2.2  Motivation for this study

This study aims to take a further step towards understanding how well Auckland’s economy is in fact performing. Specifically we examine whether Auckland is performing above or below average in labour productivity levels and growth rates compared to smaller cities in New Zealand, and to small centres and rural areas. In asking this question, we need to bear in mind that New Zealand’s economic structure is different from most other developed OECD economies - it has a relatively large, export-based primary sector. This characteristic could mean that it is New Zealand’s rural areas rather than its cities that are the driver of overall economic performance.

This study takes a previously unexplored route to measuring Auckland’s relative economic performance. It focuses on productivity performance by analysing the wage rates for wage/salary and self-employed workers, and their growth across regions in New Zealand. We make the standard economic assumption that pay rates reflect marginal labour productivities of the relevant workers. We also look at employment rates, rates of benefit receipt and hours worked as indicators of relative labour utilisation performance in Auckland compared to other cities and regions.

There are perceptions that Auckland’s economy is underperforming, and thus is not fulfilling the role of a dynamo for the rest of the New Zealand economy (LEK, 2001). It is possible that the National Bank’s proxies for regional economic activity growth have contributed to these perceptions. For example, a recent leaflet put out by the Auckland Regional Council (ARC, 2005) used the National Bank’s data to illustrate that Auckland’s growth in 2004 was the 4^th lowest among fourteen New Zealand regions (see figure 1). However, one needs to keep in mind that overall growth in average income in a region reflects both labour productivity and labour utilisation. The National Bank measures do not contain enough information to uncover Auckland’s relative performance in either measure on its own.

Figure 1 – Regional Growth Rates, 2004

While New Zealand’s regions vary according to how urban or rural they are, most are a mixture. Even the Auckland region includes a significant hinterland of smaller centres and rural land beyond the city boundary. In order to capture whatever differences in labour productivity exist between densely populated urban areas and other parts of New Zealand, we divided households in the Income Survey into five areas: the Auckland urban area; the Wellington and Kapiti urban area, the Christchurch urban area; a composite of all other main urban areas and a composite of minor urban centres and rural areas. This is a significantly different geographical division compared to the local government regions of New Zealand, which are the focus of both the National Bank and NZIER measures.

As already mentioned, the NZIER study estimates regional labour productivity statistics by assuming that average labour productivity for each industry at the national level is constant across regions and that differences in productivity performance across regions and over time simply reflect differences in industry structure across regions and over time[7]. If Auckland and other New Zealand cities generate the sort of productivity effects that evidence indicates occur in cities in other countries, then the NZIER approach will at best capture them only partially. For the first time, our study provides an insight into labour productivity levels and growth rates across New Zealand, where allowance is made that these may differ within an industry across the country.

It is possible that Auckland could be underperforming compared to other regions in GDP per head, but performing above average in terms of labour productivity. This could occur, for example, if Auckland has experienced a low level and low growth rate of labour utilisation compared to other regions. Thus, it is important to examine indicators of labour utilisation as well as proxies for labour productivity in order to understand the underlying differences across regions and over time[8].