5  Australia and New Zealand productivity (continued)

Figure 9 – Australia and New Zealand productivity comparison

Source: Calculated from ABS (2002) data.

Source: Calculated from ABS (2002) data

Figure 9 compares ‘ABS equivalent’ New Zealand market sector productivity, the ABS market sector productivity and New Zealand market sector productivity reported shown in Figure 1. Again, the ABS productivity series have been rebased to unity in 1988. Table 5 reports average growth rates in the ‘ABS equivalent’ New Zealand market sector productivity series and the ABS market sector productivity series.

Excluding the business and property services and the personal and community services industries from the New Zealand market sector makes a considerable difference to multifactor and labour productivity. In both cases the ‘ABS equivalent’ New Zealand multifactor and labour productivity series lie above the corresponding New Zealand market sector series. The capital productivity series are very similar. The change in industry coverage highlights the impact the difficult to measure sectors can have on measured productivity growth.

Average multifactor productivity growth for the period 1988 to 2002 increases from 0.88% per annum using the New Zealand market sector series to 1.12% per annum using the ‘ABS equivalent’ series. Average labour productivity growth increases from 1.33% per annum to 1.91% per annum. These differences in average growth are partly due to the alternative paths taken by the ‘ABS equivalent’ and New Zealand market sector series up to the early 1990s. Thereafter, the two productivity series follow similar growth paths (albeit with a level difference). This is also confirmed when looking at average growth for the sub-periods 1988 to 1993 and 1993 to 2002. Differences in average multifactor and labour productivity growth are more marked between the ‘ABS equivalent’ and New Zealand market sector series in the period 1988 to 1993, than in the period 1993 to 2002 (see Table 5).

For the period 1988 to 2002, average multifactor productivity growth in Australia and New Zealand (ABS equivalent) was almost identical at 1.13% and 1.12% per annum, respectively. During this period, the one time in which the Australian and New Zealand multifactor productivity series diverge is in 1999. Buckle, Kim, Kirkham, McLellan and Sharma (2002) argued that the 1997 and 1998 summer droughts had a substantial adverse impact on New Zealand’s GDP during this period. Climatic shocks are likely to be captured within multifactor productivity and the stagnation and then decline in multifactor productivity during 1998 and 1999 is consistent with the idea that adverse climate shocks had a negative impact on New Zealand’s GDP during this time.

Within a growth accounting framework, labour productivity growth can be decomposed into multifactor productivity growth and growth in the capital-labour ratio. This provides a useful organising framework for analysing the proximate sources of labour productivity growth, although it should be kept in mind that this is not a model of economic growth and therefore does not capture the interaction between factor accumulation and multifactor productivity or the ultimate influences on input accumulation and multifactor productivity growth.

While average multifactor productivity growth in New Zealand and Australia has been similar over the period 1988 to 2002, the evolution of the capital-labour ratios in the two countries has been different. Between 1988 and 1993 average growth in the capital labour ratio was higher in New Zealand than in Australia (see Figure 10), and labour productivity growth was also higher in New Zealand. In contrast, labour productivity growth was higher in Australia than in New Zealand over the period 1993 to 2002. During this period Australia experienced higher growth in the capital-labour ratio compared to New Zealand. In summary, New Zealand’s lower labour productivity growth after 1993 was associated with a lower rate of capital accumulation per unit of labour.[12]

On the other hand, New Zealand’s slower rate of capital accumulation compared to Australia since 1994 is reflected in New Zealand’s stronger capital productivity growth. As New Zealand has sourced more of its output growth from growth in the labour input since 1994, capital productivity has increased in New Zealand. In contrast, capital productivity has declined in Australia. Stronger growth in the labour input in New Zealand is likely to have been welfare enhancing by the extent to which growth in hours worked has been sourced from increases in labour force participation, unemployed workers finding employment, and underemployed workers working more hours.