Working longer hours but producing less: NZ's poor productivity

Wednesday, 26 May 2021

Our output per hour worked is about 40 per cent below the average of the top half of OECD countries. But what actually lies behind all these metrics and statistics?

New Zealand’s poor productivity is highlighted in a new report showing people are working longer hours and producing less compared with other OECD countries.

The Productivity Commission’s Productivity by the numbers report released on Thursday shows New Zealanders worked 34.2 hours per week, higher than the 31.9 hours per week worked in other OECD countries, and produced $68 of output per hour, less than the $85 per hour in other OECD countries. The figures cover the year to March 2020.

“New Zealanders are working harder rather than smarter, this makes improving living standards even more difficult,” said Productivity Commission chairman Ganesh Nana.

Productivity Commission chairman Ganesh Nana says there are only so many hours in the day that people can work.

Poor productivity resulted in higher prices for everyday items, which could impose a large burden on those with low incomes, he said.

* The Detail: New Zealand is not as productive as we should be, what does that mean?

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Poor productivity performance is “a longstanding problem” for New Zealand, a report says.

“When productivity growth is lower, wage growth tends to be lower too, meaning some families struggle to make ends meet,” Nana said. “The result is they work longer hours and have less time to spend with family and in the community.”

New Zealand was one of the most productive economies in the world at the end of the 19th century but has been overtaken, slipping to a below-average position, the report said.

Globally there has been massive growth in productivity over the last century, the report said.

However New Zealand experienced comparatively less productivity growth after the Second World War, and has gone from being one of the most productive economies to one of the least productive in the OECD, the report said.

New Zealanders’ material living standards had fallen from the global top at the beginning of the 20th century to below the OECD average, the report said.

Working more hours and putting more people into work was the main way that the economy has grown over the past few decades, with almost half of the gross domestic product growth in the March 2020 year due to increases in labour input, the report said.

Innovation and technological change were critical to productivity growth, the report said.

“There are only so many hours in the day that people can work, so creating new technology and adopting new and better ways of working is critical to achieving effective change,” Nana said.

Recent research suggested New Zealand firms were not making the most of leading technologies and that global best practices did not flow swiftly into the economy, the report said.

Technology could include innovation and technological improvements, economies of scope and scale of production, changes in workforce skills and better management techniques, and changes in the mix of inputs, it said.

Compared with other developed countries, New Zealand firms were capital-shallow, meaning that workers had relatively limited equipment to work with, the report noted.

The Productivity Commission, an independent Crown entity established in April 2011, aims to promote understanding of productivity issues and notes improvements in this area would support overall wellbeing.

In terms of productivity, New Zealand’s economy has slipped to a below-average position, the report said.

“To improve material living standards, particularly with a growing population, New Zealand needs a more productive economy,” the report said.

“Increasing productivity is about getting more (output) for less (input), rather than by making people work harder, wearing out plant and machinery or depleting natural resources.”

While economists were notorious for emphasising trade-offs and saying there was no such thing as a ‘free lunch’, the report said “lifting productivity is the closest thing to a free lunch there is”.

Improving productivity could make growth more sustainable, providing higher material living standards for current and future generations, the report said.

“Productivity growth is important for overall income growth,” the report said.

“Income growth matters for the material living standards of households, and also enables governments to redistribute wealth to address inequality and hardship.”

Poor productivity performance was “a longstanding problem” for New Zealand and no initiatives had succeeded in lifting the country’s productivity over recent decades, the report said.

“New Zealand’s challenge now is to transition from working ever more hours and depleting capital stocks (especially natural capital), to lifting wellbeing by generating more value from productive inputs,” the report said.

“There is a large gap to be closed if New Zealand’s productivity growth is to reach the rates needed to push material living standards back towards the top end of the OECD,” it said.

The impact of the Covid-19 pandemic on productivity was uncertain, the report said.

The loss of business confidence could have led to a fall in innovation, or it might have caused the weakest firms to fail, lifting overall productivity.