Backgrounder: Productivity Improvements
[ Last Updated 13 December 2007 ]
This backgrounder summarises information from the Economic Development Indicators 2007.
What's important about this indicator?
Improvements in a population's material living standards can be attributed to increases in either labour utilisation (the number of hours worked per head of the population, per year) or labour productivity (the amount of output produced for each unit of paid work).
Because New Zealand currently has a fairly high level of labour utilisation (high employment) future economic growth and therefore improvements in living standards will need to be fuelled by increases in labour productivity.
Our GDP per capita is lower than the OECD average, and this gap is due to lower labour productivity.
What did we find?
Much of New Zealand's recent strong economic growth reflects the labour utilisation rate which has now improved to be one of the highest in the OECD.
Our high rate of labour utilisation results from a combination of a large share of the working age population in the total population, high participation rates, low unemployment, and a high average number of hours worked per person relative to other OECD countries.
Our level of labour productivity has grown at roughly the same rate as OECD countries over the last decade or so, but it remains at the lower end of the OECD range.
Together, these results mean that GDP per capita, while below the OECD average, has been slowly catching up with it.
These results for labour productivity and GDP per capital include many sectors for which productivity is difficult to measure. For this reason, Statistics New Zealand publishes results for the "measured sector" where it can measure productivity more robustly. The Australian Bureau of Statistics produces a comparable measure.
Looking at the measured sector, New Zealand has a better labour productivity growth, with labour productivity growing slightly faster than that in Australia. The growth rate in labour productivity varies across sectors. The biggest improvements have come from:
- electricity, gas and water supply
- finance and Insurance and
- transport and communications services.
Labour productivity is influenced by other factors including the sectoral pattern of growth, the amount of capital available, the level of technological development and workers' skill levels.
Increasing the amount of capital directly influences labour productivity by increasing the quality and quantity of machinery, equipment and infrastructure available to each worker. New Zealand business investment levels are around the OECD average but behind Australia. However, the capital-labour ratio in the measured sector has trended upwards since the late 1980s and at an increasing growth rate since 2003.
Multi-factor productivity (MFP) measures the amount of output produced in relation to inputs of both capital and labour. It captures a range of factors that may cause output to increase over and above increases in labour and capital inputs, for example, management and worker skills, technology, organisational change and economies of scale. On the whole economy measure, New Zealand's whole economy average annual multifactor productivity growth has remained low but stable relative to OECD comparator countries.
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