Putting Productivity First
New Zealand Treasury Productivity Paper TPRP 08/01
Published April 2008
“Productivity and the growth of productivity must be the first economic consideration at all times, not the last. That is the source of technological innovation, jobs, and wealth”. A country’s ability to raise its standard of living depends on its ability to raise output per hour of work, the amount and value of goods and services each hour worked produces. This is not solely so that firms become increasingly internationally competitive; productivity is a fundamental driver of quality of life. Incomes are inevitably linked to workers’ productivity and a more productive labour force leads to higher wages.
A large proportion of New Zealand’s recent economic growth has been driven by increases in labour utilisation. Whilst this has many economic and social advantages, it is not a sustainable source of long-run growth. New Zealand is nearing the limit to which economic growth can be driven by increased labour participation. Future growth will increasingly need to be derived from increases in productivity.
For several decades, long-term productivity growth has not lived up to aspirations and New Zealand has been low down the OECD league table that measures productivity performance. A number of interrelated factors are important for raising productivity, and there are no quick fixes or silver bullets. A broad range of steps impacting productivity on a number of fronts are required and it may take several years before any benefits are seen in measures of productivity.
New Zealand’s productivity performance would benefit from a focus on five drivers of productivity, with consideration under each driver given to the role of international connections: Enterprise, Innovation, Skills, Investment and Natural resources.
This paper is the first in a series of papers that set out the key drivers that influence productivity performance and the ways in which it can be improved. It sets the scene for more detailed work on productivity performance and on each of the drivers outlined here. The paper aims to focus attention on the issues that economic theory and evidence suggest are of importance for New Zealand’s economy.
This paper was prepared by Neil Kidd. Comments were provided by staff in the Treasury and the Ministry of Economic Development. Thanks in particular go to James Beard, Kevin Guerin, Norman Gemmell, Geoff Lewis, John MacCormick, Ben Naylor and Sian Roguski.