1.  Introduction

Auckland is New Zealand’s largest urban centre of population and economic activity – comprising around one third of the total on each measure. It is almost axiomatic therefore that for the New Zealand economy to perform well, Auckland needs to perform well. Over and above the fact that Auckland is a large fraction of New Zealand, there is also a substantial body of economic theory and evidence that finds that large cities can be dynamic sources of innovation and productivity growth.[1] To what extent is this true of Auckland? This paper reports new evidence on how well the Auckland economy has been performing relative to other cities and regions of New Zealand.

Any investigation of regional economic performance in New Zealand is hampered by the relative paucity of official statistics at the regional level. For example, there are no data on the levels and growth rates of regional gross domestic product, or regional labour productivity. However some non-governmental organisations have developed proxies for regional economic performance in New Zealand and report them quarterly or less frequently.

The National Bank of New Zealand produces quarterly estimates of the growth of regional economic activity. It uses a variety of official and unofficial sources to construct an index of overall economic activity for each of 14 local government regions of New Zealand, but does not attempt to estimate labour productivity growth rates or levels at the regional level. The general picture that emerges from its quarterly reports on changes in the index and its components is that Auckland’s growth performance, at least over the last business cycle, has been no better than average.

The New Zealand Institute of Economic Research (NZIER) has produced estimates of regional labour productivity. Their method assumes that average labour productivity for each industry at the national level applies in each region and therefore that differences in productivity performance across regions and over time simply reflect differences and changes in industry structure across regions. This is a restrictive assumption because it rules out, for example, that productivity in the business services sector could be growing faster (or slower) in Auckland than in Christchurch. While acknowledging the limitations of their approach, the NZIER (NZIER, 2004) find Auckland’s economic performance over the early 2000s is a mixed bag with most measures very much sitting in the middle part of their regional distributions.

The research reported in this paper attempts to overcome some of the limitations of these existing estimates of regional economic performance. We do so by examining wage and income data from the annual New Zealand Income Survey (IS). According to human capital theory, hourly earnings of workers are indicative of their labour productivity, while real earnings growth reflects labour productivity growth. We divide the country into five areas that are broadly homogenous in terms of where they sit on an urban-rural spectrum. These areas are the cities of Auckland, Wellington, and Christchurch, a composite of medium-sized cities and a composite of rural areas and small centres. Then, we examine wage and income levels and trends from 1997 to 2004 across these areas. In contrast to the National Bank and NZIER findings over a comparable period, our results suggest that productivity levels are generally higher in Auckland than elsewhere and have been growing faster than other regions.

In section 2, we explain the motivation for the research and give a brief background on New Zealand’s recent economic performance and on theory and evidence of the role of cities in economic growth. Section 3 describes our data and methodology, while section 4 lays out both raw results and results that take into account a range of influencing variables that may vary across regions such as age, ethnicity, occupation and educational qualifications. We also present results comparing four sub-regions of Auckland – Northern, Southern, Central and Western – against each other. Section 5 compares our results with the other studies of regional economic performance mentioned above and tries to understand and explain the differences. Section 6 summarises and concludes.