002-16. We find that more productive firms account for a higher share of employment - particularly in trade-exposed sectors - and Australia appears more successful at reallocating resources to high-productivity firms than many OECD countries. But the propensity for high-productivity firms to expand and low-productivity firms to contract (or exit) has declined over time. Counterfactual estimates suggest this decline in productivity-enhancing labour reallocation is a key feature of Australia's productivity slowdown.