Productivity growth falls as Kiwis work ‘harder not smarter’

New Zealand’s productivity growth rate has continued to fall with Kiwis working longer hours to maintain economic progress, a new report from the Productivity Commission shows.

“New Zealanders are working harder rather than smarter, this makes improving living standards even more difficult,” said Commission chairman Dr Ganesh Nana.

Research for the year to March 2020 – pre-dating the pandemic – showedNew Zealanders work longer hours – 34.2 hours per week compared with 31.9 hours per week in other OECD countries.

And New Zealanders produce less: $68 of output per hour, compared with $85 of output per hour in other OECD countries.

New Zealand’s Productivity Rate has long been recognised as lagging that of similar advanced economies in the OECD.

But the rate of productivity growth was weaker relative to the average across the last full economic cycle (2008-2020) – it fell for both the labour productivity and multi-factor productivity measures.

“Poor productivity results in higher prices for everyday items which can impose a larger burden on those with low incomes.

“When productivity growth is lower, wage growth tends to be lower too, meaning some families struggle to make ends meet. The result is they work longer hours and have less time to spend with family and in the community.”

“Even though New Zealanders are producing seven times more than 150 years ago, this is significantly less than other countries.”

The data showed that productivity improvements varied widely across industry sectors.

The mining sector saw the largestleap in productivity with a 5.3 per cent increase in labour productivity growth and 14 per cent in multi-factor productivity growth.

Professional and scientific services also saw good gains, along with the Information, media and telecommunications sector.

But the largest sectors – agriculture, forestry and fishing and manufacturing – went backwards.

This report was focused on measuring the trend rather than solving New Zealand’s issue with weak productivity.

However, drawing on its recent “Frontier Firms” report, it highlighted the need for government policy to drive innovation and encourage more investment in technology to improve efficiency.

It also suggested looking at regulatory settings to improve competition in some industry sectors, to foster the development of the underperforming Maori economy.

The Productivity Commission has also been asked by the Government to undertake a review of immigration settings with a view to ensuring they align better with New Zealand’s economic needs and promote productivity growth.

“Innovation is the key to unlocking New Zealand’s productivity,” Nana said.

“There are only so many hours in the day that people can work, so creating new technology and adopting new and better ways of working is critical to achieving effective change.”

The time frame for this report doesn’t yet capture the impact of the Covid-19 pandemic.

While the impact on productivity was far from certain, responses to Covid-19 had accelerated the adoption of digital technologies by several years and forced businesses to create new strategies and practices to survive, the report said.

“The most obvious manifestation of this had been the dramatic rise of video conferencing as an essential work tool, but there are many other examples (eg, the expansion of many ‘brick-and-mortar’ retailers into online sales)”.

Governments had also revised their systems, streamlining regulatory processes to
bring the Covid vaccines to market swiftly.

Recent research suggested that New Zealand firms were not making the most of leading technologies and that global best practices did not flow swiftly into the New Zealand economy, the report said.

“For example, New Zealand’s leading firms appear on average to be less than half as productive as top firms from countries such as Belgium, Denmark, Finland, the Netherlands and Sweden”.

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