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3 Levels and growth rates

Cross-country comparisons of productivity levels play an important part in decomposing the sources of cross-country differences in GDP per capita. However, levels comparisons are subject to more measurement issues than comparisons of growth rates. Comparisons of productivity growth across different countries rely on national estimates of real output based on nominal output and price deflators. Comparisons of productivity levels require common international price units such as those provided by Purchasing Power Parity (PPP) exchange rates. Economy-wide PPP exchange rates (derived from expenditure prices) are used in GDP per capita and economy-wide labour productivity levels comparisons. However, industry (and indeed sector) levels comparisons should ideally use industry-specific conversions based on production/commodity prices to allow for differences in relative prices and how they change over time.[8]

The OECD provides long-term time series for real GDP per capita for New Zealand and Australia (figure 1). Of 33 OECD countries in 2007/08, prior to the global financial crisis, GDP per capita in US dollars for 2000(ie in constant prices and PPP exchange rates based on reference year 2000) was $32,400 in Australia (9th highest in the OECD) and $24,300 in New Zealand (21st in the OECD). The real GDP gap between New Zealand and Australia widened from the mid-1970s. In percentage terms, real GDP per capita in 2008 was around 33 percent higher in Australia than in New Zealand. Alternatively, real GDP per capita was around 25 percent lower in New Zealand than in Australia.

Figure 1 - Economy-wide real GDP per capita
Figure 1 - Economy-wide real GDP per capita.
Source: OECD

1. In constant prices and purchasing power parity exchange rates based on reference year 2000.

Figure 2 indicates that the per capita GDP gap reflects a growing economy-wide labour productivity gap (GDP per hour worked) with some offset caused by higher labour utilisation (hours worked per capita) in New Zealand. The fall in labour utilisation in the late 1980s in New Zealand relative to Australia, is also evident in the Statistics NZ and ABS data. Based on Conference Board data, the labour productivity gap itself opened up prior to 1971, when this graph begins, and widened from the mid-1970s. Between the early 1980s and mid-1990s, although fluctuating, the gap was broadly unchanged, before starting to widen again.

Figure 2 - Economy-wide real GDP per capita gap
Figure 2 - Economy-wide real GDP per capita gap.
Source: OECD

Data from the Conference Board show a similar story to figures 2 and 3. Organisations such as the Conference Board and the OECD generally source their data from national statistical agencies. In order to make cross-country comparisons they will often adjust the data (eg, converting March to December years) and/or combine series to cover longer time periods. As discussed in section 4, this can create differences with official published productivity statistics.

For New Zealand, official measured-sector productivity statistics are available from 1978. For this reason, figure 3 plots economy-wide labour productivity indexes to compare growth rates from 1978. Australia's average annual growth rate (1.7 percent) exceeds New Zealand's (1.4 percent) on this measure over the 1978 to 2008 period. As in figure 2, economy-wide labour productivity growth rates are similar over the early 1980s to mid-1990s, a period when the levels gap had already opened, before they began to diverge again.

Figure 3 - Economy-wide labour productivity indexes
Figure 3 - Economy-wide labour productivity indexes.
Source: OECD

Figure 4 uses indexes to illustrate cross-Tasman measured-sector productivity growth based on the sector definitions outlined in table 1. In contrast to figure 3, New Zealand's average annual growth rate (2.2 percent) actually exceeds Australia's (2.0 percent) on this measure over the 1978 to 2008 period. New Zealand also exceeds Australia in measured-sector MFP growth over 1978 to 2008 with an MFP growth of 1.1 percent versus 1.0 percent.

Figure 4 - Measured sector labour productivity indexes
Figure 4 - Measured sector labour productivity indexes.
Source: Statistics New Zealand and Australian Bureau of Statistics

Although we do not have official levels comparisons, analysis by the Department of Labour using aggregate PPP exchange rates suggests that, in 2008, New Zealand GDP per hour in the measured sector was around 25 percent lower than in Australia and the gap has been constant since the start of its analysis in 1996.[9]

Notes

  • [8]. These points are a summary of the discussion in Dolman, Parham, and Zheng (2007) who undertake some preliminary industry levels comparisons between Australia and the United States. Australia has subsequently been included in the EU-KLEMS industry database. KLEMS stands for: capital (K); labour (L); energy (E); material (M); and service inputs (S).
  • [9]. The New Zealand Institute has carried out some levels comparisons at an industry level, but without the benefit of industry-specific PPPs (The New Zealand Institute, 2009). Mason and Osborne (2007) undertake a levels analysis at the industry level for New Zealand relative to the United Kingdom (UK). They find New Zealand labour productivity exceeds the corresponding UK industry in 2002 in only six of these industries. This pattern largely persists throughout 1995 to 2004.
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