Patrick Nolan: Cracking the formula for job growth in NZ's cities and towns

Employment in pulp, paper and wood manufacturing at Tokoroa has dropped by 88 per cent over the last 40 years. File photo / Nicola Topping

Opinion

COMMENT

New Zealand today is a very different place to 40 years ago. And one key way the country has changed is in the jobs that people do.

In 1976 one-in-four Kiwis worked in manufacturing. Now that is around one-in-ten. In contrast, many new jobs have been created in professional services, health and education, accommodation and hospitality, and financial services.

These changes in the jobs that Kiwis do – this shift from old jobs to new jobs – have had a real impact on New Zealand's cities and towns. Some places have transformed and thrived while others have struggled.

Consider Tokoroa. In 1976 this was the 19th largest city or town in New Zealand by employment with around 7500 people in work. Many of these people worked in the Kinleith Mill or in jobs that serviced workers at the mill. Indeed, half of the jobs in the town were in the pulp, paper and wood product manufacturing industries.

Several decades later the mill is still there but many jobs aren't. By 2013 the number of people in employment in Tokoroa had fallen by 44 per cent and employment in pulp, paper and wood manufacturing was down by 88 per cent.

Cavalier Carpets celebrated 50 years in Whanganui this month. The city is just one of four New Zealand centres where employment has decreased. Photo / Bevan Conley.

Tokoroa is an extreme example. Of the largest 30 cities and towns in New Zealand, employment decreased in just four places between 1976 and 2013. Tokoroa had the largest fall (a 44 per cent decline), but Greymouth (7 per cent), Whanganui (5 per cent) and Oamaru (2 per cent) had falls too.

In contrast, employment increased by more than 65 per cent in nine areas. These included Auckland (a 79 per cent increase), Tauranga (176 per cent), and Queenstown (a remarkable 361per cent).

These differences raise the question of why some cities and towns have thrived while others have not. To help understand what is behind this researchers at the Productivity Commission and Motu used four decades of Census data that can show us in detail how the world of work has changed in New Zealand's 30 largest cities and towns.

One key result was to highlight what economists call agglomeration effects. These effects relate to the benefits that occur to businesses from locating in larger cities, such as being closer to other firms and having access to deeper pools of labour.

Many of the new jobs created over the last four decades have been in service industries where agglomeration effects seem to matter. This means the growing importance of these service industries has tended to favour large cities.

To give one example, two thirds of the national increase in employment in the finance sector between 1976 and 2013 took place in Auckland. Agglomeration effects play an important role in the story of Auckland, and to a lesser degree those of Christchurch and Wellington.

But agglomeration effects are not the only things that matter. For smaller cities and towns, the presence of good amenities, such as a good climate or attractive scenery, have become more important as manufacturing and primary production have shrunk as shares of the economy.

Employment in the accommodation, hospitality and recreation industries has boomed in Queenstown. File photo / James Allan

One obvious example is Queenstown, where the town transformed itself into one of the key centres of New Zealand's tourism industry. In the 40 years after 1976, employment in the accommodation, hospitality and recreation industries in Queenstown increased from just over 500 to around 2000.

This study also found some surprises. It showed that, in terms of the jobs they offer, most areas have become more like each other. Indeed, fast growing cities and towns have generally reduced their reliance on specialist industries over time.

This is not true everywhere, Blenheim, for example, has grown quickly on the back of its focus on wine-making. But typically fast growing places have been like Nelson or Tauranga, which diversified their employment growth into a range of industries, including those focused on providing services to local consumers (so called "non-tradeable" industries).

The fact that regions are becoming more like each other in terms of the jobs they offer raises a whole new set of questions. When cities and towns are more similar then you could expect workers to find it easier to move between them when looking for work.

Patrick Nolan. File photo / Glenn Taylor

This should be good for productivity growth, as higher paying regions and firms should be able to attract more workers. But in New Zealand the evidence on this is mixed, and it could be that factors such as high house prices reduce workers' mobility.

The Productivity Commission will release further work on this topic later this year.
The point of this and our other work is to better understand what is behind the performance of New Zealand's cities.

Looking forward, it is inevitable that the world of work will continue to change, and so
there is real value in drawing lessons from how New Zealanders have already adjusted to changes in the jobs they do and the places they live and work.

• Dr Patrick Nolan is director of economics and research with the Productivity Commission