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New Zealand’s productivity story: cracking the nutLecture, School of Economics and Finance
Massey University
Paul Conway
Director – Economics and Research
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Just what is productivity?
“…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 isn’t everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
Krugman (1994, p11)
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Outline
1. Productivity and income
2. Long-run aggregate productivity performance
3. Productivity at the industry level
4. International comparisons
5. Causes of New Zealand’s poor productivity
6. Productivity Commission and Productivity Hub
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Productivity and income
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The sources of income growth
Source: Treasury (2008) (modified)
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Source of NZ’s income growthProductivity is key to income growth: Labour productivity has accounted for 55% of NZ’s income growth since the early-1990s.
Source: SNZ; authors’ calculations
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Aggregate (measured sector) productivity performance
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Labour productivity growth
Labour productivity growth strong in late-1980s and 1990s, but weaker in 2000s.
Source: SNZ; authors’ calculations
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Multi-factor productivity growth
MFP growth strong in 1990s compared with other periods, but has weakened in 2000s.
Source: SNZ; authors’ calculations
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NZ’s long-run growth dynamicsOutput growth
Source: SNZ
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New Zealand’s productivity performance by industry
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Productivity levels by industry
Source: SNZ; authors’ calculations
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Productivity growth by industry
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Industry contributions to aggregate growth
1996-2011
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Industry contributions by GDP share
Aggregate labour productivity growth
Labour productivity growth: 1996-2011
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Industry contributions vs. GDP share
Agg. MFP growth
MFP growth: 1996-2011
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Change in productivity growth 1990s vs. 2000s
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Industry contributions to the 2000s slowdownPercentage point difference – 1990s vs. the 2000s
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Summary of industry results
Outperformed: Information, media & telecoms; Finance & insurance
ICT-intensive industries: some have performed well, but NZ’s overall ICT story is unclear
Underperformed: Construction; some Service industries (including Professional, scientific & technical)
Weaker MFP growth in the 2000s: cause broad-based, but particularly Agriculture; Transport; Manufacturing
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New Zealand’s productivity performance in international comparison
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Employment grows, productivity slows
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Same labour increase, more output in AUS
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Labour productivity levels, Australia vs. NZ
Source: Mason (2013)
NZ has higher LP levels
NZ has lower LP levels
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NZ’s industry performance compared - growthOutput growth decomposed – 2000-2007
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Distance to which frontier?
Firm productivity
Frontier country – the US
Lagging country
Advanced/low competitioncountry – NZ?
The
tech
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r
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Potential drivers
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NZL income should be higher (based on comparative policy settings)
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Why a poor productivity performance?
• Why doesn’t technology diffuse into or within New Zealand?– Economic geography?– Trade?– Regulation?– Services?– The macro picture?
Small relatively closed markets implying a serious lack of competition and scale?
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New Zealand firms are tiny
Total employees:
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New Zealand doesn’t trade much…
30“…any successful economic development strategy must ultimately raise the share of international trade in GDP” Harrison and Rodriguez-Clare (Handbook of Development Economics)
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… or participate in global value chains
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Local markets are smallDomestic tradability index by 1-digit industry
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NZ’s regulatory advantage has eroded
Economy wide PMR, 1998 2008‑ ‑
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What are we doing about it?The Productivity Commission and Productivity Hub
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The Productivity Commission
Our organisation
• independent Crown entity• three Commissioners• ~15 staff, plus contractors
Our work • 2 inquiries per year chosen by Govt.• in-depth analysis taking ~12 months• public engagement/consultation• real-world, practical policy advice to
government• Non-inquiry research agenda
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• A cross-agency group designed to:– Shape research agendas– Connect people– Disseminate evidence
• Soon to publish a ‘Forward Looking Agenda for Research’