In last week’s column I identified that Communication Services was the stand-out performer amongst New Zealand industries in terms of productivity:
- It had significantly higher productivity growth than any other industry over the period 1978-2008, both in terms of labour productivity and in terms of multi-factor productivity;
- New Zealand’s productivity growth in Communication Services was far higher than Australia’s over 1986-2008 (the period for which comparable data is available); and
- As at 2002, our labour productivity level in Communications Services was significantly above than of the United Kingdom.
The first two of these findings comes from a recent Statistics New Zealand report; the third from a 2007 working paper produced for the New Zealand Treasury in 2007 by Geoff Mason and Matthew Osborne of the UK National Institute of Economic and Social Research.
But what activities does Communication Services industry cover, what has driven its phenomenal productivity growth — and are there lessons for the economy as a whole?
Going back to that Statistics New Zealand report (Chapter 15), we learn:
The industry comprises firms providing postal, courier, and telecommunication services. The last includes wired and mobile communication services, and Internet services, while postal and courier services include standard pick up, transport and delivery services, package and parcel delivery, and express door-to-door courier services.
The following graph summarises how output growth in the industry has varied from one sub-period to another and what has driven it in each period.
Output growth was strongest over 1985-2000 and peaked in the late 1990s. It is also noteworthy that the main driver of growth has shifted from increased capital input (investment in equipment) in the early years to multi-factor productivity (which implies the industry working smarter and more effectively) in more recent years.
The report also describes how the industry has changed over the period studied:
With technological development, the industry has become much more capital intensive, producing complex outputs requiring high levels of capital infrastructure. Labour input has declined due to the automation of many activities. With many new developments over time, such as mobile telephone services, wired and wireless Internet services, and other satellite communication technologies, the communication services industry has changed substantially.
That’s all very well, and does begin to give us an idea of why an industry in the midst of so much change might have increased its productivity more rapidly than other industries in New Zealand.
But what about the comparison with Australia and the United Kingdom? Unfortunately, this chapter of the report doesn’t look at international comparisons, so we are forced to speculate.
These positive results don’t tally easily with all the reports we see showing how much more costly telecommunications services are in New Zealand than elsewhere. Of course, it’s possible that the strong productivity increases compared to Australia represent ‘catch-up’ — i.e. that we were even less efficient compared to other countries in 1978.
But that doesn’t explain the Mason and Osborne result that New Zealand’s labour productivity in Communications Services is 15% superior to that of the UK.
A closer look at that study however provides some valuable additional information about this. Firstly, New Zealand has overtaken the UK only quite recently, in 2001 (Appendix Table A1).
Secondly, the difference is entirely due to the much higher capital-intensity of the New Zealand Communication Services industry.
The average physical capital per hour worked was more than twice as much (229%) in New Zealand as it was in the UK (Table 7). This is very unusual since in most industries New Zealand is much less capital intensive. Moreover, the report suggests that New Zealand’s Communication Services capital intensity may be on a par with the US and France, which generally have much higher capital intensity than the UK (p. 17).
By contrast, the multi-factor productivity of the New Zealand Communication Services industry is quite a bit lower, only about three-quarters (74%) of what it is in the UK. That doesn’t mean New Zealand’s Communication Services doesn’t have high multi-factor productivity by New Zealand standards, but it doesn’t compare to that in the UK (where multi-factor productivity levels are generally higher than our’s).
So it appears that when we say that New Zealand’s Communication Services industry has very high labour productivity, what this primarily means is that the industry has a particularly high ratio of plant and equipment to workers.
We can see the flipside of this by looking at labour input, as measured in Table 1.09 in the Excel spreadsheets that accompany the Statistics New Zealand report. The following graph depicts the Communication Services column of this table.
As you can see, employment in the sector (measured by hours worked) dropped precipitously after 1987, so that by 1996 it was down to 60% of its 1978 level. (Employment throughout the measured sector overall had dropped during this period but only to about 98% of its 1978 level.)
It is likely that this industry had become less labour-intensive in other countries, too. Yet Mason and Osborne report that in New Zealand in 2002 Communications Services accounted for 6.0% of market sector output but only 2.0% of the hours worked, while the UK employment share was bigger at 3.1% even though its output share was smaller (4.1%) (Table 5).
In other words, our industry seems to have been a notably smaller employer for its size within the economy than its UK counterpart.
To sum up then, the Communication Services industry doesn’t offer any particularly useful productivity lessons for the rest of the economy, unless we consider that labour-shedding is the path to prosperity.
This analysis also provides a useful reminder than impressive-seeming figures aren’t always what they seem, especially when it comes to productivity statistics.
Last week’s column, Communication leads the way — New Zealand’s productivity performers.
Statistics New Zealand’s Industry Productivity Statistics 1978–2008 page.
An earlier column covering the Mason and Osborne study.