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Productivity, Capital-Intensity and Labour Quality at Sector Level in New Zealand and the UK - WP 07/01

6    Explaining New Zealand-UK differences in productivity levels and growth rates at sector level

6.1  Relative ALP and MFP levels

We now go on to assess the extent to which the relative importance to productivity performance of physical capital, labour quality and MFP varies between sectors in New Zealand and the UK.  Table 10 shows relative levels of MFP at sector level along with a decomposition of the contributions made by differences in physical capital, labour quality and MFP to relative ALP performance.

Table 10 - Decomposition of New Zealand-UK differences in average labour productivity (ALP) levels and multi-factor productivity (MFP) levels, 2002
      Estimated contributions to gap in ALP: (proportions)
SIC Sector ALP
(UK=100)		 MFP
(UK=100)		 Relative capital-intensity Relative labour quality Relative MFP
SIC Sector ALP
(UK=100)		 MFP
(UK=100)		 Relative capital-intensity Relative labour quality Relative MFP
      Estimated contributions to gap in ALP: (proportions)
AA, AB, AC Agriculture, forestry and fishing 78 138 3.05 -0.31 -1.73
BA Mining 82 180 5.45 0.08 -4.53
CA Food, beverage and tobacco mfg 105 107 -1.53 1.21 1.32
CB Textile and apparel manufacturing 48 47 0.10 -0.11 1.01
CC Wood and paper product manufacturing 59 49 -0.14 -0.10 1.24
CD Printing, publishing and recorded media 36 38 0.04 -0.02 0.98
CE Petroleum, chemical, plastic and rubber product manufacturing 38 44 0.12 -0.02 0.90
CF Non-metallic mineral product mfg 56 58 0.13 -0.10 0.97
CG Metal product manufacturing 102 96 -0.59 4.10 -2.51
CH Machinery and equipment manufacturing 61 74 0.42 -0.09 0.67
CI Furniture and other manufacturing 46 48 0.11 -0.08 0.97
DA Electricity, gas and water supply 90 82 -0.66 -0.23 1.89
EA Construction 70 60 -0.19 -0.13 1.32
FA Wholesale trade 86 91 0.82 -0.52 0.70
GA Retail trade 55 70 0.48 -0.13 0.66
HA Accommodation, restaurants & bars 113 120 -1.56 1.00 1.55
IA Transport and storage 88 89 0.88 -0.73 0.85
JA Communication services 115 74 2.38 0.37 -1.75
KA Finance and insurance 112 150 -3.43 0.37 4.06
LC Business services 89 106 1.82 -0.29 -0.53
PA Cultural and recreational services 128 145 -0.96 0.33 1.63
  Total market sectors 77 87 0.57 -0.14 0.57

The UK is ahead of New Zealand on MFP in 14 of the 21 sectors. The seven sectors where New Zealand is ahead comprise four where ALP is also above the UK level and three more where New Zealand ALP is lower but the New Zealand sectors apparently make more efficient use of existing resources than their UK counterparts (agriculture, forestry and fishing, mining and business services). In these sectors the UK lead on ALP is almost wholly attributable to their advantages in physical capital-intensity with MFP making a negative contribution.

In the majority of other sectors where the UK is ahead on ALP, the positive contribution from MFP outweighs that from physical capital and more than offsets the effects of higher measured labour quality in New Zealand. The same is true of nearly all sectors where New Zealand is ahead on ALP, such as food processing, metal products, hotels and catering, finance and insurance and cultural and recreational services. The exception is communication services where New Zealand is ahead of the UK on ALP and this is largely due to higher physical capital-intensity with MFP making a negative contribution.

Figure 5 shows that the pattern of advantage in relative MFP levels identified in 2002 has prevailed in most sectors throughout the 1995-2004 period. The only real exception to this is metal products where New Zealand was behind the UK on MFP during the late 1990s but has evidently gained ground since 2000.

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