Today’s post might quite likely have been another in the Theoretical Foundations series. But then in the middle of last week I got the summons from Keith: he wanted to talk about the new productivity report that Statistics New Zealand had just released. Well, Keith’s a famous blogger at the prestigious Public Address site and also a columnist for Unlimited magazine, so I figured I better comply.
We had a good chat — half an hour or so of data-geekery — and then I headed off and Keith went back to writing up his thoughts on the report (and related issues). You can find out what he came up with when the next issue of Unlimited goes onsale (and online).
Meanwhile, I had productivity thoughts swirling around in my mind. This new publication Industry Productivity Statistics 1978–2008 really does add a lot to our knowledge, particularly when it comes to productivity trends in individual industries. And it includes a detailed industry-level comparison with Australia.
Given that I had done posts before both on industry-level productivity (compared with the UK) and on comparisons with Australia, I couldn’t resist having a further read of the report and sharing some of its findings here.
Firstly, here’s a graph showing the different rates of productivity growth in different industries over the the last thirty years. (The report only covers what’s called ‘the measured sector’ – it leaves out difficult-to-assess industries such as government administration and defence, education and health, and property).
When looking at this graph it’s useful to understand that there are two things that drive labour productivity (a.k.a the amount produced per person).
The first is called ‘capital deepening’, which is basically the amount of equipment that each worker has. This reflects the fact that, for instance, you can shift a lot more dirt with a earth mover than with a shovel. Owen has made the argument in comments previously that an inadequate capital stock (and unwillingness to invest in it) is a big part of New Zealand’s economic problem.
The second thing is multifactor productivity, and that’s the really good stuff. That’s when you can get more production out of the same amount of labour and the same amount of capital. That implies (and it’s always worth remembering that with productivity there’s plenty of room for misinterpretation) that we’re working smarter and more effectively.
So this graph looks at labour productivity growth on one axis against multifactor productivity on the other. (You can click on it to see a full-screen version.)
The first thing that stands out is that ‘Communications Services’ outperforms every other industry by a wide margin on both axes.
The second thing to note is how few industry perform strongly on multifactor productivity. The only other ones are ‘Agriculture’ and ‘Transport & Storage’. ‘Electricity, gas & water supply’ by contrast stands out for a high overall labour productivity driven largely by capital deepening.
Here’s a second graph, from the section of the report comparing New Zealand and Australia. (The timeseries for this comparison only goes back to 1986.)
The graph shows New Zealand with higher overall productivity growth than Australia, but a couple of caveats need to be made about that. Firstly, the figures are for the ‘measured sector’ only. Secondly, while New Zealand is ahead across the full period, this reflects much higher growth over 1986-1996 — Australia’s productivity growth has been ahead of New Zealand’s over the more recent part of the period (1996-2008).
Aside from that, however, the thing to notice is the differences at industry level. As the Statistics NZ report says, variation across industries is higher in New Zealand than in Australia. And the industries where New Zealand can clearly be seen to be ahead are: ’Transport & Storage’, ‘Electricity, gas & water supply’, ‘Agriculture, forestry and fishing’ and in particular ‘Communications Services’.
Now, let’s have a look back at my earlier post looking at Mason and Osborne’s analysis of industry-level productivity in New Zealand and UK, in terms of a snapshot of productivity levels rather than growth over time.
This showed five New Zealand market sectors that stood out as having a productivity lead over the UK: ‘Cultural and recreational services’ (where New Zealand’s productivity was 128% of the UK’s); ‘Communication services’ (115% UK); ‘Accommodation, restaurants and bars’ (113% UK); ‘Finance and insurance’ (112% UK); and ‘Food, beverage and tobacco manufacturing’ (105% UK).
The common denominator between that analysis and this more recent one by Statistics New Zealand is the standout performance of ‘Communication Services’. Two other sector highlighted in the UK comparison actually had declining productivity over time: ‘Cultural and recreational services’ and ‘Accommodation, restaurants and bars’. A third, ‘Food, beverage and tobacco manufacturing’, is invisible within the Manufacturing category for much of the more recent analysis.
So, what is the ‘Communication Services’ sector and why has performed so strongly in terms of productivity? Is this just a historical fluke, or is this an area where New Zealand has an enduring strength? I’ll address these questions in next week’s column.
In the meantime I’d be interested in your thoughts and impressions about the productivity picture that has emerged from these reports.
Links
- Keith’s blog at the Public Address site, OnPoint.
- Unlimited magazine’s ‘Opinion’ section.
- Statistics New Zealand’s Industry Productivity Statistics 1978–2008 page.
- My previous post on industry-level productivity: Productivity – where we do well and where we do poorly
- My earlier comparisons with Australia: Staring at the gap and If we do catch Australia, what’s the prize?
- Some previous caveats on productivity statistics: Productivity pitfalls.
- Owen’s comment on New Zealand’s low technological intensity.
Tags: catching Australia, industry sectors, Keith Ng, productivity, Statistics New Zealand
While the figures from 1978-2008 are interesting, the report also presents a breakdown into three different time periods which I found more compelling as you can see the effects of different periods of economic policy especially Rogernomics.
I agree, Achela, the sub-periods are interesting. And there are changing patterns at the industry level too (for instance agriculture is a strong performer in the earlier years but not more recently). Some of the analysis at industry level esp in comparison with Australia isn’t as easy to access for the various subperiods, though.
I realise that it’s somewhat off-topic, but is there any information given regarding the reasons for the notable _drop_ in labour productivity in the cultural and recreational services?
I’m actively seeking the wisdom of my betters here, so I won’t pollute the internet with my suppositions.
Have a look at Chapter 18 of the Stats NZ report in the Links — there’s a bit there about the trends and some high-level speculation about ‘Baumol’s cost disease’, but nothing than really explains things like why our experience is so different from that of Australia.
I think to really get to the heart of it you’d need to get some data from Stats NZ that broke the industry down into its sub-industries. I suspect what has happened is that there has been major growth in some of the lower-productivity sub-industries, boosting the number employed in the industry but not increasing output at the same rate.
[...] Last week’s column, Communication leads the way — New Zealand’s productivity performers. [...]