Productivity by the numbers: The New Zealand experience

This paper describes New Zealand's productivity performance at the level of the whole economy, sectors and individual industries. It describes trends in New Zealand's productivity performance through time and in comparison to other OECD countries, particularly Australia. For a number of decades, labour productivity in New Zealand has suffered a long, slow decline compared with productivity levels in other OECD countries. This persistent productivity underperformance is the key reason why GDP per capita in New Zealand is lower than in most other OECD countries. Looking forward, any narrowing of the income gap between New Zealand and the OECD average will require a much improved productivity growth performance. As in a number of other countries, some of the service industries that use information and communications technologies (ICT) intensively have been important drivers of New Zealand's aggregate productivity growth, with the primary sector also making a substantial contribution. In contrast, the construction industry and a number of labour-intensive low-skilled service industries have generally dragged down New Zealand's aggregate productivity growth performance. Since the 2000s, multi-factor productivity (MFP) growth in New Zealand has fallen considerably relative to the 1990s. Although reasonably broad based, this slowdown in MFP growth in no small part reflects slower productivity growth in the finance & insurance; transport, postal & warehousing and agriculture, forestry & fishing industries. The paper offers some speculation on whether New Zealand's productivity trends are consistent with "catch up" towards the higher productivity levels in leading economies. At the aggregate and industry levels, there is little evidence of productivity catch up, which raises questions about the extent to which new technologies and work practices developed off-shore diffuse into the New Zealand economy. However, if tentative evidence of very wide productivity distributions across New Zealand firms is substantiated, then the extent to which new technologies and work practises diffuse from high- to low-productivity firms in the domestic economy may also be an important consideration in explaining New Zealand's poor productivity record.