Working data a ray of hope in gloom

Numbers show the country is benefiting more from inspiration than perspiration. Picture / Glenn Jeffrey

Productivity growth during the past two decades has been better than previously thought, new Statistics New Zealand data suggests.

Numbers released yesterday showed this country's annual labour productivity growth was marginally better than Australia's from 1988 to 2005.

From 1988 to 1993, economic growth was essentially flat as increased productivity was offset by a shrinking labour input, because the economy was restructured and jobs were lost.

But for the whole period 1988 to 2005, labour productivity grew by an average of 2.6 per cent a year in New Zealand compared with 2.3 per cent in Australia on a comparable basis.

The conventional view on productivity has been that New Zealand's economic growth is explained mainly by growth in the labour input rather than growth in labour productivity - more hands to the pump rather than a more efficient pump.

But the new data shows that from 1993 to 2005, when the annual average growth in output was 4.1 per cent, labour productivity accounted for most of it - growing by 2.4 per cent a year on average while the labour input increased by 1.6 per cent a year.

ANZ National Bank economist Cameron Bagrie said the data was something of a bright spot in a month of gloomy economic news. "To me, they've confirmed what we already suspected," he said.

"New Zealand is not a low productivity economy. We actually get a fair degree of growth out of inspiration as opposed to perspiration."

He said the data made him more comfortable about taking an optimistic view of future growth.

Looking through any short term downturn over the coming months, the numbers suggested New Zealand would continue to be a high-growth economy over the next five to seven years.

The issue now was "that for New Zealand to climb back up the OECD ladder we need to be doing things better than the next bloke", Bagrie said.

"That's the challenge. How do we deliver the next incremental gain so that we start climbing back up that ladder?"

The difference in the latest study from the normal view is likely to lie partly in the fact that Statistics NZ has only looked at 69 per cent of the economy, excluding those services sectors where outputs are hard to measure such as health, education and business services.

Those sectors are where much of the employment growth has been.

Of the growth in productivity since 1993, a third is explained by capital deepening - an increase in the amount of physical capital each worker has to work with, but two-thirds of it is multi-factor productivity - using labour and capital inputs more efficiently.

That is an average, however. The data shows a rising contribution from capital input over the past seven years.

Despite being nominally ahead of Australia, growth across the Tasman was off a higher level of productivity, reflecting higher levels of capital investment per worker.

"We still have a long way to go to lift the level of productivity which is only abut 80 per cent of the OECD average and 30 per cent less than Australia's," said deputy Government Statistician Ian Ewing.

"We have been starting to catch up, that's all."

Business Roundtable executive director Roger Kerr said the numbers reflected the fact that firms had increased their efficiency in the past decade or so.

He said the fact that Australian productivity growth owed more to capital investment was not necessarily a point in Australia's favour.

With its more free labour market, New Zealand did better in absorbing more low-skilled, low-productivity workers from the ranks of the unemployed into the labour market.