What I actually wanted to write about briefly today was prompted by this story in the Financial Times a couple of weeks ago which reported on the results of OECD work suggesting that harmonising the measurement of hours worked would reduce by about half the (rather puzzling) large gap in estimated labour productivity (real GDP per hour worked) between the UK on the one hand and France (and Germany) on the other hand.
The UK’s statistical agency makes very few adjustments to self-reported estimates of people’s usual hours, but French number crunchers adjust survey responses to include holidays, sick leave, strikes and work done in the “illegal economy”.
If the figures were produced on a comparable basis it would reduce the productivity gap between the UK and France to about 10 per cent, the OECD estimates.
The OECD paper is here. It is a pretty dry account of a worthy exercise in trying to get greater standardisation of the hours worked estimates. For the European countries they produce indicative overall labour productivity estimates using the proposed harmonised methodology. This is the summary chart.
The blue bars are the current official estimates, while the white dots show the OECD estimates based on the new methodology for the countries where there were material differences. There are some pretty substantial differences: Austria and Sweden move up to join the group of countries (US, France, Belgium, Netherlands, Germany, Denmark) which I’ve characterised as the OECD top-tier (setting Norway – with abundant oil and gas – tax-distorted Ireland, and tiny Luxembourg to one side). But there are non-trivial differences for a number of countries further down the scale. These revised estimates will be used in future OECD releases of productivity (levels) statistics.
When the FT article first appeared someone got in touch and asked if this could be part of the answer in New Zealand too. My initial response was that the productivity gaps between New Zealand and the top-tier were so large there was no credible way any issue around hours measurement was going to explain much of it. But it nagged in the back of my mind, so earlier this week I asked Statistics New Zealand about whether the OECD work had any implications for New Zealand productivity numbers. SNZ don’t publish economywide productivity numbers, but their data is used by the OECD, who do.
I had a prompt and very helpful reply from Statistics New Zealand (kudos on this, if not on the Census). They had apparently been fully consulted by the OECD researchers. They had identified a handful of issues (which look quite minor in the scheme of things) around the New Zealand data, but the bottom line was
Recent correspondence by the authors also noted: “As mentioned previously, but worth reiterating at this juncture, the paper currently only proposes changes to the estimates in a handful of countries (not including yourselves), based on available data.” In that regard, we consider ourselves to have fared better than some other countries reviewed in the publication.
Summary: our hours worked numbers look pretty much okay by international standards. Unlike the Brits, our very large reported labour productivity gaps aren’t going to suddenly be revised downwards from this work.
That’s a shame (substance is what it is, but reported numbers do matter). But perhaps more sobering is that if our labour productivity estimates aren’t changing, and those of 10 other OECD countries (more than a quarter of the OECD membership) are, then our position relative to the rest of the OECD, mostly the advanced countries, now looks worse than it was previously. In this chart, I’ve taken the latest official OECD numbers and made adjustments to the extent indicated in the OECD paper for Lithuania, Latvia,Poland, Portugal, Greece, the UK, Austria, and Sweden.
On these estimates Lithuania – a part of the USSR as recently as 1991 – is now only slightly behind New Zealand, likely to shortly be the third former eastern bloc country to overtake us. And Poland – whose experience I wrote about here last month – is a lot less further behind that had been thought. Even Greece and Portugal now look less bad relative to New Zealand, while the UK, Austria and Sweden are further ahead than we’d thought. (Australia’s relative position also deteriorates of course.)
This isn’t a competition. It is great news that Poland and Lithuania are doing even better than we thought. But benchmarks are useful, and our performance relative to other advanced countries is – and now has been for decades – lousy. And yet our political officeholders – I refuse to call them leaders – do nothing, and try to either spin the data or change the subject.
As I’ve noted previously, Turkey has now also almost reached New Zealand productivity levels – something inconceivable just a few decades ago. It was perhaps salutary to note news reports out of the climate talkfest in Poland last week that Turkey was objecting to being grouped as a “developed country”. Their bid failed, but that they made it all should perhaps be a prompt to think that our own self-identification as an advanced economy is no longer as secure as it was – a product more of history, than of current economic performance. We really aren’t now much more than an upper middle income country, and that has consequences.