NZ still lagging on productivity, but full diagnosis debated
Tuesday, 4 July 2023
New Zealanders are still failing to become much more productive, which is a recipe for stagnant living standards and a relative lack of leisure time, the Productivity Commission has warned.
A report produced by the commission found that productivity growth in New Zealand had now been lagging behind other developed countries in the OECD for 50 years.
Kiwis were on average working slightly longer hours than their counterparts overseas as of 2019, but were producing less than the average value of goods and services in that time, it said.
Productivity growth has slowed around the world over the past 10 years, the commission noted.
“Some have argued the supply of economically transformational ideas has simply dried up or at least currently slowed down.
“Others have a more optimistic view that the slowdown is temporary, as firms better understand and implement new technologies, such as machine learning and artificial intelligence,” it said.
But Productivity Commission chairperson Ganesh Nana said its analysis suggested that New Zealand’s individual productivity record also still left a lot to be desired.
“New Zealand’s economy has gone from being one of the most productive to one of the least productive in the OECD,” he said.
“New Zealand has a relatively defensible record in producing more goods and services. But this has come from more New Zealanders working more hours.
“This is not a recipe for sustained improvements in material living standards, let alone those non-material aspects of family time, leisure hours, and feeding the mind as well as the body.”
Economists have commonly pointed to relatively low levels of capital investment in new labour-saving technologies as being behind the country’s seemingly poor track record on productivity.
But the OECD has also previously laid some of the blame at the door of “mediocre management practices”, which it said in 2017 were holding the country back, and with weak competition rules.
New Zealand was “capital shallow” and ranked 26th out of 37 OECD countries in its spending on research and development in 2019, the Productivity Commission reported.
“Innovation and technological change, which require appropriate investment efforts, are critical to productivity growth,” it said.
A silver-lining in the report would appear to be that the country’s employment rate has been improving and is relatively strong.
Some economists have argued that productivity measures should be adjusted for changes in the employment rate.
That is because there is some evidence that, in the short term at least, increases in unemployment can be associated with a rise in labour productivity, which only measures the productivity of people in work.
The Treasury also reported last month that “traditional productivity metrics” had been lacklustre in New Zealand in recent decades.
But it said “more comprehensive measures of material economic performance” had been stronger since the 1990s, thanks in part to an improvement in the country’s’ terms of trade and falling interest rates.
“New Zealand’s labour market seems to have been relatively effective at creating full-time jobs at a range of skill levels for a wide range of people compared to those of other countries,” it also concluded.
GDP per hour worked might only be “a partial indicator” of New Zealand’s economic performance because it did not capture the strong labour market and terms of trade trends, the Treasury said.
“These trends may have even suppressed average GDP per hour worked if New Zealand’s labour market has been better at including lower productivity workers.
“The rise in the terms of trade could have had a similar impact if it has reflected firms focusing on products with high or rising prices rather than products where there is potential to increase production volumes per unit of labour.”