Mieke Welvaert looks at productivity and work-life balance. Could we mimic Germans and Swedes in producing more by working less?

Mieke Welvaert looks at productivity and work-life balance. Could we mimic Germans and Swedes in producing more by working less?

By Mieke Welvaert*

A recent article by The Economist suggests we should all work less and get a life – and the latest report by the Productivity Commission on this topic suggests that no one needs to get a life more than New Zealanders.

When compared to the rest of the OECD, New Zealanders don’t work all that many hours.

Over the past decade, New Zealand workers spent 1% fewer hours working than the (34 country) OECD average.

Although, this is nowhere near on the same level as the Dutch who in in 2013 worked 22% less than the OECD average, it’s not quite as bad as the average Mexican who works 26% more, and even better than the Americans (work worked 1% more hours than the OECD average). 

But, what really matters is how much we produce during the number of hours we work.

Enhancing one’s productivity is one of the few ways in which we can better our standard of living. We could always work longer hours to produce more income, but we do this at the cost of our leisure time.

Increasing our productivity means that we could work the same number of hours and generate more income to spend on the things we like.

We could also work fewer hours, produce the same amount of output, and have more time for leisure.

No matter which way you do it, increasing your productivity can be considered a means to getting a (better) life.

In the case of labour, productivity is most simply quantified by the amount of real income (GDP) produced by each unit of labour (usually worker hours). [1]

GDP per hour statistics show that in 2013, New Zealand workers produced 26% less per hour than the OECD average. This result placed New Zealand 24th on the productivity ladder when compared to its peers (putting it just after the Slovak Republic).

But for the most part, variations in GDP per hour worked can often be explained by the fact that countries produce a different mix of products.

Following this, if a country’s main income source is from lower value goods and services[2], its GDP-per-hour-productivity is also likely to be lower.

Interestingly, comparisons by the Productivity Commission show that Australians are more productive than New Zealanders even within the same industries.

This result highlights that there is scope for us to improve, which is fortunate because, according to the Productivity Commission, enhancing productivity is the main way we can lift our standard of living over the years to come.

Higher productivity is becoming an increasingly important factor in generating higher incomes. Throughout the bulk of 1990s income growth was driven by both increases in productivity and an expanding workforce.

Over the 2000-2012 period, income growth slowed as the size of the workforce neared capacity and as the growth in productivity eased.  This slowdown was partly offset by a favourable turn in the terms of trade – world prices for our exports lifted relative to the price we paid for imports, pushing up our real incomes – yet income growth still slowed below 2%. 

However, with employment at its highest in six years and labour force participation at its highest on record, we cannot rely on an expanding workforce to drive income growth as it did in the 90s. Nor can we rely on further improvements to the terms of trade (particularly now with the price of our key exports having taken a dive) as we have done for most of the new millennium.

As a result, we are increasingly dependent on higher productivity to improve our per capita income growth and thus also, our quality of life.

So how might we go about doing this?

One of the ways we could increase our real income is to generate higher value products[3].  As this idea is worthy of a whole article in and of itself and encompasses shifts in technology and capital, rather than changing the ways we implement our labour, I will leave that idea for another time. 

Another way to increase our output, given the current mix of things we produce, is to think about how we employ our labour inputs into production.  It is easy to count labour in terms of hours worked, but research tells us that even down to the individual level, not all hours are the same.

A recent study from Stanford University, suggests that there is an upper bound to productivity (output per hour) and that after a certain point, productivity begins to decrease. Drawing from data on munitions workers in the First World War, the study showed that output slowed dramatically from the 49 hour mark and practically flat lined at around 56 hours.  The research also showed that if someone worked seven days, they most likely produced less than they would have, had they only worked for six.

Building on similar ideas of increasing productivity, the Swedish city of Gothenburg famously took on trialling a six-hour work day last year. The idea of the trial is to test whether working fewer than 40 hours per week (at the same pay as a full week) results in higher worker efficiency, fewer sick days, and better worker welfare.

Germany and the Netherlands, which currently have some of the highest GDP per hour rankings in the OECD, also support shorter work hours. Both countries have six-weeks of paid annual leave, compared to our traditional four weeks, or Greece’s two weeks. The Netherlands has also popularised four day work weeks and caps work hours to 2,080 per year (this works out to be 45 hours per week with six weeks of holidays).  Even Australia, which has a more similar industry mix to New Zealand, only allows employers to request up to 38 hours for an average work week.

Even though we may not produce the same high value products as Germany or Sweden, perhaps we could employ some of their ideas about producing more, by working less.

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[1] For more information on measuring productivity please find section 2.1 of the Productivity Commission’s 2013 research paper.

[2] For example, sweatshop workers can churn out a great number of Nike shoes per day but still not earn as much per hour as an insurance consultant.

[3] If your work is more valuable, you can earn more in the same amount of time than someone whose work is less valuable.  This is crudely demonstrated in the salary of a doctor vs. the salary of a cleaner.

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Mieke Welvaert is a data analyst at Infometrics. You can contact her here »

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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32 Comments

Just a bit of general positive feedback for interest.co.nz; I just now wanted to check the dairy auction results last night, and since interest.co.nz has recently been updating news articles almost around the clock, I used interest.co.nz as my first internet choice to find out what happened.
Given the options online for finding resources, I think this is good going that you are now getting considered at the first place to go to find out what happened in a recent event.  Good stuff

Hey Simon, They are obviously being more productive.

I have always found that specialisation and economies of scale allow greater productivity.

Are we more productive when the dairy price is higher?

Only because their definition of productive is faulty.

They're measuring productivity in dollar values - therefore the exact same dairy labour in y.e. 2014 will be almost twice as productive as y.e. 2015.

Whats more, we could work twice as many hours doing high input systems, produce twice the volume, and be fours times as productive yet completely less profitable as someone doing half as many hours on fully owned type 1 (grass only) system.

That's why it _appears_ if economy of scale and specialisation are more productive.  The more you can flood the market the greater volume of money is received :. it looks like productivity is up.   But it isn't as it consumes many times more resources to produce the same dollar.... but the crunch occurs because the high volume and the low volume are selling into the same market, so the flooding the market with excess product from the high scale operation destroys the margin on both systems.   The high volume of money means the larger system can hide the effect for longer (kicking the can)

Productivity should be measured using a Pareto Optimal outcome.
I.e. any change in activity should only be undertaken if it makes someone better off and makes no one else any worse off.
This takes into account resource use and common ownership and factors in the economic cost of the undertaking and not just dollar cost.

Interestingly Germany has negative population growth and Sweeden only 29% that of NZ, so they are not devoting a large proportion of their ecconomy to providing housing and infrastucture for an increasing population.  In NZ we have a ponzie ecconomy that is built on chasing population growth.  If we did not have this we would be forced to redirect our resources to industry  which needs productivity to compete and export.  We would also not have to borrow as much from overseas to fund investment in non or low income producing assets like houses and infrastucture.

If we want workers to be productive they need education and training.
 
How about we mimic the Germans ans Sweedes and bring back free higher education?

Totally agree!!

Wouldn't we need to nationalise oil harvesting or something similar like they do to pay for it?

Are you confusing Sweden with Noway?  Sweden has no oil or gas industry. Germany has very little.

Free higher education in NZ would make sense for a lot of reasons. If anything should be for free in a developed, civilized society it is education. Pay for it by abolishing nonsense like developing aid and many of our overly generous welfare payments. 
 
Apart from, that NZers simply hang around in the office too much doing nothing of great value. Plus there are way too many "managers" who are actually useless and try to cover it by by creating unproductive, bureaucratic "processes". Hopefully, software will replace them soon.
 
Think about most office jobs you have ever had: you could have probably done the work in half the time and gone home, but you had to be there the full eight hours because it is in the contract. 
 
Netflix in the US, btw has unlimited holidays. You agree on a certain lot of work per year, and once you are done you can go. It is the future of work. Sitting around offices to prove your immense value to a company will be laughed at within half a generation. 

No No No....why would you think of providing free higher education to someone who works in a bureaucracy/State Agencies for their whole life???? 
Have you actually worked out the real cost on productivity for a person who never increases value but always adds a cost??

You really have a nuttty view of the world.
a) With better education and outlook they should be able to do their job better so less of an overhead/cost.
b)  not all will go into public service.
c) if they are more educated and hence capable wouldnt they realise working privately would "pay" better?
Our society choose to add regulation on how we do things to make it (say) safer. At some point sure there is a point that this makes no sense, ie the economic cost Nationwide to save (say) a life out ways the economic value of the saved life. I believe the value on a life is $10million? of course good luck politically selling that one.
 
 

Oh Dear and you think I have a nutty view!!!  Does your employer know how mch of your time you spend on interest.co.nz when you are meant to be working?? All your qualifications have taught you is how to avoid real productive work by milking another persons drive and ambitions.....A 3 year Uni degree does not teach you everything you need to know about any subject !!! 
 
Do not confuse an educational qualification with ability, attitude or enterprising.
 
As I have suggested before - go into business for yourself Steven. Without that experience of being in business for yourself then you are not really in a position to know what you are talking about !!
 
Twist the truth as much as you like.........But...Our Society does not choose to add regulation it is ENFORCED!!!  If you think safetey regulation is about the Authorities informing us "how to" do something, then once again you are badly informed. Go ask Work Safe how they would like logging to be done in NZ and I guarantee they will not tell you how to do it safely.....they will even tell you that they can't advise you on such issues because if there is a death or serious accident and the business was carrying out the works the way Work Safe stated then that would make work safe liable. 

A degree is there to make you think. It sure seems to see a better outcome for an individual  then people who do not have a degree as a rule I have observed. 
I do not "confuse an educational qualification with ability, attitude or enterprising" I consider that education to a degree level and beyond enhances these.
I have worked in lots of ways, self-employed is one.
Twist the truth? you have got to be joking. Your strange views/takes on many things frankly makes me laugh at you. 
 
 
 
 

moodern degrees arent there to make you think.
they show you can look stuff up and regurgitate acceptable answers in an approved manner.  there is no room for challenging the pack or their declamations.

shhhhhhhh...
Wait until I get my courses signed up.
Hope to  B kicking back wid sum bak 2 skool stuff next  simester.

Some interesting issues here.
Higher productivity in GDP $ terms per hour worked is of course not necessarily the best way to look at an economy but that is what we do so there it is.
In regards to the 6 weeks holiday in the Netherlands versus our 4 weeks, a little deceptive we have on average an extra 5 stat days per year over them, sometimes even more as they do not let their national days roll over to the next Monday if they fall on the weekend. Here they are all on Monday or roll over and only in the case of Anzac and Waitangi day are on the day itself. They do not have for instance a day off on 2 January, Good Friday, no provincial days, no Labour day. If Xmas is on the weekend so it is, too bad. They do however have an extra 2 days for some other religious issues.
What we do not seem to experience here much compared to western Europe is stress related leave, particularly in the over 40 age group. While this is no doubt also partly caused by the high density way of life they have no doubt the productivity requirements are part of that too.
Will be interesting to find out what the cost to those economies is just due to that.
Bigger economies of scale allow for more and bigger machinery producing more with the same number of people, machinery which for an economy like ours would lay idle 80% of the time were they used here and hence not a solid investment.
 
Good case is the US at the moment where manufacturing work is being pulled out of China  and made again in the US. No extra people employed, just machines doing the job cheaper then what they can do it for in China with manual labour. No doubt this leads to an improvement in the productivity terms per hour labour. Just a whole week of producing the same product and servicing of the machinery and change of product, if required, on the weekend. No one comes in those places during the week. If the economy is big enough that is all possible.

Good points.  Productivity needs a numerator and a denominator and the stats for each are frankly dubious.  
 
A sidelight on the 'return of manufacturing' - a good Atlantic Monthly article of a year or three back.
 
Punchline:  There’s a joke in cotton country that a modern textile mill employs only a man and a dog. The man is there to feed the dog, and the dog is there to keep the man away from the machines.
 

the Dutch have more stress leave beacuse their cities are higher density?  Where is you evidence for this, given that most research shows not having to drive to work makes for a happier life, and most dutch don't drive to work in part because the higher density / closer proximity means they can walk, cycle, or transit to work.  Compared to an Auckland commuter, life in the Netherlands is dreamy.
 
We have 5 extra holiday vs the Netherlands? How do you get this? Given that we have 11 and they have 10 legal but most get 11 (good friday).
http://en.wikipedia.org/wiki/Public_holidays_in_the_Netherlands 
 
1 or 2 mondayisations, or 2 weeks extra holiday, i know which i'd prefer.

Don't forget that where ever you might conclude NZ is in the long term debt cycle, it sure feels like any productivity growth now is paying back the credit boom that benefitted previous decades.

My fundamental problem with the 40 hour work week is there is very little incentive to work more efficiently (unless you are the employer or in some kind of commission based role).  The 40 hour work week is largely a historical relic.  For instance, if you are on a salary and can make simple changes to how you work to increase your work output, there is little reason to do so.  You will likely get saddled with even more work for being effective, and therefore be more likely to burn out.  There needs to be much more discussion on this.  If you can complete your work in 20 hours a week compared to everybody else who takes 40 hours to do theirs, why should you have to effectively do the job of two people?  Moreover, why should you be at work beyond 20 hours?
Humans are incentive based creatures after all.  Feel good attitudes about taking pride in your work and doing things well for the good of the organisation only go so far.

20 years ago myself and other techphjiles were much in favour of the leisure revolution.

It turned out to be a complete flop.

You put in automation and labour saving devices to knock your 60 hours (work + maintenance, eg dishes, cooking, mowing lawns) down to 20 hours then you don't get improved lifestyle.

The folowing things happen:

1) The work goes to "tenderers" rather than professionals.  They cost less.
2) The lower cost allows price competition on the market, depressing prices and forcing high paid service providers out of the market in favour of cheap less qualified expertise.  (eg a local hardware store floor person turns out to be a fully quality Architecural Designer but all the work goes to the untrained guys with the CAD software - as opposed to the Architect being twice as productive, he still costs twice as much)
3) The experts get moved into supervision and consultancy roles often far removed from the work and decision process

4) In order to make the low cost employment worthwhile those partially skilled people must work more hours
5) and/or cut back on leisure activities (reduces consumption)
6)  those who want to get ahead must hunt higher less relevant administrative style positions
7) or simply fight for more hours
8) which pushes up the true cost of living.  As the best living goes to the administative and financially leveraged positions (the 1% on 100 items people) and the labour cost per unit sold (eg hours) is constrained accordingly due to market price competition pressure - those doing the work get less proportionally, reducing the amount of spending they can do.
9) which reduces the velocity of money, which reduces the amount of wages each dollar pays, creating price pressure.  The cheaper the prices, the less the low cost worker gets paid.  the more hours they need to work just to survive....
10) which destroys the leisure philosophy.

the other effect that occurs:
1) some get jobs and get some money
2) some money is good but I have spare time (especially now women are in work force)
3)  Choice to make? Do I spend the money I made? or do I work more. Some money is good, therefore more money is better.
4) increased supply of labour, into to the above scenairo.
5) This labour is more motivated and less interested in leisure balance.
6) The excess money is not consumed but invested,
7) producing more financial provided money velocity (devaluation of money, not economy growth inflation - ie money buys less, not prices rising from more money demanding more supply)

huh? this is a very strange/limited outlook me thinks and not the norm.  maybe for some semi-skilled workers, yes.
Much of what I do is automating tasks/work.  I tend to do these to make my workday easier, removing the mundane and repeatitive so yes I can go on to do more interesting/productive things.  You wont be saddled with more work as once automated you no longer do it, you get "saddled" with different work which is more interesting and makes the day fly by.
 

This article reads like some State employee waffle.
 
If you want to know why NZ is slipping in the productivity charts take a look at the number of people who sucker a living of the minority of people who are actually productive.
 
An example I can give you is that pre 1986 if you were farming you would spend on average about 1 hour a month in the office and if your operation had cattle you would TB test once a year...then there would be the amount of time your accountant put in to do the books....total compliance hours per annum.....stuff all.
 
Roll forward to 2015 and most farms would have 1 full time eqivalent working in the office to service numerous Government Agencies including Councils who have all successfully lobbied previous Governments as to the importance of their particular organisation.
 
The hours to do the actual productive part of the job have decreased due to technology and systems but the total hours involved has increased due to red-tape, compliance, rules and regulations etc and none of these costs add value to the final product......
 
In regards to the upper-bound on productivity I would agree......I am not going to increase my out-put per hour when I know that some State Agency will come along with new rules, regulations, red-tape and compliance (in other words take their cut from my production)..........and here is an example, my neighbours would like to harvest their forestry block and come through our farm......should I allow them access or not????? I did a quick risk assessment.......One Rgional Council involved, 1 City Council involved , 1 District Council involved, Heritage Act  Issues, Then there are the Health and Safety Work Safe Issues.....Earthworks to upgrade the existing track,  Stock management issues and increased costs while road is upgraded and harvesting undertaken.........I could spend hours upon hours making sure boxes are ticked and worrying that the upgraded road might have work safe issues etc...........far easier to say NO you can't come through our place.......why should I give a toss about GDP and productivity when there a large amounts of people who parasite off the real productive people!!!
So what happens to the owners of the trees if they still wish to harvest them......enormous added costs will be involved taking trees through an alternative and very long route which will still have to be up-graded. Far more hours will have to be built into the project than coming through our place......and all these extra costs do not add value!!!!

you realise you have just summed up why I decided to toss the dairy farming, right ?
I can improve my farms performance, I can't improve the compliance overheads.

Toss in price uncertainities being passed to the land owner....

I'm hearing you Cowboy......and what ends up happening is that the highly productive family farmers end up selling up and often to over-seas owners as they simply have access to more funds at cheaper rates.......
 
NZ has lost its heart and sole to the horned creatures who work in the Government Agencies!! 
 
I absolutely loathe the fact that I must abort from my can-do attitude because some coffee-supping, key-tapping no-hopers sitting in a bureaucratic offices all over the country jointly and independently put up so many barriers that the only thing one can-do is sit on their hands......
 
Nanny State Smothers productivity!!

So what you are saying, is dairing is only profitable if you can externalise all the costs?  

Help please ...  All very interesting but does this mean a lower exchange rate or higher output values for exports increase our productivity ?

yes.  far more than actual process improvement will create. 

This article is very limited and ignores the issue of who earms the benefits.  My point is that if you don't own it, you can be as productive as you like, you can work in very smart ways, but you don't get the benefit.
We need to consider it might be 'smarter' to own our work.  This article sidesteps that one.
Consider an island run as a Plantion Economy.   Large capital comes in from off shore.  The natives work like every waking moment.  (very productively as individuals).  The overseers carry whips to ensure output.  The natives receive only the minimum required to maintain life.   They are not allowed to produce from their own gardens, and the only goods they see are from the company store at company store prices.
Meanwhile this article exorts us to work harder.  (the whip) but ignores any discussion about who benefits from that.  We are busy transferring our productive assets to foreign control.  Our costs to live are high, with vast benefits going offshore.  eg banks.
Are we becoming a plantation economy ? 

No, clearly not.   If an employee is in a job where he can be as productive as he likes, can work in very smart ways, but doesn't get the benefit, then he is free to look for work elsewhere.   Any employer with half a brain - yes, including foreign firms, who by and large tend to pay better than locally-owned ones anyway - will realise that if people are rewarded more if they do more work better, then they are more likely to do more work better than if their reward - salary, promotion, job security - is exactly the same whether they do good work or bad.    
 
That's not to say, however, that it should be compulsory for all employers to structure their remuneration in this way.  It's not possible or appropriate in every circumstance.
 
 
 
 

"Interestingly, comparisons by the Productivity Commission show that Australians are more productive than New Zealanders even within the same industries."

Simply because their home market is FIVE times the size of ours.  Their market is that much deeper to sell the same junk into without affecting demand.   If we doubled the output it wouldn't make twice the profit.