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1 Introduction

Productivity is the key determinant of a country's material standard of living over time. A series of Treasury Productivity Papers released over the course of 2008 and 2009 discussed New Zealand's productivity performance and the potential policy implications of that performance.[1] The second paper in that series focused on productivity-measurement issues and performance in the so-called measured sectors in New Zealand and Australia and, on an economy-wide basis, for a selected group of OECD economies (New Zealand Treasury, 2008). That 2008 paper also included some preliminary industry-level analysis aimed at investigating cyclical effects on productivity performance in the New Zealand construction industry.

Productivity measurement issues have been canvassed in detail in the various publications supporting the official productivity statistics published by Statistics New Zealand (Statistics NZ), including an analytical report prepared by Statistics NZ for the 2025 Taskforce[2] (Statistics NZ, 2009). The 2025 Taskforce examined the evidence on New Zealand's productivity performance (2025 Taskforce, 2009)[3] and Statistics NZ on 25 June 2010 has since released the first set of official productivity statistics for New Zealand at the industry level, covering the years 1978 to 2008. In this paper we draw on all of this work.

Section 2 of this paper briefly restates the definitions of productivity, measurement issues, and industry coverage. The remainder of the paper is concerned with interpreting productivity measurement and performance in New Zealand and Australia. We focus on the New Zealand and Australia comparison because such comparisons are common in economic debates and also because the two countries have comparable official measured sector productivity statistics.

In section 3 we set out the available evidence on productivity levels, noting the measurement challenges present in levels analysis, especially at the industry level. We start with levels analysis given its relevance to GDP per capita and the interpretation of growth rates. For example, even if we know that measured-sector productivity growth rates in New Zealand and Australia have been broadly similar since 1978, this in and of itself does not throw any light on whatever gap that may exist in the levels of measured-sector productivity.

Section 4 includes an examination of the puzzle of why economy-wide measures of productivity growth, including those published by the OECD, appear to present a different picture to the one that emerges from the official statistics published by Statistics NZ and the Australian Bureau of Statistics (ABS). We attempt to establish the extent to which these differences simply reflect measurement issues as opposed to meaningful underlying differences in economic performance. Doing this requires an examination of labour inputs, as well as the measurement methodologies of output in specific industries. It is worth noting that these types of puzzles are not unique to the New Zealand-Australia situation.[4]For example:

“A comparison of aggregate labour productivity growth between Canada and the United States reveals a significantly different story depending on which measure of aggregate labour productivity is used. Business sector output per hour advanced at a 2.2 percent average annual rate over the 1981-2003 period in the United States versus 1.5 percent in Canada… The United States enjoyed a 0.7 percentage point advantage over Canada. Total economy output per hour grew 1.7 percent per year in the United States compared to 1.4 percent in Canada, a difference of 0.3 points, one half that registered for the business sector. The better relative productivity performance for Canada with the total economy measure is explained by the measured productivity growth in the non-business sector: 1.1 percent per year versus 0.1 percent in the United States. The key issue is which of these two productivity growth rates better captures the true productivity performance of the non-business sector. Non-business sector output is generally proxied by labour inputs. But Statistics Canada attempts to capture productivity gains in certain non-business industries by using output measures that are independent of inputs. The United States appears more reticent in the use of this practice.” (Sharpe, 2004, p.21)

We focus on labour productivity because the methodological differences related to capital measurement (especially with regard to OECD data) are substantive and require further analysis. Section 5 utilises the new industry-level productivity dataset to provide a richer comparison between Australian and New Zealand labour productivity growth performance. Section 6 offers conclusions.

Notes

  • [1]. See http://www.treasury.govt.nz/publications/research-policy/tprp.
  • [2]. The New Zealand Government set up the 2025 Taskforce in 2009 with the central task of providing recommendations on closing the income gap with Australia by 2025, noting that this will require a sustained lift in New Zealand's productivity growth rate from its current level to around 3% a year or more
  • [3]. See Part I: Understanding the problem - multifactor productivity.
  • [4]. Drew (2007) discusses some of the New Zealand productivity measurement puzzles, including the apparent low productivity growth of the non-measured sector (see in particular table 6).
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