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Mar 30th, 2009 | By | Category: Latest News, News

prodctvtymainLABOUR productivity growth is low when compared with the highs of the mid-to-late 1980s and the late 1990s.

The early 2000s saw New Zealand labour productivity grow at its lowest rate in 30 years, according to the latest figures from Statistics New Zealand.

The average annual growth rate for the 2000-08 cycle was 1.3% – half that of the 1990s.

The 2000-08 period is not a complete growth cycle, however.

From the annual figures, Statistics NZ presents the data as annual averages within growth cycles. Cycles are chosen from a number of factors, including economic events throughout the time period.

Brendan Mai, project manager for productivity statistics, says it is difficult to predict when a new cycle will be designated.

The country’s highest level of growth, an average of 2.9% per year, occurred in the 1985-1990 and 1997-2000 cycles.

Professor Tim Hazledine, head of the department of economics at  Auckland University, says the long-term trend is what matters, rather than the cycles, because it determines whether a country is more productive on a sustainable basis.

Between 1978 and 2008, New Zealand’s productivity growth rate averaged 2%.

Professor Hazeldine explains the limitations of productivity data by saying in times of severe downturn, firms will be forced to slash their employment.

“If they let go the less productive and/or least experienced workers, the productivity of those remaining will go up.”

This is sometimes called the “cricket-team batting-average effect”. A cricket team can always increase the “productivity” of its batters (ie, batting  average) by declaring its innings closed after its best batsmen have done their thing, and not letting the bowlers have a go with the bat.

Professor Hazledine  says the team won’t produce as many runs in total by doing this, which highlights the important point that “if productivity in the economy has gone up because less productive workers have become unemployed, the total output of the economy (gross domestic product or GDP) will fall”.

He recommends two caveats about governments making policy from these statistics:

  • Productivity is important as the basis for material standard of living. But quality of life matters, too, as does social and environmental sustainability.
  •  The Government doesn’t know how to increase productivity, so it’s hard to say what policy decisions it can make.

Labour productivity growth in New Zealand is calculated by dividing GDP by the number of hours worked and comparing it with the previous year.

The measure is taken over the 73% of the economy that can be assessed in constant prices. It includes industries such as manufacturing and construction but does not include mainly government industries, such as education and health.

The measured sector is sometimes changed. Business services, and personal and other community services were not included in the measure before 1996, but were then added.

Statistics New Zealand also measures the productivity growth of capital investment in the economy. This is called capital productivity.

Examples of other factors that can contribute to productivity growth are improved management processes or production techniques (called multifactor productivity).

Steve Summers, an economist at Business New Zealand, says it is important for our labour productivity to grow because we are in competition with the rest of the world.

There is no silver bullet to lift our productivity, he says, but over-regulation is an issue that pops up year after year.

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is a Whitireia Journalism student.
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