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Taking on the West Island: 
How does New Zealand’s labour productivity stack up?

4.5 Government administration and defence, education, and health

Three of the five industries outside Statistics NZ's former measured sector consist of goods and services produced mainly by the public or government sector, with the role of the private sector varying between New Zealand and Australia (eg in education). These industries (M, N, and O as shown in table 1) are ‘Government administration and defence', ‘Education' and ‘Health and community services'. Combined they comprise around 14.6 percent of GDP in New Zealand and 15.1 percent of GDP in Australia. Statistics NZ is undertaking work to include education and health in the measured sector. There are no plans to include government administration and defence.

Measuring outputs in public-sector or government industries represents a serious methodological challenge (the measurement of inputs is relatively straightforward, although far from trivial). First, government outputs are mainly services whose quantity let alone quality are inherently more difficult than goods to measure. Secondly, most government services are free at the point of use and do not have market prices associated with them. So the use of prices as weights to aggregate volume series of different outputs within an industry is unavailable.

SNA93 encourages direct measurement of the actual volume of goods and services produced in government industries, while recognising that this is not always practical given currently available data. In their absence SNA93 acknowledges that national income statisticians may have to proxy outputs by using deflated expenditure on inputs (labour, capital, and intermediate consumption). This is sometimes referred to as the ‘output = inputs' approach. Given that the growth of productivity is the growth of output less the growth of inputs, this proxy method would tend to give productivity growth measures closer to a value of zero regardless of the economic reality. The output = input approach is used in Government administration and defence.

From the 1990s, Statistics NZ and the ABS have progressively introduced further direct output measures for significant parts of the government sector, for example in health Statistics NZ introduced a direct hospitals volume index in the late 1990s. Statistics NZ produces output indexes of health and education services that feed into the measurement of aggregate output in the National Accounts.

Within the government industries, the extent and quality of direct volume measurement is variable. For example coverage is broader in education compared with health. Health outputs in New Zealand that are measured are hospital in-patient and day-patient services. Together they comprise only around 31 percent of total Ministry of Health expenditure (with out-patient and long-term care absorbing around 34 percent and 20 percent respectively of the remainder).[13] So for nearly 70 percent of government health expenditure[14], the output = inputs methodology is still the main method of estimating the contribution of health to overall output in the National Accounts.

In the case of education, Statistics NZ uses enrolment numbers as the main volume measure of output for the early-childhood, primary, and secondary sectors, and full-time student equivalents in the tertiary sector. Roll numbers are less than ideal for early-childhood education, where international best practice is to use actual pupil-hours. For the school sector, best practice is to adjust raw pupil numbers for attainment and at tertiary best practice is to use course credits as the output measure.

Both the current New Zealand and Australian National Accounts treatment of education falls short of international best practice. A 2006 Eurostat and OECD survey of methods of National Accounts estimates of outputs for education services puts them both in an intermediate category.[15]

Table 5 - Output measures in education
Quality adjusted quantity measure Austria, France, Hungary, Italy, Latvia, Lithuania, Malta, Spain, Sweden, UK
Quantity measure only, no quality adjustment Australia, Belgium, Czech Republic, Finland, Germany, Greece, New Zealand
Output=inputs Canada, Denmark, Japan, Korea, Luxembourg, Switzerland, US

Source: OECD

Input measures for labour, capital, and intermediate consumption in government industries are less contentious than for outputs. The methods and challenges for calculating them appear to be generally within the range of those for industries within the measured sector. As described above, Statistics NZ uses a variety of data sources to calculate its preferred labour input series by industry within the measured sector. Such series do not yet exist for the government and non-government industries outside the measured sector.

Table 2 uses measures of hours worked from the HLFS to calculate unofficial labour productivity series for industries outside the measured sector, including the three government dominated industries. Statistics NZ notes that the quality of industry coding prior to 1996 (and therefore the introduction of ANZSIC) is less robust and the three government industries display some marked changes in labour input in the early 1990s. This suggests combining them into a single government dominated sector, as is done in table 6 and figure 10.

Table 6 - Average annual growth rates in government administration and defence, health, and education 1988-2008
  Australia New Zealand
Output 2.8 2.6
Labour input 2.4 2.4
Labour productivity 0.4 0.2
Figure 10 - Government administration and defence, education, and health services
Figure 10 - Government administration and defence, education, and health services.
Source: Statistics New Zealand and Australian Bureau of Statistics

Notwithstanding the likely trans-Tasman difference in the roles of the public and private sectors in these industries, labour productivity growth across the 1988 to 2008 period was higher in Australia. However, given the issues around the robustness of HLFS industry data in the earlier part of this period, there is a case for treating the post-1996 estimates as having greater reliability. In the post-1996 period, labour productivity in the combined industries in New Zealand grew at an average rate of 0.7 percent per year, compared with 0.4 percent per year in Australia.

Notes

  • [13]. See Statistics NZ (2010), section 6.2.4.
  • [14]. The outputs of private health services such as those funded by private insurance and delivered in private hospitals do generally get measured independently of inputs.
  • [15]. For more detail on measuring education output in New Zealand see Statistics NZ (2010), Chapter 7.
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