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Taking on the West Island: How does New Zealand's labour productivity stack up?

New Zealand’s productivity performance has gained considerable attention in recent times, particularly compared with Australia’s. Using a three-pronged approach, this paper seeks to shed new light on that relative performance. First, measures of labour productivity levels as opposed to growth rates are compared in order to provide insight into disparities in GDP per capita between the two countries. Secondly, the paper examines the puzzle of why measures of economy-wide labour productivity growth rates produced by the OECD differ from the estimates of productivity growth rates as captured in the domestically-produced official statistics on the so-called measured or market sectors in New Zealand and Australia. Thirdly, labour productivity growth rates are compared for the 12 common industries for which New Zealand and Australia compile official productivity estimates.

Over the period we examined most closely, 1988–2008, New Zealand’s measured sector labour productivity growth was slightly ahead of Australia’s corresponding sector but there was not a lot in it. On the other hand, Australia had faster labour productivity growth economy wide and this cannot all be dismissed as a statistical anomaly. The levels gap in economy-wide labour productivity decisively favours Australia and has remained roughly constant for the last 10 years at around 30 percent of the Australian level.

From a policy perspective our findings suggest that raising New Zealand’s productivity growth remains its most important economic challenge: the levels gap is still large even after measurement issues are taken into account. While New Zealand measured-sector productivity growth has been at least on a par with Australia, it needs to be faster to close the large gap; and it is disappointing that the higher growth rate expected of an otherwise similar country coming from behind has not eventuated in New Zealand’s case.

Published in October 2010
ISBN 978-0-478-35319-8 (Online)

This paper is a joint publication by Statistics New Zealand and the New Zealand Treasury. It is also available at www.treasury.govt.nz as part of the New Zealand Treasury productivity series numbered TPRP 10/01.

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