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Productivity paper

Taking on the West Island: How does New Zealand's labour productivity stack up? (TPRP 10/01)

Issue date: 
Tuesday, 19 October 2010
Status: 
Current
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Abstract

New Zealand’s productivity performance has gained considerable attention in recent times, particularly compared with Australia’s. Using a three-pronged approach, this paper seeks to shed new light on that relative performance. First, measures of labour productivity levels as opposed to growth rates are compared in order to provide insight into disparities in GDP per capita between the two countries. Secondly, the paper examines the puzzle of why measures of economy-wide labour productivity growth rates produced by the OECD differ from the estimates of productivity growth rates as captured in the domestically-produced official statistics on the so-called measured or market sectors in New Zealand and Australia. Thirdly, labour productivity growth rates are compared for the 12 common industries for which New Zealand and Australia compile official productivity estimates.

Over the period we examined most closely, 1988–2008, New Zealand’s measured sector labour productivity growth was slightly ahead of Australia’s corresponding sector but there was not a lot in it. On the other hand, Australia had faster labour productivity growth economy wide and this cannot all be dismissed as a statistical anomaly. The levels gap in economy-wide labour productivity decisively favours Australia and has remained roughly constant for the last 10 years at around 30 percent of the Australian level.

From a policy perspective our findings suggest that raising New Zealand’s productivity growth remains its most important economic challenge: the levels gap is still large even after measurement issues are taken into account. While New Zealand measured-sector productivity growth has been at least on a par with Australia, it needs to be faster to close the large gap; and it is disappointing that the higher growth rate expected of an otherwise similar country coming from behind has not eventuated in New Zealand’s case.

Acknowledgements

This paper was prepared by Brendan Mai (Statistics New Zealand), John Janssen, Geoff Lewis and Simon McLoughlin (New Zealand Treasury). Adam Tipper (Statistics New Zealand) provided analytical support. An earlier version was presented at the joint conference of the New Zealand Association of Economists and the Law and Economics Association of New Zealand, 30 June–2 July, University of Auckland Business School.  The paper benefited substantially from a June 2010 workshop involving representatives from Statistics New Zealand, the Australian Bureau of Statistics, the New Zealand Treasury, and the Australian Treasury. Comments were also provided by Dean Parham, Donald Brunker, Derek Burnell, Tas Papadopoulos, and Grant Scobie.

Disclaimer

This is a joint paper between the New Zealand Treasury and Statistics New Zealand. Statistics New Zealand provided technical advice around data and methodologies so as to inform the analysis. The analysis and interpretation were provided by Treasury.

Last updated: 
Wednesday, 20 October 2010