Productivity growth across countries across time

This tweet caught my eye this morning.

The chart is from the latest weekly column from Martin Wolf, the economics columnist for the Financial Times.   It is a sobering reminder of what has been happening among economies rather nearer the frontier: productivity growth recently isn’t what it once was (even if the 50s and 60s are hardly representative historical decades).

But, of course, my main interest is in New Zealand.  And for OECD countries I prefer to use OECD data (which go back only to 1970).    Here is what a similar version of the chart above looks like using OECD data and adding Australia, Canada and New Zealand.   As with the chart above, I’ve ordered the countries from high to low based on average productivity growth in the most recent period (in this case, the last five years).

Real GDP phw OECD

In that most recent period (and, actually, for this decade as a whole) France has had the fastest productivity growth –  not something I’d have guessed –  and New Zealand brings up last place.  It isn’t that the green bar is missing for New Zealand, just that the average annual growth rate on this measure was 0.0 per cent. (Using my preferred measure of labour productivity growth, updated to include this morning’s release we do a little better for the last five years –  we come second to last (ahead of Italy) instead.)

And, of course, the pattern for New Zealand is a little different because we had that truly dreadful decade in the 1970s, when our productivity growth was clearly the worst in the entire OECD.

But here is how we’ve done simply relative to the G7 group as a whole.

NZ and G7 gdp phw

In not a single period has our productivity growth rate matched that of the G7 grouping as a whole.  We came close in the 1980s, but couldn’t match those leading industrial countries even then.  (And for the most recent period that conclusion holds even if use my preferred measure of New Zealand labour productivity.)   And whereas back in 1970, the level of labour productivity in New Zealand was very similar to that for the OECD as a whole, those growth differences cumulate, and now the G7 group has labour productivity just over 50 per cent higher than that in New Zealand.

Is something better possible?   Well, there is a loose relationship suggesting (as one might expect) that countries that had a lower starting level of labour productivity were also those with relatively faster productivity growth in recent years.  Catch-up can and does occur.   There were 10 OECD countries –  more than a quarter of the membership –  which had faster productivity growth than France over the last five years, often materially faster.    All of them were small.

That could have been New Zealand too –  after all, we now start so far behind the leading bunch –  but policy choices by successive governments (much the same regardless of which party occupies the 9th floor of the Beehive) meant it wasn’t so, and left us vying with places like Italy, Portugal and Greece (even the UK) for the unwanted poor performer award.

 

17 thoughts on “Productivity growth across countries across time

  1. The problem with productivity is no-one really has any idea of how it occurs.
    I remember when our Productivity Commission put out a report on it over here and then got monstered, quite rightly, by John Quuiigin when its assumptions did not match the evidence.

    I am old enough to remember when such august journals such as Harvard Business Review were saying where are the productivity gains that all the companies were saying were coming but never eventuated.

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    • Not too sure why you would think no one has any idea? I think it is fairly obvious when you have an aging baby boomer population around the world who have reduced working hours or work at any awfully slow pace. Add to that the cheap air travel and the rise of Air BnB with tourism reaching record numbers around the world drives the hospitality sector and lots of cleaners and Uber drivers.

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  2. Some of the countries that stand out in the 50s and 60s are all those who were seriously damaged in the second world war. This was like a Christchurch rebuild, on steroids, paid out by the Marshall fund. The end result was probably doubly beneficial as it gave these countries (Germany, Japan, Italy) modern infrastructure (albeit often concrete brutalist things), whereas the UK was stuck with Victorian sewers, trainlines, houses… charming but decrepit.

    Obviously this effect doesn’t explain much beyond the 70s…

    Does the German figures reflect a blended statistic for the years 50s – 80s, when East Germany was present? Or is it just West Germany?

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  3. Writing from Lille where my son is surprised by your report of France’s productivity success. He wondered if it was related to the high number of permanently unemployed – many with 3 generations of unemployment. If the least productive are removed it would improve the stats.

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    • Yeah they do about five hours actual work per week, but what they do in that time is amazing…

      I have wondered sometimes if there is a macro-economic “Parkinson’s Law” in effect – “work expands so as to fill the time available for its completion”. The western EU lands tend to have regulated, shortened working weeks, heaps of holidays,, sick leave – in the end companies set targets for production etc, which are comparable world wde, and so the same as what US or Canadian firms do in a 50 working week year gets done but in a 40 working week year.

      I recall when NZ increased annual leave to 4 weeks annual leave there was much wailing from the EMA etc., but in the end, you just mash the same work into the remaining time.

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      • France has factories. It’s main industries are machinery, chemicals, metallurgy, automobiles, aircraft, electronics, textiles and food processing. Factories can be automated giving higher productivity. Nothing at all with how amazing their workers are. Everything to do with how amazingly their robots are.

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    • There is a well-established and researched view that the low Fr employment rate helps explain the high level of Fr labour productivity. It is less persuasive as an explanation for why Fr productivity growth in recent years has been relatively less bad than other G7 countries (Fr labour mkts haven’t got more rigid, and excluded a larger proportion of low quality workers).

      Here is my only substantive post about the French economy, which touches on some of those level issues.
      https://croakingcassandra.com/2017/04/27/france-and-some-near-neighbours/

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  4. it appears as labour markets further deregulated productivity got worse. The om only explanation for that is employers had to do more when ‘unions were strong.. It is a poor explanation.
    given how labour markets are now and how there is much more competition involved in almost every country the above results are strange

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    • That further deregulation of labour markets appears to go hand in hand with productivity declines shouldn’t be a big surprise. Disposable / easily replaced employees don’t warrant investment and that lack of development clearly causes a drag on the skill sets of the whole of industry (well at least in professional engineers anyway).

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  5. The reason productivity dramatically increased in the sixties and seventies and did so earlier in Canada and Germany must be the introduction of women into the workforce. They are more hard working and better team players so are more productive; the reduced importance of physical strength in production being another factor.
    This is a cause that cannot be repeated but some future productivity growth could be achieved by reducing the age of retirement for men, increasing it for women and replacing maternity leave with paternity leave.
    I expect this conclusion will not be popular with regular contributors simply because most are male; women (for example my wife) are far too busy being productive to read this blog.

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    • The stats are clear – over many countries consistently rapid growth in productivity for two decades fifty years ago. Annual growth rates of over 2% maintained for a period of 20 years in multiple countries. Has anything like it occurred in the last 2000 years? Something so dramatic deserves an explanation.
      Surely there should be a generally accepted cause (that assumes economists are capable of agreeing). My starting point was reading the assertion that the washing machine changed society more than computers and the internet – I’m old enough to remember wash day fully occupying my highly intelligent mother. So my other hypotheses are improved child nutrition and high inflation (if the stats for hours and the measurements for production are offset by time then the value of sales may be overstated).

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      • Count the number of automated factories or large computerised banks managing funds and you have your answer. The human element reduces productivity so it is not a human factor.

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  6. It was a remarkable era of growth, and I don’t know the literature well enough to be confident of any particular story (including because NZ shared in the story so weakly). But I am sceptical of the female participation story, including because the big rise in female participation mostly came later (the 50s and 60s were the era of early marriage and suburban domesticity) – but also because (on your line about women being superior) in earlier eras women were fully engaged in production processes, it is just that most of them were household based.

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