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New Zealand's Productivity Performance - TPRP 08/02

1.  Introduction

This paper examines the productivity performance of the New Zealand economy.

Productivity is the key determinant of a country’s standard of living over the long term. For workers, productivity is important because of its link to wages and the consumption these wages can finance. Similarly, for firms, productivity is important given its link to profits.

The drivers of productivity will be examined in future papers.

This paper is part of a series of papers that discuss New Zealand’s long-term productivity performance and the factors that may be inhibiting New Zealand from reaching its potential. The series begins with this paper and two others. ‘Does Quality Matter in Labour Input? The Changing Pattern of Labour Composition in New Zealand’ examines how changes in the composition of the workforce have affected productivity growth in New Zealand. ‘Putting Productivity First’ outlines the factors that are important in determining productivity, with consideration to New Zealand’s specific circumstances, and introduces the five driver framework for considering productivity (enterprise, innovation, skills, investment and natural resources). The final set of four papers address the first four of these drivers in turn, building on the analysis in the preceding papers by reviewing and interpreting available evidence to draw some conclusions for the underlying factors affecting productivity.

This paper examines the evidence surrounding New Zealand’s productivity performance at an aggregate level. In addition to setting the scene for the five driver framework, understanding past productivity performance is important for the Treasury’s short-term forecasts and long-term projections.

Section 2 of this paper describes what we mean by productivity and how it is measured. In Section 3, we examine New Zealand’s recent productivity performance over time and relative to other developed nations, particularly Australia. Following this, Section 4 looks at some possible explanations of New Zealand’s productivity performance in recent years, including the impact of employment growth and labour quality, and industry and sector developments. Section 5 offers our conclusions from the paper.

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