Another casualty of the recession

Productivity can be counted among the casualties of the recession.

Labour productivity fell 1.5 per cent in the year to last March, and multi-factor productivity (a measure of how effectively inputs of both labour and capital are used) fell 3.1 per cent.

In both cases they are the weakest results in the 31 years for which Statistics New Zealand publishes productivity data.

A fall in productivity over that year is no surprise, as the economy was in recession all through it. It shrank by a cumulative 2.9 per cent, according to gross domestic product data - more than either employee numbers or paid hours (Statistics NZ's preferred measure of labour input) fell.

The productivity figures cover what Statistics NZ calls the measured sector - three-quarters of the economy, which excludes public sector activity like health and education, but also property services.

When combined with a weak performance in the year to March 2007, the latest numbers mean that labour productivity over the three years to last March shrank on average by 0.3 per cent.

That compares with an average 1.9 per cent over the past three decades, or 1 per cent when adjusted for changes in the skill composition of the workforce.

The picture for multi-factor productivity is even worse: it fell by an average 1.5 per cent a year over the 2006-2009 period, compared with an average improvement of 0.9 per cent over the past three decades.

Statistics NZ cautions that the three years to 2009 are only part of a business cycle, which renders comparisons with previous cycles unfair.

But labour productivity growth over the previous full cycle, 2000 to 2006, at 1.3 per cent was also weaker than for any previous cycle since the late 1970s.

Comparisons with Australia, however, are more encouraging.

Over the 1978 to 2009 period, New Zealand slightly outperformed Australia's productivity growth rates, by 0.1 per cent for labour productivity growth and 0.2 per cent for multi-factor productivity.

But Australia's economic output grew faster: 3.1 per cent a year versus 2.4 per cent in New Zealand, reflecting much stronger growth in inputs of both labour and capital.