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New Zealand's Productivity Performance - TPRP 08/02

5.   Conclusions

This paper has been written to explain New Zealand’s productivity performance. However, it has noted continued difficulties with productivity measurement. Although there have been some recent improvements in the official measured sector productivity data, there are still difficulties in gauging productivity across parts of the economy and there are still gaps, some of which will be addressed in the near term (eg, wider industry coverage), while others are longer term (eg, productivity at the industry level and productivity in the public sector).

Productivity growth in New Zealand’s measured sector has been on a par with Australia’s at around 2% per annum, although New Zealand’s level of productivity remains lower than that of Australia. New Zealand’s trend labour productivity performance over the last two decades, on an economy-wide basis, has generally been in the 1% to 2% per annum range. The official statistics for productivity growth in the measured sector appear to have slowed in recent years. However, analysis of recent trends is not definitive as Statistics New Zealand estimates that the most recent cycle is not yet complete. This means the trend for the current decade may still change by the time the cycle is complete.

In the context of recent trends and the incomplete business cycle, this paper looked at explanations of the apparent slowing of observed productivity growth. Given the available information, it is difficult to isolate and weight the relative importance of the factors because of uncertainty around unobservable variables (eg, the business cycle) and data limitations. There is evidence that employment growth and changes in labour quality have tended to dampen observed labour productivity growth in the recent past. An expansion of construction and the service industries (many of which are in the non-measured sector), relative to industries where recorded productivity tends to be higher, may also be playing a part.

Policy changes, as reflected in the five driver framework, may have had an effect. However, it is hard to determine causality, even when association exists. The recent resurgence of economy-wide labour productivity growth largely reflects an upturn in the business cycle so does not detract from the importance of efforts to raise future productivity performance.

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