SST on Productivity Growth
It is good to see the SST editorial on the issue of productivity growth. You see this very obscure statistic is in fact the key to closing or slowing the gap with Australia. You can’t do it by just increasing wages, unless there is also an increase in productivity. Some useful extracts from the SST:
So this might be a time to ask whether all that sunshine has blinded us to certain fundamental problems in our economy. The major one being productivity, an ugly word but a concept of crucial importance. Only by increasing our productivity will we become wealthier. Only by increasing it dramatically will we rise from the bottom half of the OECD to the top half. …
It is, in a way, an index of smartness: it reflects innovation in technology and work practices and better ways of doing things. The fact that the growth rate in this area has fallen under Labour is a serious worry.
Is it fair to argue, then, as Roger Kerr does, that it shows Labour’s aspiration for a knowledge economy has been all talk?
Not necessarily, but it certainly shows that the knowledge economy has been much slower to arrive than hoped and it is noticeable that Labour’s promise to push us up the OECD stakes is less often heard nowadays. …
What we need is a serious national debate about our fundamental economic strategy, a campaign to find the Kiwi way to greater productivity. The good times perhaps allowed us to ignore this vital issue. The coming bad times will force us to face it.
So what are the facts behind productivity growth. Stats NZ has been measuring it since 1978. So let us have a look at it over the March years 78 – 84, 84 – 91, 91 – 00, 00 – 07.
Labour Productivity Growth
- All – 2.0%
- Muldoon – 1.6%
- Douglas/Caygill – 2.7%
- Richardson/Birch/English – 2.6%
- Cullen – 1.1%
Labour productivity is simply measuring the ratio of output to labour input. In the last March year output growth was 1.4% and labour input growth 0.9% so the difference is the productivity growth of 0.5%.
As one can see the record under Dr Cullen for the last seven years is a miniscule 1.1%. Half the average since 1978, and even less than the final years of Muldoon. Only around 40% of the previous 15 years.
The really scary thing is Cullen’s record is getting worse. His first three years averaged 1.5%. For three of the last four years labour productivity growth has been just 0.5%, averaging 0.9%.
Capital Productivity Growth
- 78 – 07: -0.7%
- 78 – 84: -1.0%
- 84 – 91: -3.5%
- 91 – 00: 1.5%
- 00 – 07: -0.5%
Capital productivity is similar but measuring output to capital input. Muldoon had negative growth due to Think Big. The worse period was Mar 84 – Mar 01, when capital inputs grew massively, but little growth in outputs.
The 1990s managed the only growth period – 1.5%, and since 2000 that has reversed back to negative capital productivity growth.
Multifactor Productivity Growth
- 78 – 07: 0.9%
- 78 – 84: 0.6%
- 84 – 91: 0.3%
- 91 – 00: 2.1%
- 00 – 07: 0.4%
Multifactor productivity is basically total productivity growth, excluding labour and capital productivity. It tends to reflect changes in technology, processes, knowledge.
Again a very good growth period in the 1990s, and since 2000 it has fallen to just one quarter of what it was. This suggests the knowledge economy rhetoric
This graph shows labour productivity growth since 1978. You will note nothing over 25% since 2000. I’ve also added a trend line on a three year rolling average in black – again the decline is significant.
We need to do better, if we want to keep people in New Zealand.