The debate about the 'non-market sector' is confused, ABS official says

Be wary of consultants who publish simplistic graphs on LinkedIn about Australia's productivity problem.You may have seen a graph like this doing the rounds recently:Hours worked in the market and non-market sector. (Source: Jason Annabel, Australian Bureau of Statistics)It divides Australia's labour force into two sectors and shows the growth in "hours worked" in both sectors.It shows that hours worked in the "non-market sector" (the orange line) have grown much faster than hours worked in the "market sector" (dark blue line) for almost 20 years.And the takeaway from the graph seems obvious.Since the non-market sector apparently refers to publicly-funded jobs like teachers, nurses, aged care workers, disability care workers, policing, defence, and other government employees, the rapid growth in non-market hours means that the size of government is getting out of control. It's no wonder that labour productivity is going backwards in Australia, right? Employment in the non-market sector is overwhelmingly funded by government (i.e. your taxes)! It means the state is outrunning its host! Sorry. If you believe that then you're being misled. The reality is quite different.Confusion reignsJason Annabel, a senior researcher at the Australian Bureau of Statistics (ABS), has fascinating things to say about this topic.He spoke about it, in a little seminar, at the Economic Society of Australia's annual conference in Canberra two weeks ago."When we talk about the non-market sector, we're talking about three specific industries: education, healthcare, and public administration," he said."My sense is there's been a little bit of confusion over the last few years."There's been discussion around what's happening in the non-market sector, and it feels to me as though in some quarters there is some kind of confusion that the non-market sector equals the public sector or equals the government, and it's not."And the reason for that is that, even in these industries, you have production that is disposed of at economically-significant prices, so private hospitals, private schools, private universities, and so on," he said.He showed a slide with rough estimates of how much economic activity in the three industries in the "non-market sector" was actually market-based:Health: about 55-60 per cent market-basedEducation: about 30-35 per cent market-basedPublic admin and safety: less than 10 per cent market-basedAnd then he make a statistician's joke."Some bright spark 30 years ago decided that, you know, we were going to call these three industries "non-market" and then kind of walked away," he said."But the problem is it's got market activity in them. It kind of makes it a little bit difficult," he said.Hours worked in the non-market sector are growing, but what does it mean?So what's going on?The "non-market sector" is not the same thing as "the public sector" or "the government".The "non-market" concept comes from the "institutional sectors" framework in the National Accounts, so when you try to apply it to the concept of "industries" in the National Accounts you can run into problems.It creates a categorical confusion that can lead to misleading interpretations of data. Think about it this way.According to the ABS's Labour Account, this is what the growth in the number of filled jobs in the "market" and "non-market" sectors has looked like over the last 30 years:As you can see, between 1994 and 2008, the number of jobs grew at similar rates in both sectors.But from 2008 onwards, jobs in the non-market sector have grown at a much faster rate (driven by health care and social assistance jobs).Between 2008 and 2024, jobs in the healthcare and social assistance industry increased by a massive 1.5 million (+129 per cent), while education and training increased by 461,000 (+57.8 per cent), and public administration and safety increased by 228,000 (+34.4 per cent).That trend seems really worrying, right?Well, the Labour Account also categorises jobs by "private sector" and "public sector", and those categories tell a very different story to the "market" and "non-market" categories.They show that, between 2010 and 2024, jobs in the private sector increased by 3.3 million (+32.7 per cent) and public sector jobs increased by 570,000 (+31 per cent), so private and public sector jobs actually increased by the same proportion.In September 2014, private sector jobs accounted for 85 per cent of total filled jobs, and more than a decade later, in March 2026, it was 85.1 per cent — so there has been practically no change in the proportion of private sector to public sector jobs in the last 12 years.That doesn't match the narrative that Australia has supposedly experienced a dangerous explosion in public sector employment in recent years.How could that be? Well, as the ABS reminds us, while around 90 per cent of public sector jobs are in the three non-market sector industries, there is a huge number of private sector jobs in those industries too. For example, in the March quarter, around 75 per cent of jobs in the health care and social assistance industry were in the private sector, not the public sector.And where has the growth occurred in the last five years?Between 2020 and 2025, private sector jobs in the "non-market sector" increased by 38 per cent (726,000 jobs) while public sector jobs increased by 18.4 per cent (332,000 jobs).In the March quarter of 2020, the private sector accounted for roughly 52 per cent of the jobs in the non-market sector, and that increased to 55 per cent by the March quarter of 2025.It's amazing what can happen to the "narrative" when you apply different conceptual categories to the data.Significant growth in employment in healthcare and social assistance industrySo where does that leave us?There is an important story to tell about the increase in "hours worked" in the non-market sector. It is about the large growth in private sector jobs and public sector jobs.But why has employment been increasing so much in the non-market sector?Well, the biggest driver of the jobs growth, by a mile, is the healthcare and social assistance industry.By subdivision, social assistance services increased by 662,000 filled jobs (+508 per cent) between 1994 and 2024. That subdivision captures activities including childcare services, disability assistance and aged care assistance services.The ABS says growth in that subdivision is influenced by the aging of Australia's population and the rollout of the NDIS, as well as the rise in demand for childcare with higher labour force participation.There has clearly been a big shift towards the "care economy" in the last 30 years.But what did we expect to happen as our population aged? What did we expect parents to do with young children when both parents have to work in the paid workforce? And one consequence of the phenomenon is that there's been a significant increase in the number of jobs in the economy that don't sit comfortably with the traditional way of measuring "productivity," since the healthcare and social assistance, childcare, and aged care industries are arguably more concerned with "outcomes" than "outputs"."Output" refers to goods and services produced, whereas "outcome" refers to the results or impacts of the goods and services provided.Mr Annabel gave two examples of "outcomes" in his seminar:Health: longer life expectancy, faster recovery from surgery, shorter waiting times for admission.Education: better exam performance, better lifetime earning capacity, higher level of intelligence.It's why some experts are increasingly talking about the need to develop new ways of measuring productivity to better capture the changes in the economy that have been geared towards improving "well being" rather than "productivity" per se.Remember, 75 per cent of jobs in the healthcare and social assistance industry are private sector jobs, not public sector (according to ABS's Labour Account).And those jobs are increasing because older Australians, young parents, and people with disability are paying for them, which means they're obviously meeting an important need for people.