Magazine article New Zealand Management

Productivity in Progress

Magazine article New Zealand Management

Productivity in Progress

Article excerpt

At a time when politicians were peppering the economic debate with proposals and counter-proposals for propelling us back up the OECD ladder, improving our incomes per capita, and what-have-you, a new set of data from Statistics New Zealand was welcome. It was an annual productivity series, providing information on the country's labour, capital and multi-factor productivity growth.

The new series did not embrace the whole economy, alas, but confined its coverage to the so-called "measured sector". This left out a significant chunk of activity: central and local government, education, health, property services and business services. Trouble is, there are problems measuring the outputs from those sectors, and dependable measurements of outputs are a prerequisite for measuring productivity.

For the period covered by the statistics, the measured sector contributed 65 percent of total industry GDP and accounted for 69 percent of total paid hours. But most of the growth in labour occurred in the property, business and commercial services industry, and to a lesser extent health and education. These tend to be labour-intensive sectors.

On the other hand, the output from these sectors has tended to grow more slowly than it has from sectors covered by the new statistics. As Statistics New Zealand explained, productivity is a measure of how efficiently production inputs are being used to produce economic outputs. Productivity measures may be single-factor (relating a measure of output to a single measure of input) or multi-factor (relating a measure of output to a bundle of inputs).

Measures of productivity growth and productivity levels are important economic indicators. Productivity growth is the basis for improvements in real incomes and welfare. Slow productivity growth limits the rate at which real incomes can improve. It also increases prospects of conflicting demands when it comes to distributing income, or sharing the national pie.

The headline-grabber in the first set of official statistics was the figure showing average annual growth in labour productivity was 2.6 percent in the measured sector from 1988 to 2005. Labour productivity increased by 55.7 percent during those 17 years.

Average annual growth in capital productivity was just 0.3 percent, however, dragging down the average annual growth in multi-factor productivity to 1.8 percent.

These estimates of the country's productivity growth throw fresh light on debates about the country's economic performance. …

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