KEY POINTS:
Labour productivity increased 2.6 per cent last year, the strongest growth since the turn of the century.
But when it comes to productivity statistics that is just about the only good news lately.
Otherwise they tell a picture of feeble growth, from a comparatively weak level by international
standards.
So long as that remains true New Zealand will bleed Kiwis to more productive and therefore higher-wage economies overseas.
It is a recipe for being, as they say, a great place to be from.
We rank 22nd among 30 OECD country in terms of the level of labour productivity or economic output per hour worked.
So it is no surprise we also rank 22nd for per capita gross domestic product, despite being among the hardest working people in the developed world: for hours worked per capita we rank fifth.
Forty years ago productivity in New Zealand and Australia were on a par. Now Australia's is about a third higher and the consequences of that for relative incomes are reflected every month in the migration data.
The gap has widened pretty relentlessly over decades. It will likewise be the work of a generation to close it again.
The Treasury reports that over 36 years New Zealand's labour productivity growth averaged 1.1 per cent a year, compared with 1.6 per cent in Australia and 1.7 per cent in the United States.
Remember that as the growth is from a lower base, even matching their growth rates, if we could manage it, would still mean the gap in output and incomes would widen.
But in fact we are going backwards. Labour productivity growth in the 1990s, at least in the 70 per cent of the economy where it is relatively easy to measure, averaged around 3 per cent a year. Since 2000 it has been closer to 1 per cent.
Those who dislike the Government's policies like to use that as a stick to beat it with.
But at least part of the explanation, Treasury suggests, lies in changes in the quality of the new workers joining the labour force.
It is a case of every silver lining having a cloud.
The strong jobs growth of recent years has brought the unemployment rate down to 3.4 per cent, while pushing labour force participation to internationally and historically high levels.
That is undoubtedly a good thing, but it is likely to have a diluting effect on labour productivity, at least in the short term.
New workers, even if their formal qualifications are good, are less productive than existing ones at least until they gain skills relevant to their jobs.
Research by the International Monetary Fund concluded that a 1 per cent rise in the employment rate cut labour productivity growth by around 0.5 per cent in the short term.
But there seems to be another, longer-term factor at work as well. It is a rise in the quality of the workforce.
A couple of Treasury economists Kam Szeto and Simon McLoughlin report that the quality of the labour force has improved significantly over the past 20 years, judging by educational qualifications and age (a proxy for work experience).
But the same is true of Australia, the United States and Europe, so there is no competitive advantage there, and they found the improvement was stronger in the first half of the period than the second.
They concluded that nearly half of the 1.4 per cent annual growth in labour productivity economy-wide since 1988 could be attributed to a rise in labour quality.
So it is just as well that New Zealand is producing graduates at a rate that is among the highest in the OECD, as the Treasury assures us in another paper in what is to be a series on productivity.
The percentage of the population with a bachelor's degree is at least one respect in which the country is in the top half of the OECD, the brain drain notwithstanding.
And apparently New Zealand ranks well on the average performance of 15-year-olds in mathematics, science and literacy.
But that "average" masks a wide variation. About 40 per cent of students leave school without a level 2 qualification (sixth form in the olden days), and New Zealand has one of the lowest rates of participation in education and training by those aged between 15 and 20.
Unable to suppress what their minister might call an ideological burp, the Treasury mandarins suggest this lamentable state of affairs might be laid at the door of the tax system eroding the returns to education and the acquisition of skills.
But somehow one suspects the progressive nature of the tax system is not the first explanation that would be offered if you asked a premature school leaver why he or she dropped out.
They are on more solid ground when they point to evidence that the best gains over the long term are to be had from improving early childhood education.
Education and training are at least things we can do something about.
Some of the other factors which bear on productivity are not, like being small and remote from large markets.
Those basic facts of geography make it harder to achieve economies of scale or fine degrees of specialisation and may, one OECD study suggests, account for much of the country's underperformance in productivity growth.
It is the price we pay for living in a relatively uncrowded and pacific part of the world.
But technology has a way of making distance less tyrannical. There is still upside, surely, in information and communications technology, provided, as the New Zealand Institute's David Skilling keeps reminding us, we don't skimp on broadband investment.
Another thing we can't change is the past. We have a legacy of under-investment in infrastructure.
A chart in the Treasury report, Putting Productivity First, starkly illustrates how much lower as a share of GDP investment in transport and communications has been over the past 20 years compared with the supposedly bad old days of the the 1970s and early 1980s.
The policy infrastructure needs to be state of the art as well.
Open and competitive markets are a garden that needs constant tending.
When Commerce Commission chairwoman Paula Rebstock appeared before the commerce select committee last month she was asked about the Government's unheralded eleventh-hour change of the overseas involvement rules in regard to Auckland Airport.
Rebstock reminded the MPs that in a country as small as New Zealand, markets tended to be concentrated and it was often the possibility of new entry by an overseas player which was the deciding factor in the commission allowing a merger or acquisition.
The message was clear: We tamper with the openness of our markets at our peril.
