5  Australia and New Zealand productivity

This section compares productivity growth in the New Zealand and Australian economies for the period 1988 to 2002. The Australian and New Zealand economies are often compared on the basis of similarities in history, institutions and economic policies (see for example Brook, 1998; Matheson, 2002). Diewert and Lawrence (1999) also compared Australian and New Zealand productivity using index number techniques.

The ABS produces multifactor productivity, labour productivity and capital productivity series for the market sector of the Australian economy. What follows is a brief discussion of the methodology and the data used to construct these productivity series. Further information on the methodology and data used to construct the ABS productivity series can be found in the Australian System of National Accounts: Concepts, Sources and Methods (ABS, 2000). These productivity series have been used to evaluate the productivity performance of the Australian economy (see for example Parham, 1999; Quiggin, 2001)

The market sector of the Australian economy is defined by the ABS to include the following industries: Agriculture, forestry and fishing; Mining; Manufacturing; Electricity, gas and water; Construction; Wholesale trade, Retail trade; Accommodation, cafes and restaurants; Transport and storage; Communication services; Finance and insurance; and Cultural and recreational services. The hard to measure industries excluded from the market sector are: Property and business services, Government administration and defence; Education, health and community services; personal and other services; and ownership of dwellings. The ABS market sector comprised approximately 64% of total volume GDP in 2002.

Labour productivity is formed by taking the ratio of market sector gross value added to hours worked. Capital productivity is formed by taking the ratio of market sector gross value added to a measure of capital services. Multifactor productivity is formed by taking the ratio of market sector gross value added to a composite input series of hours worked and capital services. The composite input series is formed using the Törnqvist index formula. An estimate of market sector capital services is formed using detailed capital stock data for each asset type at the industry level. Users cost series, calculated using an industry specific internal rate of return, are used to weight the capital stocks for each asset type.

To maximise scope for comparison with the ABS productivity series it was necessary to construct measures of multifactor productivity, labour productivity and capital productivity using the Törnqvist index and excluding the business and property services and personal and community services industries, to more closely align the New Zealand industry coverage with the ABS definition of the market sector. The resulting ‘ABS equivalent’ New Zealand market sector was 58% of total volume GDP in 2002.

While the New Zealand ‘ABS equivalent’ productivity series comes relatively close to the industry coverage and specification of the ABS productivity series, some differences remain. First, it was not possible to construct comparable industry data that separates out the finance and insurance industry from the business and property services industry or the cultural and recreational services industry form the personal and community services industry. Second, the ABS uses market prices whereas data used in this paper is formed using producer prices. Third, the ABS capital stock data includes inventories, land and livestock whereas the Statistics New Zealand productive capital stock estimates exclude these asset types. Finally, the ABS aggregate their elemental industry asset type capital stock data using user cost series constructed with an industry specific internal rate of return. Statistics New Zealand forms their industry capital stock data by summing the constant price elemental series on different asset types at the industry level.[11]

Before examining the productivity performance of Australia and New Zealand, it is useful to consider the evolution of output capital and labour in the two countries. Figure 8 shows these series for the New Zealand market sector (as defined in Appendix Table 1), the ‘ABS’ equivalent market sector, and the Australian market sector. The ABS market series have been rebased to unity in 1988.

Over the entire period 1988 to 2002, average output growth in the Australian market sector has been stronger than in the ‘ABS equivalent’ New Zealand market sector. However, most of the difference arises in the period 1988 to 1993. Average output growth in both countries between 1993 and 2002 was almost identical at 3.80% for New Zealand and 3.95% for Australia. During this period output growth was stronger in New Zealand up until 1998, but slowed compared to Australian in 1998 and 1999. Higher average output growth in Australia between 1988 and 1993 was sourced from higher growth in hours worked and the capital stock. The higher rate of capital accumulation is one of the striking differences between New Zealand and Australia from Figure 8 (a point which is discussed in more detail later in this section).

Figure 8 – Australia and New Zealand output, labour and capital comparison

Source: Calculated from ABS (2002) data.