Statistics New Zealand this morning released their best estimates of New Zealand productivity growth. They are annual only – so the new data is for the year to March 2016 – and cover only the “measured sector”, so excluding parts of the public sector in particular where productivity is just very hard to measure (there are few market prices for the services for a start). They also make an adjustment for the changes in the composition of the labour force – there is, in principle at least, a lot more human capital associated with an average worker now than decades ago when few people had a tertiary education.
Last week I ran this chart, showing an estimate of quarterly labour productivity growth (real GDP per hour worked)
It isn’t an encouraging picture. In fact, the last five years have been so bad, I’ve been hesitant about believing reality was quite that bad.
But here is new annual data, showing labour productivity and multi-factor productivity, both indexed to 1998 when the data in this format start.
The summary?
- No multi-factor productivity growth, in aggregate, for a decade – the latest data point is very slightly below that for the year to March 2006.
- And no labour productivity growth for the last four years – a picture very similar to the (differently measured, and more recent) real GDP per hour worked chart above. In the last 10 years, there has been only around 4.5 per cent labour productivity growth in total.
Different models, and different measurement bases, will produce different results. None of them suggest there has been much productivity growth in New Zealand for some considerable time. And to repeat Paul Krugman’s succinct summary
“Productivity isn’t everything, but in the long run it is almost everything.”
croaking cassandra 
Clearly points to Allan Bollards aggressive interest rates regime driving the OCR to 9% and Commercial lending interest rates to 2% to 15% destroying a bouyant and a strong productivity economy into a deep recession. There was not many productive industries left standing including the decimation of 2 entire industry sectors, the building sector and the risk financing sector before the GFC even arrived at NZ doorstep
Immigration ran up to -40,000 each year which does run counter correlation to your migrant target bias hypothesis. Seems a closer correlation to interest rates than to migrant targets. Afterall the migrant target has not changed for the last 30 years. Clearly the target has got nothing to do with productivity poverty.
LikeLike
Correction:driving commercial interest rates to 12% to 15%
LikeLike
Low productivity growth is not unique to New Zealand though and can be seen in the majority of advanced economies. The impact of GFC on productivity is crystal clear.
LikeLike
Yes, it certainly isn’t unique, altho at least wrt TFP/MFP NZ has done worse over the last decade or so than other advanced countries. https://croakingcassandra.com/2017/03/09/total-factor-productivity-growth-how-have-we-been-doing/
And our labour productivity for the last five years has been particularly bad.
I’m less convinced that the financial crisis played an important role – apart from anything, the slowdown in global productivity growth began before the crisis. And since NZ was less directly affected by financial crises than many other advanced economies – our banks and those in Aus came thru unscathed – we should have seen less of an adverse impact on productivity.
LikeLike
There seems to be a close correlation with the growth of the middle and upper class in China and India with their recent wealth and a sudden desire to spend and travel all around the world. Match this will a fall in oil prices and costs of airflights and tourism has been a booming in the majority of these advanced economies affecting productivity.
LikeLike
Interesting hypothesis. Against it, at least in NZ’s case, is that exports of services as a share of GDP are now almost bang on the average level for the last 30 years, and at 8.1% of GDP well below the 10.4% peak in 2002. Tourism and export education dominate our services exports.
On some of your other comments, yes I’m well aware of the high value industries in the UK and France. If all we are both saying is that they have them and we don’t, there is no real difference. But i go on to argue that our location makes it very hard to envisage such industries developing here, and that we should therefore be v wary of bringing lots of new permanent residents in each year (esp when our own people are reading the opportunities and leaving).
LikeLike
It is very simply called the spillover effect. Because tourists are very heavily dependent on more and more people to service their various needs, it creates jobs. The more jobs being paid out of the $20 billion impacts directly on accomodation and consumption. More people therefore buying locally in the economy creates more jobs in small retail manufacturers, the warehouse sells more stuff, Michael Hill sells more stuff, Briscoe sells more stuff etc etc. That’s why as a percentage of GDP, it is falling. Tourism and export education injection of $20 billion every 12 months into the local economy is like a shot of heroin to a junkie. We all love the extra dollars floating around but we need more and more people to service at lower and lower productivity. Again nothing at all to do with migrant targets and everything to do with servicing tourism industry needs. Simply a red herring hypothesising migrant targets as the cause. It is clearly and simply the effect of.
Local Natives have access to the dole, they do not need or want to work as cleaners, prostitutes or baggage handlers, and you can’t have a native cook a decent curry. I personally prefer to be served by a Japanese waitress in a Japanese restaurant and served food cooked authentically by a Japanese chef.
LikeLike
Is it possible to exclude mining in these figures? I suspect in Australia, mining distorts statistics significantly.
LikeLike
yes, mining has had negative MFP growth, altho it is quite a small sector in NZ (unlike Aus) and isn’t the dominant part of the story.
LikeLike
Similar pattern here in Canada (where standard comparison is with US) : http://www.statcan.gc.ca/pub/15-206-x/15-206-x2014038-eng.htm#tbl02
That is, keeping pace, then flatlining, then declining. Yes we have deliberate policy of high migration …
LikeLike
Thanks. Chart 10 in that link is particularly clear, and sobering.
Canadian underperformance is something I”d like to think about more in trying to make sense of the NZ story. It is also a natural resource dependent country and, as you note, has encouraged high immigration over recent decades. On the other hand, it is right next door to, and in many sectors strongly integrated with, one ot the largest and most productive economies in the world. In principle, that should have worked to their advantage.
LikeLike
How many recommendations has the productivity commission made since it came into existence? 400? 500?
How many of these have been implemented? 40? 50?
Maybe if our leaders displayed some leadership we may see some improvement.
LikeLike
My comment above may have been rather glib but Michael (or anyone else) do you have any insight into what the % take up by the government of recommendations by the Productivity Commission has been over the course of its existence?
LikeLike
No, I don’t. It will be a rather small percentage, which is disappointing since the PC only does inquiries the govt asks it to. Looking on the brighter side, the PC reports probably influence debate down the track, even if the recs aren’t adopted at the time.
LikeLike
It also coincides with tourists becoming our number 1 industry now a massive $15 billion industry. With the service industry it’s all about people. The more people that take their time and the more effort expended to service a single customer the better the service. The service sector comes with diminishing returns because there is a ceiling you can charge for a meal no matter how fantastic the service.
LikeLike
Therefore question is “Is productivity as a measure of economic success even at all relevant in today’s growing tourist industry?”
Clearly as travel costs continue to fall, tourism continues to grow as people around the world seek the isolation of New Zealand. This year will translate to another booming year likely exceeding the 4 million target. The next target is 7 million people which equates to a massive $25 billion in Export GDP. Around that booming sector will require massive investment in accomodation.
Air BnB already has 19,000 residential homes and apartments registered for international and domestic tourists. It’ is never really about migrants. It’s all about industry seeking labour and unfortunately it is low cost and low skilled labour that is needed. Foreign tourists need foreign food which need foreign chefs. Foreign tourists need to be understood which requires foreign waiters, foreign cleaners and foreign retail shop attendants and foreign prostitutes who speak foreign languages.
LikeLike
Michael
Any chance you will provide some more analysis of the Stat’s data?
It’s pretty had to infer much about causes from two lines on a graph.
For instance, how have Stats allocated GDP growth over the last decade meaning that none of that growth has been left for MFP? Presumably it isn’t all allocated to increased labour productivity?
Tim
LikeLike
TIm
By implication, the growth over the last decade has been mostly about increased inputs, and very little about productivity (none MFP, and a small amount labour productivity).
Measured sector GDP is up around 18 per cent over the last decade. On inputs, the SNZ measures of composition-adjusted labour, and of capital, have grown by 13 and 26 per cent respectively.
I wasn’t intending to say much (well anything) about causes in this particular post – partly because there is little cross-country data measured quite the same way, so it is hard to take out any common global trends – and was really just tending to observe that the patterns aren’t different than what we see in the simple quarterly GDP per hour worked measure of labour productivity. (Even there, I’m a bit hesitant about a story about why the last 5 years have been so bad, altho I suspect it will have quite a lot to do with things that have held the real exchange rate so high).
LikeLike
The last 5 years have also been massive boom years for NZ Tourism with the Lord of the Rings and the Hobbit movies and NZ being cast as the magical Middle Kingdom of Hobbits, dwarfs, dragons, Elves and Ogres. And the architect behind this is of course our former Prime Minister and minister of Tourism, John Key with his film tax rebates, courting the film making giants, the bicycle lanes of national interest, the Skycity convention centre, the crown funded Christchurch convention centre.
“Prime Minister John Key released more details of the direction for the new tourism funding at a press conference in Auckland today on the eve of the industry’s largest annual trade event – TRENZ.
Tourism New Zealand will receive an additional $29.5m in the 2013-14 year commencing 1 July, taking its total budget to $113m.”
This is the fastest way to get growth in an economy in the depths of a recession engineered by Allan Bollard decimating most of our productive industries with higher than average interest rates than most of our competition trading partners.
LikeLike
I’m curious that you trumpet increased tourism as a way to obtain growth at a time the accommodation facilities (hotels, motels, camping grounds) are at absolute capacity
LikeLike
I am not trumpeting tourism. I am purely illustrating that the focus on migrant targets is a red herring when it is tourism and the service of that industry that drives our productivity poverty numbers. Its a chicken and egg situation which comes first? Of course the tourists is the chicken and the migrants is the egg.
LikeLike
There is a lot I could comment on – including the ref to taxpayer subsidies for films, or the Chch convention centre which shows no signs of actually happening – but for now, I’d just note that the UK and France are among the world’s premier tourist destinations. Both have far higher levels of labour productivity than we do. Tourism isn’t the cause of our problems, or the answer to them.
LikeLike
The reasons are very clear. France and the U.K. have more productive industries that can compensate for the labour intensive services required by tourists. We do not. Our other top industry is the 10 million cows damaging the environment.
LikeLike
You may not be aware but the UK is one of the premier financial centres where billions of dollars are transacted every day using computerised software. France, you might be interested to know that they are one of the largest arms and weapons dealers and manufacturers in the world and also another premier financial centre.
“The most productive people in country work in London, according to new data from the Office of National Statistics.In a study of the UK’s 37 subregions, workers in Inner London were found to have provided the most gross-value-added (GVA) to the country’s economy — performing almost 50 per cent better than the UK average.”
http://www.independent.co.uk/news/uk/home-news/most-productive-places-in-the-uk-londoners-do-the-most-for-the-british-economy-says-ons-data-10057567.html
Note also that there’s where most of the UK migrants live and work. Did you notice they have a Muslim mayor?
LikeLike
Here’s an interesting fact to note amid the discussion of the loss of domestic manufacturing jobs to lower cost locations like China—aside from periodic dips during recessions, U.S. manufacturing output has actually been rising steadily over the last 30 years.
Manufacturing employment isn’t down because the U.S. doesn’t make anything anymore. It’s down because the U.S. manufacturing sector makes things much more efficiently. And one major reason for that is automation, or robots.
https://blueprint.cbre.com/how-chinas-robot-revolution-could-impact-u-s-commercial-real-estate/?utm_source=Facebook&utm_campaign=Native&utm_medium=Wallpost&utm_term=China%E2%80%99s+Robot+Revolution
Perhaps we should be glad that NZ slow uptake in robots have led to more people working. Not much fun being redundant and poor whilst robots do all the work. All it means is that the rich folk gets richer and the poor millenials continue to be jobless.
Although I am not too sure what the fuss is about natives not finding work because of cheap migrants. My NZ native daughter snapped up a job in one of the giant multinational tax consulting companies and she has not yet even finished her studies at University. There certainly is no shortage of jobs in NZ.
LikeLike
[…] But since the wage gaps between New Zealand and Australia haven’t narrowed at all, and the productivity gaps have continued to widen, it seems only prudent to assume that as and when the Australian labour market improves, the net […]
LikeLike