6. Summary and conclusions
In this study we set out to investigate Auckland’s economic performance relative to other large cities in New Zealand, to medium-sized urban centres and to small towns and rural areas. We also examined relative performance within Auckland by dividing the region into four areas. A key motivation for the study was to investigate the hypothesis that Auckland is “underperforming”. If true, this result would be concerning given Auckland’s large size in the New Zealand economy and given a body of overseas research and evidence that large cities have the ability to generate innovation, learning and high productivity growth.
Measures of regional economic performance are not well developed in New Zealand because of a relative lack of official data at the regional level. Given our particular interest in productivity arising from agglomeration economies within large cities, we concentrated on measuring productivity levels and growth by examining returns to labour and skills in the form of hourly earnings. We used data from the annual New Zealand Income Survey, a sample of around 16,000 individuals with information on location, measures of income and hours worked, and a range of socio-economic variables.
Two non-governmental organisations have previously attempted to satisfy the widespread interest in regional performance by constructing various estimates of regional economic activity. However, neither the National Bank, nor the NZIER has developed measures that satisfactorily capture productivity performance by areas that are classified according to the density of economic activity that takes place within them. Our approach, and the data source we use, do allow us to achieve this subject to a caveat around possible cyclical effects in the data.
Our results tell a fairly consistent story. Auckland and Wellington have the highest levels of productivity performance based on almost all measures of earnings. In particular, both have significantly higher average levels of labour income, and wage rates than the three other comparison areas. These differences remain even after controlling for differences in population attributes across the areas. Auckland has also experienced stronger growth in wages, in particular for wage/salary workers, than other regions.
When we examined wages across areas at different percentiles in the wage distribution, Auckland wages again tended to be at the top and grow fastest. Consistent with cities being places that foster and use skills, the magnitudes in favour of Auckland tend to be higher at the upper ends of the wage distributions. These differences remain for levels but not growth rates after controlling for differences in population attributes across the areas.
Our findings are not comparable to the National Bank regional activity indicators because the latter do not separately identify any proxies for labour productivity. The NZIER study finds Auckland’s labour productivity growth only fourth equal among twelve regions. This is likely to be influenced by the assumption adopted by the NZIER that labour productivity levels by industry are constant across regions.
On measures of labour utilisation, we find that Auckland does not do as well. It has lower employment rates than Wellington, Christchurch, and rural areas, but these differences are ‘explained’ by differences in characteristics in these areas. Auckland has also experienced slower growth in employment rates (differences in attributes ‘explain’ a fairly limited fraction of these differences).
A weaker performance in labour utilisation means that Auckland’s performance in GDP per capita is “pulled down” compared to its good productivity performance. This is another potential reason for the weaker performance of Auckland that emerges from the National Bank and NZIER measures compared to our results on productivity levels and growth.
Within Auckland, we found that Northern Auckland has the highest and Southern Auckland the lowest level of economic performance based on most measures. However, differences between Auckland zones are mostly ‘explained’ by differences in the characteristics of the people who live in these zones. Moreover, economic performance appears to be converging within Auckland with slower growth found in the Northern zones in most measures of economic performance relative to the Central and Western zone and faster growth found in the Southern zone relative to the other zones.
Our key findings cast doubt on the hypothesis that Auckland has been a productivity underperformer within New Zealand. In fact, Auckland appears to be a relatively good performer and this is consistent with agglomeration economies being at work in New Zealand’s largest urban concentration. However, because we limited our investigations to within New Zealand we are not able to say how Auckland’s productivity performance compares to innovative, high-skill cities in other countries. Given New Zealand’s overall poorer performance in labour productivity and the rather modest wage rate growth that we find even for Auckland, it is unlikely to have been as good.
From a policy perspective, our study should give pause for thought to those who view Auckland as underperforming and a drag on the rest of the country. Nevertheless, the challenge remains to lift labour productivity across the whole of New Zealand including in her largest city.
