Productivity
March 29th, 2006 at 1:25 pm by David FarrarI was interested by this article in the NZ Herald about how from 1988 to 2005 labour productivity grew by an average of 2.6 per cent a year in New Zealand compared with 2.3 per cent in Australia.
I wondered if there was a difference between Governments. Well Sage has done the research and shows us:
From 1993 to 2000 productivity growth was a whopping 3.1%. From 2000 to 2005 it was half of that at 1.5%.
No tag for this post.
March 29th, 2006 at 3:02 pm
Stagnant living standards.
Vote:A flat economy.
A sinking dollar.
A trade deficit at a 30-year-high.
Declining productivity growth.
Other than a huge budget surplus, caused by their excessive taxation, is there anything this government can crow about concerning the economy?
Remember the supposed good times were courtesy of our farmers and good commodity prices.
But isn’t it curious how suddenly it has all turned to custard.
During the election campaign we were constantly informed that things were going rather well.
Obviously, Liar-bour just lied and cheated their way back into power.
But Liar-bour will pay, especially when even their friends in the MSM can no longer hide or ignore the true economic horror of Helengrad.
March 29th, 2006 at 3:29 pm
DPF, surely Sage’s analysis only holds water if you assume that investment and employment decisions directly correlate with the specific policies of specific governments at a particular point in time and have no lead times nor residual effects?
I stopped taking his commentary seriously quite early on in the piece when he dismissively credited Labour with increasing labour market participation as if it were of no consequence when its a major feature of the Stats report.
Both political parties will take credit for these new figures, and both will have a some basis for their claim. I think you ought to read the report before you reference other’s analysis of because they simplify it to a point where it can be used to support a ridiculously partisan argument.
Vote:March 29th, 2006 at 3:33 pm
The Labour chickens are coming home to roost on the economy. They are a classic example that excessive spending by a Government is an extremely inefficient way to grow an economy. It ends up with stagflation.
Vote:March 29th, 2006 at 3:40 pm
Doesn’t surprise me.
Labour’s employment policies have hampered New Zealander’s growth and most New Zealanders’ standards of living – not to forget property rights.
Vote:March 29th, 2006 at 4:04 pm
Heh… you guys are so predictable… It’s all Roger Douglas’ doing IMO (you make up your own minds what, we can get the statistics later).
But I digress, what does this say about the Howard govt then? Anyone looked at that?
Vote:March 29th, 2006 at 4:26 pm
Llew, Howard has been unable (until recently) to put forward any meaningful reform to boost productivity due to a lack of a senate majority.
Vote:March 29th, 2006 at 4:39 pm
Somehow not having a Senate majority nevertheless enabled all manner of other reforms however – what rot Ed.
Vote:March 29th, 2006 at 5:10 pm
Paul W: Howards labour reforms have been stalled in the Senate for some time. They took effect today, as he now has a Senate majority. I agree that he managed to get some other reforms through, but labour market was clearly not one of them.
DPF: I note that Sage’s link to stats NZ gives me the following message “HTTP Web Server: Lotus Notes Exception – Document has been deleted”. Censorship or incompetence? (I am not sure there is another option)
Vote:March 29th, 2006 at 6:17 pm
The falling of the exchange rate helps who?
Vote:Why have the farmers been bleating?
Dollar too high, go figure.
30 year high trade deficit.Why?
Importing more, exporting less.
What should we be Importers or Exporters?
March 29th, 2006 at 7:26 pm
PaulL. No idea why the link failed. I blame stats and will fix it now. Go to Vote:
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March 29th, 2006 at 7:58 pm
PaulL, Howard’s reforms were not stalled – they weren’t introduced until he knew he had a majority. Even so, the federal laws are limited by the impact of the “corporations law” of the Constitution – they don’t affect State employees. Howard’s reforms will prove to have little significant affect not least of all because they are hopelessly complex.
SageNZ, I’m unconvinced that you really understand this stuff. The point made in the Stats report was that although earlier analyses of productivity claimed improvements were primarily due to improvements in the quality and quantity of labour force engagement they now say that capital deepening is a major factor also. You’re earlier commentary was, frankly half arsed – I doubt you even looked at the tables or gave more than a cusory review of the report.
The report does say that since the mid-90s investment hasn’t been as strong but don’t jump to conclusions that you can’t support with argument. By your earlier comments, this would be the fault of National right? Current government policy is supportive of increasing savings and investment contrasted with National’s policies to simply cut taxes and hope.
I’m well aware that there’s an absolute limit to the hours that can be worked but I suspect that as with Australia, there’s been a significant increase in non-standard work in NZ meaning that on average hours don’t grow at the same rate as total employed. There’s certainly room for improving the labour market participation of certain cohorts, older men particularly have tended to fall out of the labour market due to reorganisation.
As to the pithy, “work smarter” advice, thanks but I think we’ve moved beyond the rhetoric of the weightless economy.
Vote:March 29th, 2006 at 10:06 pm
Paul W ; waffle. I used the stats numbers. If you feel you have the intellect to challenge those numbers then do so. The basic point is that a trend rise in Labour Productivity compounded growth of 3.1% from 1993 through 2000 has been reduced to 1.5% CAGR. You are spinning and obfuscating like a worker on the ninth floor. Are you??
Capital productivity growth has been 0.3% from 1988 through 2005. National managed to raise it to 2% trend from 1993 through 2000. Labour have reduced it to 0.5%. So you are wrong there despite what commentators might be saying. be clear that CPG is the effect on workforce productivity that Capital investment has. A new machine that enables the same good to be produced more quickly. That lame growth is certainly borne out by my personal experience in various sectors in New Zealand. Depreciation rules are a major cause of this.
I gave credit for the increase in hours. undoubtedly in some cases it has been cheaper to employ another worker than to invest in making the same workers more productive whether through training or capital investment.
my problem is that the report does not highlight how the positive productivity trends have been broken in the last 5 years under this incompetent government. given what happened to the climate change scientist who dared to criticise the government I can completely understand why statiticians would be afraid to highlight the damage the labour government have done to productivity growth in this country.
Your comments about a “report ” expose you as waffling. The data is not a report. It is statistics accompanied by some explanatory notes and a media release.
to your point on capital deepening there has been no change from the 0.4% CAGR contribution of capital deepening 1993 to 2000 and 2000 through 2005. So it might be true relative to previous incorrect data but in this context it is not a point of issue. 0.4% capital deepening vs 3.1% Labour productivity. Investment has been poor.
Vote:March 29th, 2006 at 10:57 pm
Sagenz, it is not a matter of “number up = government good, number down = government bad”.
First, productivity growth is but one component of economic growth. Bringing more people into the workforce, for example, will have no impact on productivity, but will have an effect on GDP growth. Same with increase working hours, as mentioned. Productivity is important, but it’s certainly not the same as economic wellbeing.
Second, you can’t just judge an arbitrary series of data without considering *any* external factors. Business practices, education levels, demographics, All Blacks results… a whole bunch of things can affect productivity. It’s a bit rich for the Right to be acting as if everything is dependent on the government and that the private sector doesn’t do anything.
Third, productivity is the factor over which the government arguably has the least influence. A government can create incentives for people to work more or less, etc., but a government cannot just say “Oi! Work smarter!” Every business *always* wants to work smarter.
But a government – not even a right-wing government – can’t just make programmers programme faster; even if you lower taxes, it doesn’t mean a builder can just suddenly build a house faster than they could before without working more hours. That’s the sort of stuff that constitutes “productivity”.
Vote:March 29th, 2006 at 11:02 pm
SageNZ: I’m not challenging the numbers at all, I think they fairly reflect what’s going on, I just think you’re struggling to understand them.
My comment was that both major political parties have reason to claim some credit for improved productivity. Your argument is that complex employment and investment behaviour slavishly and immediately follow changes in domestic labour market/economic policy which is, frankly, naive. Producing an excel table is not an argument, it’s a gimmick.
There is a report, go to the site, click on the button that says information paper, I think it runs for a dozen or so pages and explains the data beyond the commentary in the NZHerald.
Vote:March 30th, 2006 at 12:01 am
Is it possible that this just reflects the recent economic trends? The main growth activities since about 1999 have been the construction and commodities booms, whereas the growth in the mid/late 1990s came from export and manufacturing sectors, which have a higher value output, therefore higher measured productivity growth.
Also I would like to nitpick that a recession is defined as two consecutive quarters of negative GDP, and as such NZ is not in recession yet. The last recession happened in 1998 after the Asian crisis AFAIK.
A falling dollar is a GOOD thing for exporters and local manufacturers, and it could have been achieved earlier if the Reserve Bank had kept interest rates at a sane level. However its hand was forced by the narrow-focused Reserve Bank Act which clearly does not work in an inflationary environment.
Vote:March 30th, 2006 at 2:38 am
uknz05 – precisely the point. construction on residential houses funded by a blown out current account deficit. the market responded to rising residential prices.
allowing the exchange rate to rise too high making exports uncompetitive.
Labour failed to reduce tax rates (until just recently the depn drop) and kept on taking too much tax out of the economy.
Paul W – I am not arguing that at all. on a micro basis they do not. On a macro basis people respond to the government policy and change their behaviour. This productivity reduction shows the effect of the governments failure to realy encourage investment by increasing depn rates to 100% in year 1 and droppiong the overall corporate rate to 30% or 25%.
if you think that trend is just a gimmick it is not worth further discussion. we are talking about a 5 and 7 year trend within an 18 year data set. At what point would the conclusion become valid in your view. If this was 1 or even 2-3 years of data you might have a point. But you are just trying to obfuscate.
explanatory notes or a report. I will give you that as I used the word myself.
Keith – there are a whole bunch of influences. that is not in dispute. this data is identifying the performance over a reasonable period of those that on average increase the wealth of an individual New zealander for the same number of hours work over the long term. labour has a situation where those who work harder are enriching the government and companies. they dont get to take any more home with the rise in tax rates.
To all of you. It is interesting seeing how generalised and defensive your arguments are. Labour have done some things right. but overall they have screwed up the positive trends in productivity growth that were established from a turning point baseline year of 1993, carried through to 2000. In the last 5 years all those incremental employment contract changes, extra tax and bureaucracy have had their effect.
Vote:March 30th, 2006 at 4:20 am
btw – Tony Alexander (Chief Economist at BNZ )shares the feeling in the 23/3 Weekly Overview
“With productivity growth so poor in New Zealand at the moment and trending below levels in countries like Australia we have a strong need for a shift in the way businesses grow from trying to hire more people and lobbying the government for more skilled immigrants toward capital deepening. The opposite is happening”
Vote:March 30th, 2006 at 6:37 am
Um, ‘scuse my ignorance, I’ve just looked up “capital deepening”, and understand conceptually what it is, but I’m not sure how this could be achieved for an already industrialised country? Do you simply mean “encourage companies to spend on developing their businesses & investing in infrastructure”, hence I assume the only way to do so is to reduce corporate tax. Is this the only way to encourage capital deepening? Would Telecom suddenly upgrade us all to fibre if we dropped their tax? I’m a tad skeptical.
BTW there is no reason not to stop trying to win back skilled NZers who have flown the coop, and indeed encouraging other skilled migrants to move here. Surely all strategies to increase productivity are worth working towards.
Vote:March 30th, 2006 at 7:59 am
Its all a Stalinist fiddle of the numbers.
First you erase the Ruth Richardson years of 1991 1992 1993 and start counting from 1993 . Why choose from 1993 unless you want to hide the cataclysmic decline of those times. Its an old statistical trick to choose the start point to make your trend line look better. And what better way to show ‘improvement’ then use your start point as the apalling year of 1993, which had the highest unemployment rate (due to the forgotten Ruth Richardson of course)
This crops up all the time in looking back over the nineties. The start point is allways 1993 is if there was a ghost governemnt from the end of 1990 they no one has any idea about.
Vote:Lets see the ‘average’ for all the years of national not just the last 6 years ( with 3 different coalition governments in 4 years).
March 30th, 2006 at 8:58 am
Maurice, you are one fun bunny. Foolish, but funny. While your comment has all the intellectual cockswirling of a Labour supporter you would do well to actually LOOK at Sage’s figures.
Here’s a hint for you.
They start at 1988.
But hey, don’t let me disrupt your little fantasy there, okay?
Vote:March 30th, 2006 at 9:03 am
Maurice, that was a beautiful comment. It had intellectual panache, was critical in all the right places and highlighted all the right flaws.
Of course, it was utterly false. I’d recommend reading Sage’s analysis again. And to show you how kindly I’m feeling, here’s a hint.
His analysis started in 1988.
But hey, don’t let me disturb your little fantasy, hmmmkay?
Vote:March 30th, 2006 at 10:24 am
SageNZ, I have no problem with the report nor with the data it is based on (I think I’ve said this pretty clearly previously), it’s your use of the data that I think is flawed. In your blog, you falsely argue that productivity at any given point is attributable to a specific government/set of policies – its your simplistic use of the data that I have challenged.
As to your suggestion about depreciation, although I’m not unsympathetic to this arguement (and it’s come up often including at the very beginning of the first term of this government which inherited National’s policies), this alone won’t do it. Investment in plant and machinery is a function of so many factors, expectations about future growth and the value of the dollar for example, that to argue that relatively low private sector investment is entirely attributable to a specific set of policies at a particularly point in time is just too simplistic. That’s my problem with your comments, they’re too simplistic and too partisan to be taken seriously.
Vote:March 30th, 2006 at 5:15 pm
No surprises here. We all know that Labour has been a disastrous failure, when it comes to economic policy.
The amusing fact is that Cullen now talks about improving productivity growth, yet he has no idea how to improve it. In fact, it’s almost ironic, how such an intellectual failure can even pretend to debate the productivity failure.
Vote:March 30th, 2006 at 5:42 pm
James thanks for the National Party cant – we all know nothing of the sort which is precisely what the reports shows – I’m fascinated to hear your views on how to improve productivity, please enlighten us?
Vote:March 30th, 2006 at 6:01 pm
There are so many caveats to the numbers using an’average’ means little.
As the Stats Department itself notes:
Care is also needed in interpreting the partial measures of productivity. For example, labour productivity only partially measures ‘true’ labour productivity, in the sense of capturing the personal capacities of workers or the intensity of their efforts. Labour productivity reflects the level of capital available per worker and how efficiently labour is combined with the other factors of production. Labour productivity may change due to a substitution of capital for labour (capital deepening) or due to a change in technology, with no change occurring in the labour input itself.
NZ will never be as ‘productive’ as the US with their vast mechanised farms, while our farms are better than the EU. Nor do we have the massive resources sector of Australia or the US, where large amounts of capital and a small work force produce a large volumes of low value .
And how do you measure a NZ Call centre being available to service a US software centre? . The labour intensive side is done here but the value turns up in the US. The same goes for call centres in India.
And for the fake numbers for Nationals years from 1993 to 2000, (“From 1993 to 2000 productivity growth was a whopping 3.1%”)why do it unless you wanted to mislead. National ran the economy from 1991 , so start from that year unless you believe in moving the goal posts to mislead
Vote:March 30th, 2006 at 6:38 pm
No one is proposing voting ONLY on sage
Vote:March 30th, 2006 at 10:25 pm
Genius, you stick with your mechanistic view of the world if it suits you, I’ll prefer a slightly more dyanmic one.
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