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4.4 Property and business services

Property and business services' is a relatively large industry at around 14 percent of New Zealand GDP and around 12 percent of Australian GDP. This is a diverse industry and in New Zealand can be broken down into two working industries. Industry ‘LA' (Property) includes: residential property operators; commercial property operators and developers; real estate agents; investors in intellectual property and other non-financial assets; and machinery equipment hiring and leasing. Industry ‘LC' (Business services) includes: scientific research and technical services; computer services; legal and accounting services; and other business services.

From 1988 to 2008, business services contributed about 55 percent of the aggregate value added of property and business services. Figure 8 plots the HLFS-based labour productivity proxy series for property and business services and suggests that this industry could be a major part of the non-measured sector productivity puzzle, either due to real differences in productivity performance or simply different measurement.[12] Table 4 indicates that over the 1988 to 2008 period, labour input growth in property and business services was similar in the two countries, whereas the output of the industry grew significantly more slowly in New Zealand.

Figure 8 - Property and business services
Figure 8 - Property and business services.
Source: Statistics New Zealand and Australian Bureau of Statistics
Table 4 - Average annual growth rates in property and business services 1988-2008
  Australia New Zealand
Output 4.4 2.9
Labour input 5.0 5.2
Labour productivity -0.5 -2.1

Importantly, the output growth of business services prior to 1996, was taken as equal to the growth of labour inputs to business services in the Statistics NZ National Accounts. Since 1996, Statistics NZ has had independent output measures and business services are now included in New Zealand's wider official measured sector. This has not yet happened in Australia. The official Statistics NZ series in figure 9 below shows a similar picture to the HLFS-based series used in figure 8, apart from the decline continuing for one more year, through to 1999.

There is some international evidence indicating that low labour productivity growth is common in the business services industry - output growth is strong by economy-wide standards, but labour input growth is just as strong. Kox, van Leeuwen, and van der Wiel (2007) build on earlier work to suggest that the cause of this sluggish productivity growth is sub-optimal scale. The overwhelming majority of firms in the industry operate at a level where potential scale economies are left unexploited. The increasing contracting out of activities to firms in business services from firms in other sectors may also explain this underperformance if labour input is being attributed to business services but output is being mis-attributed.

Figure 9 - Business services
Figure 9 - Business services.
Source: Statistics New Zealand

Notes

  • [12]. Over the period 1988 to 1998, where the gap for this industry opens up, the HLFS-based labour productivity measure shows the largest decline compared to alternatives based on the QES or LEED. However, across the full 1988 to 2008 period the overall change persists under alternative labour input measures.
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