Productivity in New Zealand on the rise

Labour productivity in New Zealand, which measures the production of goods and services per hour of labour, increased 1.0% in the year to March 2012, according to Statistics New Zealand. And while on the surface it may sound like measly growth, it beats the average annual increase between 2008 and 2012 of 0.6%.

The long-term increase is such that, if in 1996 100 products could be produced per hour of labour, now New Zealand workers can churn out 126.

The growth in the year to March 2012 was driven by the greatest increase in the production of goods and services (output) since 2008 – 2.7%. (In 2008 it was 2.8%.) The growth in output was driven by increases in hours worked, capital input, and labour composition.

However, the growth in labour productivity was distorted by the very strong increase in agriculture output, which was 30%. Without agriculture, labour productivity would have declined. “The growth in agriculture output was the result of excellent growing conditions. If we excluded agriculture, labour productivity would have fallen,” according to Rachael Milicich, national accounts manager at Statistics New Zealand.

On the other hand, multifactor productivity (MFP), which is the ratio of output to combined capital and labour inputs, grew 0.7% in the year to March 2012. MFP measures the efficiency of the production of goods and services; a positive MFP figure means that output is growing faster than inputs. It may reflect technological or organisational changes.

Improving productivity is generally considered essential to improving the standard of living in New Zealand and is a major driver of GDP. However, since 1996 New Zealand has typically lagged behind Australia in terms of average annual growth in both labour productivity and output, while we have a slight edge (0.1%) when it comes to MFP.