Someone sent me a copy of a press release put out today by the Minister of Finance, Steven Joyce, is his capacity as the chair of National’s campaign. In it he claims that productivity growth over National’s term of government has exceeded that when Labour was last in office, and has exceeded that of many other OECD countries.
On the latter claim, over the whole of government’s term in office, my view is that it is a broadly fair description. I’ve put out posts noting that we’ve been no better than middling over the whole period since just prior to the recession and financial crisis. That didn’t seem to me to be a particularly good performance, in view of the fact that (a) we had a big lift in the terms of trade, (b) we didn’t have a domestic financial crisis, (c) weren’t in the euro and (d) we didn’t run out of room to use conventional monetary policy. Oh, and we had a big levels gap – we were a lot poorer – and were supposed to be about catching up.
But my comments, and those of J B Were economist Bernard Doyle, have focused on the last five years or so. Since then, on New Zealand official numbers, our productivity has gone slightly backwards – ie the level now is slightly less than it was five years ago. That is sufficiently stark, and has now gone on for long enough, that it seems worth singling out. What, one might wonder, would be likely to turn that around? (Frankly, I’ve seen nothing from either main party – or, for the avoidance of doubt, minor parties – that seems very promising.) It is difficult to get very up-to-date useful data for many other countries, but over that five years we have certainly done less well than the US and Australia.
What about comparisons across terms of government? We can only calculate the GDP per hours work series back to 1987, so I’ve shown productivity growth in the term of the 1990s National government (1990q4 to 1999q4), the Labour government of the 2000s (1999q4 to 2008q4), and the current government (from 2008q4 with GDP data only available to 2017q1). I’ve also shown the last five years.
For each of those periods I’ve also shown the exactly comparable data for Australia. Australia is one of the few countries for which exactly comparable (real, quarterly, national currency) data are available. They are shown on the ABS website. Australia is also a relevant comparator because (a) it didn’t have a domestic financial crisis, or (b) run out of monetary policy room, and (c) because it is the easiest alternative option for New Zealanders (migrating) and a standard historical comparator. The aspiration of catching Australia was one the current government articulated when it came into office.
As a reminder, for New Zealand I have:
- averaged the two real GDP series (expenditure and production). Using one or the other alone will produce slightly different numbers, but there is no obvious reason to prefer one over the other, and
- divided the resulting series by the HLFS hours worked series, and
- corrected for a series break in the HLFS hours worked series in June 2016, when the survey question was changed. Not correcting for that would lower productivity growth estimates over the last few years by a further 2 per cent.
And this is the resulting table [UPDATE: with some very minor corrections]
|Cumulative growth in real GDP per hour worked (per cent)|
|National (90q4 to 99q4)||8.5||20.7|
|Labour (99q4 to 08 q4)||12.1||12.4|
|National (08q4 to 17q4)||6.7||13.7|
|Last five years (to 17q1)||-0.2||7.5|
As it happens, in not a single one of these particular periods did productivity growth in New Zealand exceed that in Australia (although there will be shorter periods where we did).
There are other measures of course, but real GDP per hour worked is a pretty standard basis for comparison. And to make such comparisons of growth rates sensibly (as distinct from levels comparisons) one shouldn’t use PPP-converted data but rather real national currency data as I have done here.
As a caveat, governments can’t take all the credit or all the blame for productivity trends in their time in office. International trends matter, and even policies work with a lag. Recessions affect comparisons – and I don’t suppose anyone is going to suggest the 2008/09 recession was either New Zealand party’s fault. Partly for that reason I’ve suggested focusing on the distinctive, and disconcerting, New Zealand productivity performance over the last five years. The relevant growth number is zero (or marginally worse).