By Michael Reddell 18/10/2016 3


A few weeks ago I ran the chart below chart, showing quarterly real GDP per hour worked for New Zealand for the last decade or so.  I used an average of production and expenditure GDP, and Household Labour Force Survey (HLFS) hours worked data.  The rather dismal picture was of no productivity growth at all for the last few years.

screen-shot-2016-10-18-at-9-08-51-pm

Comparable quarterly data isn’t readily available for a wide range of other countries, so for such comparisons one is forced back onto annual data from international databases such as the OECD’s. And the international agencies take a while to get a full set of annual data –  thus, New Zealand’s annual national accounts for the year to March 2016 (used as the basis for the OECD’s 2015 annual numbers) won’t be released until next month. We aren’t the only laggard – for a third of the OECD countries there are only 2014 annual numbers available.

So how has our (labour) productivity growth compared with that of other OECD countries over, say, the decade to 2014?  Taking a decade is (like all such comparisons) a little arbitrary, but it should be long enough to largely eliminate the effects of year-to-year volatility. And a comparison starting in 2004 and ending in 2014 means starting before the peak of the last boom, and ending when the worst of the 08/09 recession and the euro crisis was over (well, perhaps with the exception of Greece).

gdp-phw-oecd-oct-2016

Poor among Anglo countries

I’ve highlighted New Zealand (in red) and the other Anglo countries (in green). The median growth rate for this set of countries is a couple of observations to the right of New Zealand.  Note that I am using (real) national currency measures here.  If one wants to compare income or productivity levels across countries, one has to use PPP-adjusted measures. But in comparing growth rates, the OECD recommend (sensibly) using national currency measures.

New Zealand’s performance hasn’t been notably bad by any means –  just a little below the median. But then the goal has supposedly been to grow a bit faster than the other advanced countries, to close the large gap between productivity and incomes in New Zealand and those elsewhere in the OECD.  And in fairness, most of the countries to the far-right of the chart have lower levels of productivity than New Zealand –  so they are also trying (and succeeding in their case) in catching up. But New Zealand couldn’t even quite match the productivity growth rates of the other Anglo countries –  traditional comparators.

Sometimes one detects a sense among people writing about New Zealand that small countries face a particular disadvantage, and that small countries couldn’t be expected to sustain as rapid income or productivity growth as large countries.   Taking a longer span of data, I had a look at that proposition in a post last year. There didn’t seem to be much, if any, support for the idea that big countries get rich faster.

But what about the last decade?

Here is same chart:

real-gdp-phw-oecd-oct-16-big-vs-small

I’ve drawn the line no doubt a bit arbitrarily.  Netherlands has a population of around 17 million and it and all larger countries are “big”.  Other countries, with populations of 11 million or less as small.  If anything, the small countries have done slightly better than the large countries over this particular period, but the difference is not enough that I’d want to make anything of it.  But the message is still the same: New Zealand hasn’t done particularly well, and plenty of small countries have done better.

The OECD’s database goes back to 1970, but they only have full data for 21 countries (including New Zealand for that period).  Over the full period, we had the second slowest productivity growth of those 21 countries.

real-gdp-phw-1907-to-2014

And once again, the small countries and large countries are scattered either side of the median.

Over the last decade, we have actually grown very slightly faster than the median of these particular 21 countries. It has been our least bad decade since 1970.  But I wouldn’t take much comfort from that: (a) the difference was slight, (b) we grew a bit less rapidly than the whole OECD median, and (c) on our own more recent data (see first chart) we’ve had no productivity growth at all in recent years.


3 Responses to “Productivity growth: how have we been doing?”

  • It is fascinating data. A couple of things leap out that would benefit from some analysis. One is that almost all of the great performers (more than 15% growth 2004 to 2014) are ex-Soviet bloc countries, which presumably points to the level of the catch-up attained after abandoning highly centralized economic policies in favour of more free-market ones. Of the two that aren’t in this category, Ireland has presumably benefited from both a high level of EU subsidies for their rural sector plus a huge inflow of foreign investment as a result of their very low corporate tax rates, and Korea has ridden a massive tech-sector boom from the likes of massive companies like Samsung and an automobile sector that has taken on the dominant Japanese competitors and won. NZ will never be a Korea, but it could emulate Ireland by lowering its corporate tax rates to encourage greater foreign direct investment.

    • Just in terms of your comments on Ireland and Korea, recall that these data are only for the last 10 years. The biggest gains to Ireland from entering the EU will have been 20 or 30 (even 40) years ago. I am keen on a much lower tax rate on capital income (including business income) and think it would produce gains, altho as the second commenter notes, our distance/location suggests a certain modesty in our expectations of what a much lower capital tax rate might achieve.

  • Well Michael interesting stuff but I put your line of reasoning into my favourite catch all phrase..”If only we were more like ———– then we would be a great country”. eg If only we were more like Ireland we would have great productivity. Of course we would be stuffed as a country just like Ireland as they achieved absolutely nothing.
    I work around Wellington and the number of young Irish working here is amazing…I wonder why, because their country is stuffed!
    I certainly don’t want to be more like Korea either.
    I have business associations with a major privately owned German company. Last year our annual conference was in Venice and I got the prize for the farthest country and the longest trip time to get to Venice, 40 odd hours. This year it was New Delhi and that was 20 hours. Every year we suggest lets have it in NZ, and predictably we get screamed down with howls of outrage.
    Also predictably they are setting up operations in Baroda, India. Why, as there are 1.2billion Indians less than 10 hours flight time from Munich.
    Do you really think a corporate tax rate of 28%, or 24% is going to attract them to invest in NZ with a measly 4.5m people scattered over 4 small cities?
    I think you have to look deeper, and I think there is no one shot answer. Good Luck with any future analysis but I suspect the answer lies in our history and our culture..what do you think?