Stronger than average jobs growth and monthly sales growth on par with the rest of the country led South Australia to report the lowest small business labour productivity of all states and territories in mainland Australia.

According to a new report from accounting software firm Xero, just Tasmania recorded lower productivity than SA, with the Apple Isle recording $89 of sales per hour worked, compared to SA’s $97.20 of sales per hour worked.

The national average was $100.30/hour, with Western Australia recording the highest rate of productivity in the country at $102.50/hour. It was followed by Victoria at $101.90/hour and New South Wales at $101.10/hour.

Xero’s “Small business productivity: Industry and regional trends” report looked at small businesses with annual sales of less than $50 million and uncovered disparities in small business labour productivity across industries and regions.

The most productive Australian industry was wholesale trade ($214.20/hour), while hospitality was the worst performer generating just $40.20/hour.

A decline in productivity was experienced across all industries according to Xero, while all regionals also experienced a drop in productivity compared to 2022.

Speaking to InDaily, Xero economist Louise Southall said there were two components to labour productivity: sales and hours worked.

“South Australian small businesses recorded average monthly sales growth in 2023 of 8.3 per cent year on year, which coincidentally was exactly the same across the whole of Australia,” Southall said.

“The combination of average sales growth and stronger than average jobs growth likely explains why, overall, South Australia had labour productivity below the national average in 2023.

“It may seem contradictory to have stronger than average jobs growth when sales are only maintaining with the national average, but it likely reflects the reluctance of South Australian businesses to let go of staff, despite a softer sales performance in 2023 in comparison to 2022.”

Southall said businesses could lift profits, pay higher wages and lower prices if productivity improves.

“Small businesses struggled to find staff when the economy reopened after the pandemic, and many would have also invested in training staff in recent years. This mean they could be reluctant to reduce their staff, even when sales growth is slowing,” she said.

“Businesses in regions with lower-than-average productivity might find it harder to lift profits, offer competitive wages or lower prices in comparison to businesses in regions with above average productivity.

“Similarly, at the economy level, boosting productivity allows for inflation to be lowered while minimising the impact on overall economic growth. A region with lower-than-average productivity might find it harder to tackle inflation without also hurting economic growth.”

Xero’s report found industries that embraced technology and invested in skills benefitted from strong productivity.

Agriculture and construction were two of Australia’s most productive industries between 2017 and 2023 according to the report that said agriculture embraced innovation to achieve a productivity rate of $126.60/hour, while construction businesses prioritised skills development to become the fourth most productive industry at $117/hour.

Conversely, hospitality had one of the lowest levels of productivity at $40.20 per hour, but Xero said its data suggested the industry was embracing tech to lift productivity in response to ongoing staff shortages.

“The hospitality industry has been able to lift its productivity post-pandemic, and it’s promising to see some operators turning to other solutions to boost efficiencies, such as QR codes or online ordering,” Southall said.