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Regional Economic Performance in New Zealand: How Does Auckland Compare? - WP 05/08

5.  Comparisons with other studies

5.1  NZIER estimates of regional economic performance

In September 2004, the NZIER produced a report for the Ministry of Economic Development, “New Zealand’s Regional Economic Performance” (NZIER, 2004). In the absence of official measures, NZIER developed a set of regional GDP and GDP per capita estimates – both levels and growth rates. It used these and also its own estimates of regional labour productivity levels and growth rates as the basis for its report.

NZIER obtained its estimates of regional GDP (RGDP) by allocating official national GDP figures across regions. It did this largely by using regional employment data[27]. Each region’s share of the national industry’s employment (available from Statistics New Zealand) was used to determine its share of national real GDP in that industry. This approach assumes that the level of labour productivity within an industry is constant across New Zealand.

The NZIER derived its estimates of labour productivity in each region also by assuming that labour productivity is constant within each industry across all regions. The estimate of a region’s labour productivity is thus a weighted average of national labour productivity figures by industry where the weights are the share of the region’s labour force that works in each industry. The effect of this approach is that regions with greater concentrations of industries that have high productivity (growth) at the national level (e.g. business services) come through as those with higher levels (growth rates) of labour productivity.

Table 5 – NZIER Estimates of Regional Economic Performance
Region RGDP Growth: Annual Average 2000 – 2004 RGDP Per Capita Growth:    Annual Average 1998-2003 Labour Productivity Growth:    Annual Average 2000-2004 Unemployment: Average Rate in Year to June 2004 Nominal GDP Per Capita: Year to March 2003
Northland 1.2 2.0 0.0 6.0 $26,600
Auckland (rank) 3.1 (6=) 1.1 (11th) 1.0 (4=) 3.9 (4th) $30,750 (9th)
Waikato 2.5 1.8 0.5 3.6 $31,100
Bay of Plenty 2.1 2.3 1.0 5.6 $28,500
Gisborne – Hawke’s Bay 3.0 3.5 1.2 5.1 $26,600
Taranaki 3.1 4.0 0.5 4.5 $33,100
Manawatu – Wanganui 5.1 4.6 0.6 4.8 $29,900
Wellington 3.9 1.6 1.5 4.9 $36,700
Upper South Island 2.2 0.7 0.6 3.3 $35,800
Canterbury 4.8 3.7 0.8 4.1 $35,650
Otago 3.8 1.8 1.0 5.1 $31,300
Southland 3.8 1.9 1.7 3.1 $33,700
New Zealand 3.5 2.3 0.9 4.3 $32,100

While satisfactory for some purposes, the assumption of constant labour productivity by industry across regions is not appropriate in investigating the sorts of differences in productivity that may arise in cities compared to less densely populated regions (by means of the mechanisms and in line with the evidence reviewed in section 2 above). The NZIER report recognises the limitation of its approach, but was constrained by lack of data. It notes the critical nature of the constant productivity assumption and concludes that it is difficult to draw any firm conclusions about regional productivity levels or growth.[28] We argue that our approach using regional wage and income data from the Income Survey is thus likely to give more satisfactory estimates of regional labour productivity levels and trends.

Table 5 shows the NZIER’s estimates of a number of indicators of regional economic performance. The NZIER’s 12 regions are based on New Zealand’s local government regions (the sixteen regional council areas) with some of the smaller ones combined. Note that these do not correspond with the areas in our study which we chose specifically to investigate differences in performance between large cities, medium sized urban areas and small centres/rural areas. Nevertheless, the Auckland Regional Council area corresponds broadly with “Auckland” in our study. On the other hand, the Canterbury Regional Council area, for example, includes a considerable area of rural land and small centres[29].

The NZIER results indicate that economic performance in most regions is a mixed bag viewed across the various indicators. Three regions stand out as consistently strong performers (Canterbury, Wellington and Southland) and Northland as a weak performer. Auckland on the other hand is very much a middle performer ranking fourth equal in productivity growth, 9th in GDP per head and 11th in growth in GDP per capita.

Our results give a different picture of Auckland’s relative performance compared to the one that emerges from these NZIER figures. We find that Auckland has the highest level and growth (or equal first with Wellington) of real hourly earnings of workers, which are likely to reflect labour productivity levels and growth rates[30]. Moreover, the superior performance of Auckland is more marked at the high-wage, high-skill end of the distribution.

We do find lower levels of employment and employment growth in Auckland than in some other areas. Thus, lower labour utilisation may help to explain the lower level of GDP per head in Auckland found in the NZIER study despite our observed high wage levels.

Another possible reason for the different pictures of Auckland to emerge from the two studies is that our study focuses on the age range most likely to be in work, namely 25 to 59 year-olds. Finally, it should be remembered that there is no assumption in our study that average labour productivity by industry is constant across all areas of the country. This permits any effects on productivity arising from the density of economic activity in cities to come through in our measures.

Notes

  • [27]The exceptions to this approach were the GDP associated with the ownership of owner-occupied dwellings, which was allocated to each region according to its share of the national population, and the GDP not assigned to an industry which was split across regions using each regions share of the national labour force.  See NZIER (2004) page 10.
  • [28]See NZIER (2004) page 35.
  • [29]In fact, we find that our choice of different geographical areas compared to the regional areas used in the NZIER and National Bank estimates appears to make little difference.  When we estimated our measures for the regional council areas, we find similar results with Auckland ranked 1st or 2nd among the 12 regions in terms of income and wage levels and wage growth but 8th or 9th in terms of income growth.  These results are unaffected by whether we examine total income or labour income, wages for wage/salary workers or wages for all workers, all individuals 15+, or just prime-age adults, entire regions or just the primary urban areas in each region.
  • [30]There are two caveats here.  First, in competitive markets wages reflect the marginal product of labour and not total value added per hour worked which is the usual measure of labour productivity.  Secondly, if markets are non-competitive, wages may not reflect marginal products.
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