Working longer, producing less

Turning around a declining trend: we need policy that supports productivity, and firms to focus on it: Productivity Commission

23rd Sep 13, 1:54pm by Guest

By Paul Conway and Lisa Meehan
NZ Productivity Commission

Introduction

[Our] paper provides a comprehensive assessment of New Zealand’s productivity performance for the whole economy and for individual industries.

It describes New Zealand’s productivity performance through time and in comparison to other OECD countries.

The focus is on illustrating productivity trends and the paper does not assess in detail the underlying reasons for New Zealand’s poor productivity performance (the subject of on-going Commission work).

The paper’s overall finding of a generally poor productivity performance – both at the economy-wide and industry levels – underscores the need for New Zealand’s policy environment to be strongly supportive of productivity growth and for firms to have a clear focus on improving productivity.

Many initiatives to improve productivity are also industry specific, requiring a detailed understanding of productivity performance at this level.

The paper provides that perspective and is intended to be a helpful resource for policy-makers and industry leaders. It also provides an important foundation for deeper debate on New Zealand’s generally poor productivity performance.

Why productivity matters

“…nothing contributes more to the reduction of poverty, to increases in leisure, and to the country’s ability to finance education, public health, environment and the arts.”
Alan Blinder and William Baumol (1993)

Productivity refers to the efficiency with which resources – such as labour and capital – are converted into outputs of goods and services.

Productivity improvements mean that more output can be produced using the same amount of resources, allowing countries to enjoy higher living standards, including improved health, education and environmental standards.

Productivity growth is a means to an end – improvements in wellbeing.

So while productivity growth contributes directly to higher incomes and material standards of living, this matters to the extent that it enhances the wellbeing of New Zealanders.

A society can also achieve higher incomes by working harder (ie, increasing hours worked per person) or getting higher international prices for its exports (ie, higher terms of trade).

In New Zealand, productivity growth has been an important contributor to income growth over recent decades. New Zealand has also enjoyed strong employment growth – particularly over the 1990s – and good terms of trade gains over the 2000s.

But there are natural limits to employment growth, especially in the context of population aging, and the terms of trade cannot keep rising indefinitely.

So productivity growth will become increasingly important as a source of higher incomes for New Zealanders.

Overall economy-wide performance

New Zealanders put in plenty of hours at work, but lag behind other countries in the amount of goods and services produced from each hour on the job.

From the mid-1990s, New Zealand has been very successful at increasing participation in the labour market and employment growth has been among the strongest in the OECD. It has also enjoyed periods of good productivity growth – such as the mid- to late-1990s.

But overall, New Zealand’s productivity performance has been poor compared with other developed economies.

Indeed, for a number of decades, New Zealand’s labour productivity has been falling behind other OECD countries.

Labour productivity growth has also slowed considerably in New Zealand in the 2000s compared with the 1990s.

So as well as having a low level of productivity, New Zealand also has one of the lowest rates of productivity growth in the OECD.

This is unusual internationally and raises serious concerns.

Comparison across industries within New Zealand

There are wide differences in productivity levels and growth rates at the industry level:

- Since 1978, labour productivity growth has been stronger in the primary sector relative to the goods-producing and services sectors.

- Some industries – such as information, media & telecommunication and finance & insurance – ‘punch above their weight’ by contributing a much larger share of aggregate productivity growth than their size as a share of GDP.

- Other industries – such as construction and some low-productivity-growth service industries (such as the relatively large professional, scientific & technical services industry) – have detracted from New Zealand’s aggregate productivity growth over recent years.

- The productivity growth slowdown over the 2000s has been reasonably broad based with all but three industries having slower productivity growth in the 2000s compared to the 1990s. However, the transport, postal & warehousing and agriculture, forestry & fishing industries have made the largest contributions to the slowdown.

- Since the onset of the Global Financial Crisis, falls in productivity growth have been most pronounced in some of New Zealand’s service industries.

While there are clear areas of relative over- and under-performance at the industry level, a deeper understanding of the underlying causes of industry performance requires more detailed industry-specific studies.

Comparison with other countries

On average, New Zealanders work about 15% longer than the OECD average and produce about 20% less output per hour worked.

New Zealand’s labour productivity now ranks in the lower third of OECD countries and is similar to that in Slovenia, Israel and the Slovak Republic.

It is because of this poor labour productivity performance that GDP and average incomes per person are low in New Zealand.

Closer to home, New Zealand and Australia have had remarkably similar employment growth since the mid-1950s.

But Australian firms have been much more successful than their New Zealand counterparts at converting that labour input into output.

In other words, labour productivity in Australia has grown considerably faster than in New Zealand over a long period of time. This has been a key driver of the increasing income disparity across the two trans-Tasman economies.

Differences in industry mix explain a sizeable share of the trans-Tasman productivity gap, with Australia having a greater share of employment in high-productivity industries.

However, even within the same industries, New Zealand’s productivity lags Australia over most of the economy.

Indeed, across a broader set of countries, the available evidence indicates that the productivity performance of most New Zealand industries does not compare well internationally.

What next?

- This paper provides important information on New Zealand’s productivity performance. It is relevant for upcoming research and inquiries carried out by the Commission and its Productivity Hub partners.¹

- The Commission is currently undertaking industry-level productivity analysis on: the industry contributions to the 2000s productivity growth slowdown, the contribution of labour reallocation to aggregate productivity growth and the shares of income going to labour and capital.

- In early 2014, the Commission will publish a productivity outcomes monitoring report (a series that the Commission will publish periodically).

Note:

1. The Productivity Hub is a cross-agency initiative that combines the productivity research efforts of a number of government agencies including: the Ministry of Business, Innovation and Employment; Statistics New Zealand; the Treasury; the Reserve Bank of New Zealand; the Ministry of Primary Industries; the Ministry of Foreign Affairs and Trade and the Productivity Commission.

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The full 54 page paper is on the Productivity Commission website, or can be accessed here.

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45 Comments

by MikeM | 23rd Sep 13, 3:33pm 1379907203

Improving output per capita is the single most important aspect of improving our standard of living and yet it is probably the least discussed topic in NZ at political, industry and social levels.

Instead we focus on allocating capital unproductively toward feeding our obsession with property.

It's very frustrating to see ignorant politicians publicly discuss the "living wage" without any regard for our low productivity performance. If we can focus instead on improving output, achieving the "living wage" will simply be a natural by-product.

by steven | 23rd Sep 13, 3:44pm 1379907853

Sounds like the trickle down theory to me, ie absolute bunkum. (achieving the "living wage" will simply be a natural by-product). ie there is a huge assumption that the worker / employee will gain from that improvement. Yet in fact the statistics show that over the last 30 years the gains seem to have all gone to the top 1%.

regards

by notaneconomist | 24th Sep 13, 9:06am 1379970401

Steven - Labour shortages are what drives wages higher. If you open up the borders and allow high numbers of immigrants to enter it drives wages lower.

NZ has too many people in unproductive Government type jobs which add very little to no economic value to the country. Look at the amount of capital employed by business and the labour units require to produce in business and then look at everything that capital and labour has to fund internally.

by dh | 24th Sep 13, 9:13am 1379970833

For the Australain mining sector, labour shortages arguably drove both wage growth and productivity growth.

by steven | 24th Sep 13, 9:22am 1379971325

First para, yes. yet of course businesses are driving for immergration to keep costs down, even though that means less real wealth per capita in terms of non-renewable resources. Hence Im all for stopping incoming on these 2 counts.

Second para, no, I dont agree.

Lets see you prove this against a privtate system, otherwise its really your political opinion eg There are costs to an economy, that its cheaper to meet via Govn provision. For instance healthcare, in the USA its twice the cost of NZ / UK in terms of impact on GDP. Education, ditto....public infrastructure, ditto. Now Im sure to a % extent there are some jobs that are marginal or useless but this also applies to large private corporations...

regards

by notaneconomist | 24th Sep 13, 1:26pm 1379985998

Steven - if you stop immigration and it drives wages higher then our products become less competitive on the international market as they are more costly to produce due to the higher labour component on the inputs side. NZ needs to carefully balance immigration numbers so that other areas are not affected such as rising house prices, costs of expanding infrastructure etc.

There is absolutely no evidence that Govt can provision services more efficiently and effectively than private enterprise.

When organisations get too large the left hand doesn't know what the right hand is doing and this creates extra costs. Poor performing employees remain poor performing due to the organisations size and structure and systems usesd are often poorly designed and not suitable which has run-on effects lowering efficiency. There is an enormous attitude difference between people who work in the public system vs the private. When people whether in education or healthcare know that you are directly paying they know you have an expectation of a different level of service and the public sector cannot emulate that same service as they see the funding via Govt rather than taxpayer.

by steven | 24th Sep 13, 1:37pm 1379986620

Thats one possibility, however considering all the "gains" of the last 20~30 years have gone to the top few %, that suggests teh balance isnt right.

Also foreign labour is always cheaper, also internal wages ie where a business sells to another NZ entity doesnt apply.

No evidence on provision of services? well there is only health care and education....world wide examples, half the cost in GDP terms and a longer life span...I guess if you cant see that.

Enormous difference? dunno, have you worked in either large one? I have in both and no there is little difference....well thats not striclty true, swings and roundabouts, so the overall difference is close to nil.

Payign for healthcare, uh no, the difference for one is often for public healthcare they have ppl there taht care V private who are $s motivated....I'd rather be treated by the former myself.

regards

by KH | 23rd Sep 13, 3:53pm 1379908406

Productivity: Yes. Why are we disinterested in it. It's the most important thing. Although we must ensure New Zealanders retain the benefits of that output.

by MikeM | 23rd Sep 13, 3:55pm 1379908540

Steven, if that was the case we wouldn't have seen the significant divergence in wages between NZ and Australia over the last decade or so.

Their improvements in productivity have lead to a higher standard of living over there. Even if much of that improvement has been confined to certain industries - mining being the obvious one.

by dh | 23rd Sep 13, 4:00pm 1379908828

Does productivity drive wages, or does wages drive productivity (or do both drive each other or is it not a tightly bound relationship). In New Zealand Productivity absolutely shot up in 2012, but wages did not move much .

by MikeM | 23rd Sep 13, 4:18pm 1379909908

I think over the long run improving productivity will drive up real wages. It wouldn't be an overnight thing but I think we need to look at what products and services we could sell overseas that would give us higher prices/margins that what we are currently achieving.

When talking about productivity, I am often reminded of the "Knowledge Wave" conference held in Christchurch (about 10 years ago?). We were all told it wasn't simply a talk fest and that some concrete action would be taken to improve our global performance. Unfortunately a talk fest was all it really turned out to be. But it would be a step forward to have more of these events and get the government more involved. Having more people thinking about productivity and what could be done to improve it would be a start.

by steven | 24th Sep 13, 9:51am 1379973114

We have been promised this magical productivity gain leads to wage gains for 30 years, hasnt happened, the gains have all gone to the top few % and then some.

regards

by Anarkist | 24th Sep 13, 10:56am 1379976996

MikeM,

There's absolutely no evidence that supports your claim, in fact arguably the oppositie is true. The United States, which is far more productive than we are has experienced stagnant or declining wage rates since the 1970s, whilst productivity has grown significantly.

"A key to understanding this growth of income inequality—and the disappointing increases in workers’ wages and compensation and middle-class incomes—is understanding the divergence of pay and productivity. Productivity growth has risen substantially over the last few decades but the hourly compensation of the typical worker has seen much more modest growth, especially in the last 10 years or so. The gap between productivity and the compensation growth for the typical worker has been larger in the “lost decade” since the early 2000s than at any point in the post-World War II period. In contrast, productivity and the compensation of the typical worker grew in tandem over the early postwar period until the 1970s."

http://www.epi.org/publication/ib330-productivity-vs-compensation/

In fact as early as 1997 Alan Greenspan, then governor of the Federal Reserve, concluded that one of the core reasons behind muted wage growth was job insecurity precipitated by technological change in the workplace which though it spurred productivity growth, also made workers fear that their skills would become obsolete and they'd be supplanted and replaced by technology if they made further demands for wage increases. He was using this to justify his "accomodating" monetary policy stance to his fellow board members, some of whom wished to raise rates in order to dampen inflationary risk.

"One possibility may lie in the rapid evolution of technologies in use in the work place. Technological change almost surely has been an important impetus behind corporate restructuring and downsizing. Also, it contributes to the concern of workers that their job skills may become inadequate. No longer can one expect to obtain all of one's lifetime job skills with a high-school or college diploma. Indeed, continuing education is perceived to be increasingly necessary to retain a job. The more pressing need to update job skills is doubtless also a factor in the marked expansion of on- the-job training programs, especially in technical areas, in many of the nation's corporations."

http://www.federalreserve.gov/boarddocs/hh/1997/february/testimony.htm

Also, this preoccupation with productivity isn't new. In the early 1970s industry leaders and neoliberal technocrats expounded the virtues of productivity and solutions taught by foreign experts which would improve it. Unfortunately it was all for nothing, because their efforts were sabotaged by the Reserve Bank's monetary policy. The interest rate hikes undermined the manufacturing sector already particularly vulnerable to the liberalized policies of the neoliberals under Roger Douglas, Ruth Richardson, Richard Prebble.

Over time 'kiwi versions' of 'the management of quality' were developed and promoted. As 'proof' of the technical capabilities of the management methods, 'success stories' were displayed at professional gatherings, in technical conferences, journals, magazines and speeches. Such 'proof' also took the form of personal testimonies from specific managers and employees who had become converts to the new ways of working. The centre piece for the study of New Zealanders' commitment to the development of 'the management of quality', however, was the orchestration of a visit from W. Edwards Deming to New Zealand and the setting up of the Deming Institute to further the task of promotion, development, education and training in the new techniques and attitudes.

http://keithrankin.co.nz/krnknMiracle.html

by MikeM | 24th Sep 13, 9:23pm 1380014637

Anarkist, for your info.

http://www.macrobusiness.com.au/2013/09/productivity-the-only-way-to-raise-living-standards/

by Anarkist | 25th Sep 13, 10:06am 1380060362

MikeM,

I'm not denying the importance of productivity generating higher living standards without precipitating inflation, what I question is the claim that increased productivity will automatically translates to higher wages. I sought to use the historical experience of the United States to prove my point.

Productivity improvements especially those gained by increase employment of capital equipment won't accrue to labour with a labour regime that is weak and where workers have high levels of job security.

Australia, is another case study. Though the Australian government's official labour regime embodies similar constraints to collective bargaining and industrial action as in New Zealand, the labour market there differs in that Australia's industry and labour are both more organized than our industries and their labour are more divided and fragmented in New Zealand. Australian labour and political machinery were able to blunt the drive of their domestic efforts to liberalize and restructure their economy in the 1980s and 1990s.

"State power in the collective bargaining arena was much more robust in Australia than in New Zealand, providing an institutional arena in which corporatist compromises could be enforced. Second, Australia’s labor movement was much more centralized than New Zealand’s, and the same is true of their respective business communities. Relatively greater organization for labor and business meant that a compromise program for adaptation could be negotiated and, conversely, that efforts to ‘smash through and crash through’ were much less likely to succeed. In New Zealand relatively fragmented manufacturing and labor communities were unable to articulate compelling compromise responses to international pressures. Finally the values underpinning unions’ and voters’ ‘moral economy’ determined whether compromise positions would find electoral support, giving parties with programs for adaptation time to reorganize employment and social policy....Differences between Australia’s and New Zealand’s Westminister systems of government also matter, but not much. Until 1996, New Zealand’s system clearly gave electoral minorities with parliamentary majorities tremendous leeway to implement their agenda. Australia’s version of proportional representation and its strong upper house tends to retard proposals for change, particularly when they emanate from a party representing only a plurality of voters. But this institutional difference only conditions the rate of change, not its direction. Table 3.1 presents a precis of electoral and constitutional structures."

http://people.virginia.edu/~hms2f/internal.html

Also Germany is an economic model that many likely will uphold in the productivity debates, but I wouldn't recommend our country to seek to emulate the German experience.

Yes one can argue that some sector's of Germany's economy are incredibly productive, especially the export orientated high end capital goods manufacturing industry, but what few know is how high a proportion that very low wage job comprise its labour market. In fact fully 20% of Germany's jobs are categorized as insecure, low wage or casual.

"Data from the Organization for Economic Co-operation and Development shows low-wage employment accounts for 20 percent of full-time jobs in Germany compared to 8.0 percent in Italy and 13.5 percent in Greece."

http://blogs.lclark.edu/hart-landsberg/2012/02/15/germany-a-false-model/

If Germany with its booming high tech, highly productive manufacturing sector and substantial current account surplus isn't able to generate jobs to provide an adequate standard of living for their workers and still their employment rate is lower than it was under Helen Clarke, how do you expect the policy wonks in New Zealand to manage that feat?

by steven | 24th Sep 13, 9:28am 1379971697

Hi,

a) Population and sities super scale....4 million v 20million.

b) We had rogernomics, that should have been a "market leader" what a failure that has been then compared to the retained unionisation and protectionism that OZ has maintained....apples and bananas spring to mind.

c) The mining boom has allowed OZ to convert a non-renewable resource into an improvement in wages.

So productivity gains? no I doubt it....Nzers it seems work long hours, amongst the longest, therefore that should have shown improvements.

Lots of productivity is pseudo gains IMHO....financial wizardry springs to mind.

regards

by dh | 23rd Sep 13, 3:56pm 1379908579

"So as well as having a low level of productivity, New Zealand also has one of the lowest rates of productivity growth in the OECD."

If you excluded Korea as an outlier (having gone from rice growing subsistence economy to high-tech giant), New Zealand's rate of productivity growth would be about average. I'm not going to spend too much time on conclusions that change with a single data point.

"It is because of this poor labour productivity performance that GDP and average incomes per person are low in New Zealand."

I have also seen the reverse argued- that low wages remove the economic incentive. A useful test of this (though I don't know where to get the data from) would be to compare the growth in productivity between Australia and New Zealand to the historical changes in the minimum wage, as that reflects the minimum cost to the employer of taking on a worker (we can for this ignore what are effectively low wage subsidies like Working for Families as the cost is being absorbed by the state). You could also just use overall average wage, however there that minimum floor under the average of the minimum.

by Happy123 | 23rd Sep 13, 4:20pm 1379910030

It's in part due to the increase in market share for large companies. I've worked in both the corporate world and run my own business and there's no doubt about in which role I worked harder and got more done. Large companies create bureaucracy simply because of their size and end up employing workers who do next to nothing, this often flattens out any gains from economies of scale.

An easy fix would be to change the law to make it easier and cheaper to fire someone, that way it's easier to trim the fat.

by dh | 23rd Sep 13, 4:34pm 1379910849

"An easy fix would be to change the law to make it easier and cheaper to fire someone, that way it's easier to trim the fat"

A quick comparison of countries productivity and that sort of thing related to labour such their Ease of Doing business measures shows no relationship what so ever, so there is no empirical evidence that changing firing practices will change productivity.

by Happy123 | 24th Sep 13, 4:41pm 1379997683

Just because your not aware of any empirical evidence doesn't disprove anything. If a company ends up employing a person doing nothing that's a cost and that cost effects the companies productivity. If you could quickly and cheaply remove that cost your productivity would increase.

by Stephen L | 23rd Sep 13, 4:25pm 1379910359

This is a very good paper in measuring NZ's poor productivity, albeit it is relatively silent on the causes of this poor performance. Which leaves the door open for me to have a stab. Three related reasons come to mind:

1) Our very passive approach to the exchange rate, capital flows and the current account, mean that any export or domestic industry exposed to competing through a not only overvalued exchange rate; but a perpetually increasing one, will lose in economies of scale (or lost customers per labour input) whatever gains they might have made in output per worker. As more of the income we do have is spent offshore, the lower economies of scale we have for businesses here. It is no surprise that the industries (like Primary agriculture and food processing) that have improved have a comparative advantage that usurps this exchange rate effect. Notably the Terms of Trade improvements have all been in their area.

2) The same ignoring of the curent account has meant a loss of wealth and ownership, especially of productive industries. The owners determine where key activities take place; and the non owners are often left with the crumbs. There are not many head offices of note here compared to the 1980s.

3) Many New Zealanders have little choice but to work in property or hospitality or retail industries. Quite why building and construction productivity is so low is a mystery, but may partly be economies of scale, and may be bureaucracy, leaky homes fallout, or some other reason. Hospitality suffers from lower tourism and so lower economies of scale; some creating a job for themselves in setting up businesses with limited trading prospects (so too much supply). Retail is also very affected by economies of scale. Growing inequality will not help.

In summary, in my view, manage capital flows, and so the exchange rate, to a level where we are at least in balance, and watch capital and labour move into opportunities where they are not progressively shafted by worsening "terms of trade" for their own opportunity. Then we will see productivity gains across the board.

by JB | 23rd Sep 13, 9:43pm 1379929403

A most perceptive and accurate analysis of the now dire situation developing where with an expanding trade deficit, loss of manufacturing ( excluding dairy ) capability - we are now totally dependent upon the kindness of strangers to borrow to pay our creditors their next interest installment. It used to be called a Ponzi scheme.

All the while focusing on everything that doesn't matter - America's Cup, Womens Golf, Rugby World Cup, Olympic Games and other such circuses complete with modern gladiators. Much more fun than the hard grind, and at present FX rates unprofitable, establishment of internationally competitive manufacturing. Ask Rackon et al.

Alternatively we have to flog them our assets to finance our ever expanding interest bill - won't they just love those near double digit yields off our hydro stations !

Compound interest and time are pretty dependable partners - wait till we get back to long run interest rate levels ie US 30 years @ 7 ~ 8% and watch a current account blow out as has happpened previously with an overvalued exchange rate.

Imports up 17% - Exports down 5% - the outcome is pretty predictable.

Rather than a nation of shareholders - we are fast becoming sharecroppers as foreigners buy up our assets.

We are nation living on borrowed money on borrowed time and having a ball.

Take out the CHCH rebuild, leaky houses, leaky schools, new prisons from GDP and see what we look like. These are only growth in a statisticans mind - they cannot contribute as future investments otherwise we should build more.

Fixing our productivity levels is critical - To paraphrase Krugman - In the short run productivity is not everything - in the long run it is just about everything.

by Kate | 23rd Sep 13, 11:43pm 1379936608

Perhaps its a lot simpler than that - in the 1990s we picked the low hanging fruit, e.g.

We virtually exhausted orange roughy stocks in less than two decades;

http://www.greenpeace.org/new-zealand/Global/new-zealand/P3/publications/oceans/2010/Orange%20Roughy.pdf

(not to mention many other species).

We felled the easy to get at pinus radiata and converted the land over time (and with much effort and chemicals) to marginally productive pasture;

http://www.grassland.org.nz/publications/nzgrassland_publication_431.pdf

and now we're having to harvest the far more difficult and dangerous exotic forested land;

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11113509

We tipped everything into great holes in the ground, tossed our caustic waste into stormwater drains, recycled nothing, and used our rivers as sewers.

And so on and so forth.

Productivity is high when one has no regard for the future.

by MikeM | 24th Sep 13, 10:22am 1379974948

Yes I agree with your first point, Stephen. Big improvements in our terms of trade is the key. We need to change the composition of inflows from never ending debt to increasing export receipts. The exchange rate will always be a juggling act, given our vunerabiltiy to changes in global liquidity, without more interventionist policies from the government/central bank.

by beejaym | 23rd Sep 13, 4:56pm 1379912190

The nature of the New Zealand economy is largely that of primary production. I find it difficult to accept that average productivity of our farming community is falling. Look at the dairy industry and the size and efficiency of Fonterra's production on a world scale. The dairy farmer is working the same hours or in some cases shorter hours and yet managing herd sizes significantly larger than 40 years ago. Australia in comparison has had diminishing levels of farm production and significant levels of mining resource production where the scale of equipment to manpower is huge, and thus has shown a higher level of prouctivity than New Zealand. The problem here is the old apples and oranges comparison. A far better meaasure in my humble view would be to compare changes in GDP to changes in capital investment which would be better measure of the efficiency of our economy versus others.

by beejaym | 23rd Sep 13, 4:56pm 1379912192

by beejaym | 23rd Sep 13, 4:56pm 1379912199

by beejaym | 23rd Sep 13, 4:59pm 1379912340

The nature of the New Zealand economy is largely that of primary production. I find it difficult to accept that average productivity of our farming community is falling. Look at the dairy industry and the size and efficiency of Fonterra's production on a world scale. The dairy farmer is working the same hours or in some cases shorter hours, and yet managing herd sizes significantly larger than 40 years ago. Australia in comparison has had diminishing levels of farm production and significant levels of mining resource production where the scale of equipment to manpower is huge, and thus has shown a higher level of productivity than New Zealand. The problem here is the old apples and oranges comparison. A far better meaasure in my humble view would be to compare changes in GDP to changes in capital investment which would be better measure of the efficiency of our economy versus others.

by Brendon | 23rd Sep 13, 5:51pm 1379915511

I think another aspect of our poor productivity improvement is that other countries are just more pragmatic about doing whatever it takes to improve productivity whereas we are usually trapped in some top down politically correct dynamic.

Most countries have a implicit partnership between government and business to improve producitivity. Not by monetary subsidy but by providing specific institutions, military research -US, technical vocational education -Germany. Good transport links -everywhere. Affordable housing -Texas. New Zealand has those institutions for our industrial agricultural producers but not for other industries.

A friend's son in law was offered a really good but must decide straight away scholorship from an Australian University before the NZ Universities had even received the school results. Australia wanted the best, NZ didn't really care. And this is really unfortunate because our primary and secondary schooling is really good and in international tests for 15 years we beat most countries including Australia. How do highly productive 15 year olds become unproductive workers a few years later? This problem is institutional not personal or cultural in nature.

Other countries have a bottom up approach to organising their governmental systems. The lower levels of government the States, MUDs, Cantons and Lander compete for new residents and businesses. This makes them very pragmatic about getting the most bang for their local taxpayers. While the Centrally run countries like Britain and New Zealand public institutions are much lazier.

by Kate | 23rd Sep 13, 11:51pm 1379937077

Not to mention that before 2011 we didn't even have a Productivity Commission - yet another quango on top of the industry-specific departments, along with the Treasury - which one would assume between them, if productive, should have been able to put together these sorts of studies!!!!!!

by Noddy | 23rd Sep 13, 6:21pm 1379917264

Is this the natural consequences of a culture of handouts and reward for doing nothing that has been nutured in NZ for a generation now?

by dh | 23rd Sep 13, 6:43pm 1379918591

Since you phrased that as a question, I will point out that we are significantly less productive than France, so even if you believe that to be the case, the evidence says no (or non).

by dh | 23rd Sep 13, 6:50pm 1379919029

Hang on. I just noticed. Why are they using figures from 1980 for graph B?

by Stephen L | 23rd Sep 13, 7:48pm 1379922500

dh,

Am pretty sure they used 1980 as the base; largely to determine whether high productivity growth was really just about starting from a low base- arguably like Korea, or Turkey, or whether that was less material. (Korea has in anycase shot through a low income threshold)

They reasonably seem to conclude that apart from those two countries, the starting point hasn't made much difference, and is not an excuse for NZ. In fact it makes us look worse given we weren't all that high in 1980.

by dh | 23rd Sep 13, 8:23pm 1379924610

I just grabbed the OECD productivity figures (1990 to 2012) and had a play. In an average year, New Zealand saw 0.882% growth than the median for all available countries (0.6935% less growth in productivity than the median). To put this in perspective the average standard error of the average of a year is 2.366, so NZ figures are pretty typical for the OECD. I graphed it over time here
https://www.dropbox.com/s/ryccovl8gm7kxdm/productivity.png
Blue dots is the OECD average, green dashes is the median, the black line is New Zealand. I think the fluctuations in New Zealand basically reflect commodity prices, since GDP per hour is a measure that would be highly sensitive to that.

I see the OECD has pretty good breakdowns of GDP by industry for each country, but not for NZ. If someone was to go to the trouble of match NZ data to it, you would get a fairly easy answer to "Is it just the balance of NZ industries, or are they less productive for each industry" (the main article does not address sector comparisons by country)

by Stephen L | 23rd Sep 13, 9:45pm 1379929555

dh,

Good stuff, but isn't say 0.7% per annum compounded over 20 years quite a lot? I understand the standard deviation in any one year might mean that year is not correct, but over time, assuming the measurement process is remotely robust across the OECD, doesn't your work support the paper published here?

by dh | 23rd Sep 13, 10:27pm 1379932024

Compounding can add up, adding to the base through time, and it does make a fair whack. The main point I'd make is that it fluctuates, and looking at the graph I can see no sign it is getting worse over time (though the slightly lower average does mean over a long time the effects compound). As it is basically unchanged from year to year, this rules out "soft youth of today" kind of explanations, and tends to point the finger at bits of the economy that haven't changed much.

If I was looking into it, I would be hunting for NZ sectoral GDP contributions and hours worked, to match to the OECD data, as that would be a test for ruling out sectoral influences.

by Anarkist | 25th Sep 13, 10:10am 1380060606

hey dh,

I came across this Treasury paper last night and wondered if it may help provide the data you're looking for.

"Previous international productivity comparisons involving New Zealand have been confined to the aggregate economy or to broadly-defined sectors such as manufacturing. This paper reports on a New Zealand-UK comparison which distinguishes 21 different ‘market sectors’ (ie, excluding public administration, education, health, property services and some personal, social and community services). "

http://www.treasury.govt.nz/publications/research-policy/wp/2007/07-01

by notaneconomist | 23rd Sep 13, 8:00pm 1379923229

http://www.tradingeconomics.com/new-zealand/productivity

Too many people in jobs that don't produce anything other than compliance work for others which lowers that enterprises/persons productivity.

by meh | 24th Sep 13, 3:07am 1379948845

pick more cotton slaves, your masters need more

by Chris-M | 24th Sep 13, 7:16am 1379963774

What do you expect when the the majority of the meaningful production occurs in agriculture and the rest of the country is pretty much an expensive overhead. We do not need another million immigrants in Auckland. There is no evidence that Auckland contribute any thing meaningfull to our exports. It is just a big property money go round ponzi. We need less people in the country working a hell of a lot smarter than we are now.

by dh | 24th Sep 13, 9:54am 1379973299

For anyone wanting to match up NZ Labour productivity by industry with World productivity, Stats NZ has the categories:

Agriculture; Forestry, Fishing, and Services to Agriculture, Forestry and Fishing; Agriculture, Forestry and Fishing; Mining; Food, Beverage and Tobacco Product Manufacturing; Textile, Leather, Clothing and Footware Manufacturing; Wood and Paper Product Manufacturing; Printing; Petroleum, Chemical, Polymer and Rubber Product Manufacturing; Non-Metallic Mineral Product Manufacturing; Metal Product Manufacturing; Transport Equipment, Machinery and Equipment Manufacturing; Furniture and Other Manufacturing; Manufacturing; Electricity, Gas, Water and Waste Services; Construction; Wholesale Trade; Retail Trade; Accommodation and Food Services; Transport, Postal and Warehousing; Information Media and Telecommunication; Financial and Insurance Services; Rental, Hiring and Real Estate Services; Former Measured Sector; Professional, Scientific and Technical Services; Administrative and Support Services; Business Services; Education and Training; Health Care and Social Assistance; Arts and Recreation Services; Other Services; Goods producing industries; Primary industries; Service industries; Information and communication technology intensive industries

While the OECD seems to divide things up as (at least in what I am looking at):

CTOTALX TOTAL excluding real estate; C01T05 AGRICULTURE, HUNTING, FORESTRY AND FISHING; C10T14 MINING AND QUARRYING; C15T37 MANUFACTURING; C29T33 Machinery and equipment; C34T35 Transport equipment; C40T41 ELECTRICITY GAS AND, WATER SUPPLY; C45 CONSTRUCTION; C50T55 WHOLESALE AND RETAIL TRADE - RESTAURANTS AND HOTELS; C50T52 Wholesale and retail trade - repairs; C55 Hotels and restaurants; C65T74X FINANCE, INSURANCE AND BUSINESS SERVICES; C10T41 INDUSTRY INCLUDING ENERGY; C50T74X BUSINESS SECTOR SERVICES excluding real estate

My feeling is that the most productive way to do a comparison is to take equivalent Stats NZ category to an OECD category and discard the rest.

by powerdownkiwi | 24th Sep 13, 5:18pm 1379999927

Reading the above, Kate is the one who gets it.

Productivity is either efficiencies or reduced income.

Gains are expected to be exponential, and never-ending. An idiot expectation. We pay for this?

by Hamish | 25th Sep 13, 10:38am 1380062303

Well yes, to the point that the productivity equation being used is obviously not all encompassing. If productivity is simply inputs v outputs, then it is convenient to ignore some inputs from the past e.g. ignore the fact that waste was discarded wilfully and without consequence to the polluter. So, we are now in a situation where we're not really comparing apples with apples. Good luck trying to get some of these policy analysts or economists to go back and revisit their models though.

by dh | 25th Sep 13, 8:04pm 1380096255

Industry comparisons 1990 to 2009, OECD stats matched to nearest Stats NZ category, labour productivity, all measures based on percentage change per year:

Agriculture, Hunting, Forestry, and Fishing (NZ Agriculture, Forestry and Fishing): I was surprised by this result, I guess the agricultural sector has good PR. NZ average -0.5% productivity growth per year, OECD average +3.1% average growth. The only country worse is Belgium. Top countries Korea, Czech Republic, France.

Mining and Quarrying (NZ Mining): NZ average +0.17% per year, OECD average +2.2%, leaders are Korea, Austria, and United Kingdom (I guess the surviving mining has to be productive).

Manufacturing: NZ average -0.13%, OECD average 3.7%. NZ worst in the OECD (What manufacturing left in NZ is specialist niche work so by definition expert rather than productive (sought out for smarts not volume). Top Countries Korea, Poland, Czech Republic.

Electricity, Gas, and Water (NZ Electricity, Gas, Water and Waste Services). NZ average -0.235, OECD +2.89. Sweden is the only country with average lower productivity gains than NZ. Top Countries Korea, United Kingdom, Austria.

Construction. NZ + 2%, OECD+0.4%. Top countries Korea, Poland, NZ. Prehaps the long collaspe of NZ construction has meant the survivors had to be productive.

Business Sector Services excluding real estate (NZ Business Services). NZ +3.5%, OECD +2.5%. Top Countries Korea, Iceland, United Kindom.

Hotels and restaurants (NZ Accommodation and Food Services). NZ +2%, OECD +0.03%. Top Countries Iceland, Poland, Korea.

There were a bunch of other categories I couldn't match in a quick guess over half an hour kind of way. Until someone does a more detailed analysis proving me wrong, I am looking at the Agricultural Sector given it's dominance of the NZ economy as being the reason for the country's low productivity gains.