NZ lags in productivity stakes

CATHERINE HARRIS
Last updated 10:48 19/12/2013

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Many New Zealand industries, including agriculture, are less productive than their counterparts in Australia, according to a new study on the widening trans-Tasman productivity gap by British economist Geoff Mason.

Mason, who did the research for the Productivity Commission, found a lack of investment capital was a major reason behind New Zealand's poor productivity record.

But the efficiency with which it used labour and capital was the biggest factor.

New Zealand's labour productivity is about two-thirds of Australia's, in terms of the amount of gross domestic output for every hour worked.

In monetary terms, that difference is about $25 per hour.

The commission's director of economics, Paul Conway, said one reason was that New Zealand employed more people in low value-added industries like food and drink manufacturing and agriculture.

"Australia has more employment in high productivity industries whereas New Zealand has a higher employment share in lower productivity industries and that explains about 30 per cent of that gap, Conway said.

"But most of it is due to [factors] within industries."

The report looked at 24 comparable industries in both countries, and particularly at their skill levels and the level of available capital, such as machinery or computers, per hour worked.

Based on 2009 data, it found New Zealand put almost 40 per cent less money into capital than Australia.

"We're a capital-shallow economy compared to Australia," Conway said.

However, a lack of capital explained only $9 of the $25 productivity gap. Another $15 was attributable to "multifactor" productivity, the efficiency with which labour and capital are used.

New Zealand was 22 per cent lower in multifactor productivity than Australia, which was "a part of labour productivity that you can't attribute to growth in capital or skills per hour," Conway said.

"A lot of things impact on it, innovation, managerial effectiveness, scale ... It's kind of a catch-all term for all those things you associated with productivity."

As a result, the report said the majority of New Zealand industries surveyed were underperforming compared to their Australian counterparts.

Mining, agriculture, most branches of manufacturing, construction, retail and wholesale trade and financial and insurance services were included in that category.

However, New Zealand had the upper hand in food and drink manufacturing, utilities and arts and recreation services.

The remaining $1 in the productivity gap was due to skill levels, which were just 3 per cent lower in New Zealand based on qualifications and relative pay levels.

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Conway said skill levels being not that different between the two countries was unsurprising, but that agriculture was considered more productive in Australia had "raised some eyebrows".

Part of the reason could be the inclusion of less productive primary industries such as forestry under "agriculture", he said.

There were also big structural differences such as cheap hydro-electric power in New Zealand which made comparisons difficult.

"It's important to acknowledge that we're talking about Australia here, which had a very good productivity performance over the 90s ... So the comparison we're using here is a very high bar.

"Australia is one of the top productivity growth countries in the OECD.

"But the point remains that compared to Australia and indeed compared to a broader subset of countries, New Zealand has had a pretty poor productivity performance over the last four decades," Conway said.

- © Fairfax NZ News

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