1) Australian firms have fallen behind global productivity frontiers in many industries as firm entry rates have declined, slowing technology diffusion. 2) Declining business dynamism, seen through lower firm entry rates, job switching rates, and excess job reallocation, has undermined productivity and wage growth in Australia. 3) Weaker firms are surviving longer in Australia as reallocation towards more productive firms has slowed, contributing to rising incumbency bias.

1. Keeping pace with
technological change: the role
of capabilities and dynamism
Meghan Quinn
Deputy Secretary, Macroeconomic Group
The Treasury

2. Australian firms have fallen behind the
global frontier
Average of firm-level labour productivity
across each 2-digit sector (log, 2002=1)
Australian firms fell further behind the global
frontier in sectors where firm entry declined more
Share of Australian firms that have adopted
various technologies
… bringing into closer focus the barriers to
technology diffusion
Source: Andrews, D, D. Hansell and A. Wheeler (2019), “Reaching for the Stars: Australian Firms and the Global Productivity Frontier”,
Treasury Working Paper forthcoming.

3. Declining dynamism undermines
productivity and wages growth
3
0
3
6
9
12
15
Firm entry rate Job switching rate Excess job reallocation rate
Early 2000s Recent
%
incentives for
incumbents to adopt
Less job creation
Fewer outside
options wages
growth-enhancing reallocation
and high wage jobs
Source: Treasury calculations based on ABS BLADE and de-identified microdata .

4. Declining reallocation and rising
incumbency bias
4
Weak incumbents
increasingly survive
Reallocation towards more
productive firms has slowed
Source: Andrews, D and D. Hansell (2019), “Productivity-Enhancing Labour Reallocation in Australia”, Treasury Working Paper forthcoming.