Productivity and Innovation

The following is an abridged version of the information on the home page of the New Zealand Productivity Commission.

Generally speaking, the higher the productivity of a country, the higher the living standards that it can afford and the more options it has to choose from to improve well-being. High productivity societies are characterised by:

  • smart choices about savings and investment versus current consumption;
  • dynamic and competitive markets;
  • openness to trade and to international connectedness;
  • high awareness of external influences;
  • rapid uptake and smart application of new technologies, products and processes; and
  • increasing demand for highly skilled and creative people.

These are the successful societies that attract and retain people, ideas and capital“.

Visit the NZ Productivity Commission

New Zealand’s  productivity stats

In the year ended March 2019:

  • labour productivity rose 0.5%
  • multifactor productivity rose 0.3%
  • capital productivity rose 0.1%.

The primary industries had the highest labour productivity growth from 1996 to 2019. In 2019, workers in these industries produced 172 goods and services per hour, compared with 100 in 1996.

Service industries, in aggregate, had the second highest labour productivity growth, with 141 goods and services produced per hour in 2019, compared with 100 in 1996.

In aggregate, goods-producing industries experienced the lowest labour productivity growth – they produced 123 goods and services per hour in 2019, compared with 100 in 1996.

NZ compared to Australia

1996 to 2019 figures show that labour productivity in New Zealand is lower than that of Australia.

  • the average annual growth in labour productivity in New Zealand was 1.4%,
  • 2.0% in Australia.

While labour inputs rose by similar amounts in both countries (1.4 percent in New Zealand and 1.2 percent in Australia), the rise in output was larger in Australia, 3.3% compared with 2.8% in New Zealand.

Recent decades has seen New Zealand slipping from once being one of the wealthiest countries to now around 21st in the OECD.
Our productivity is now much higher than it was, but has not increased as quickly as other countries and our income growth has been slower. As a result, we collectively have fewer options for improving wellbeing than if New Zealand had performed better.
To sustain and hopefully improve New Zealand’s wellbeing, our incomes need to grow. With New Zealanders already among the hardest working people in the OECD in terms of hours worked, improving productivity is the most likely way of achieving higher incomes. Even small increases in productivity growth, if sustained, can have a big impact on income and wellbeing.

 

There is no simple formula. Lifting productivity is ultimately the product of individual and organisation decisions about how to generate value.

There are some general foundations for improving productivity, such as respect for the law and property rights; effective governance arrangements; and an attractive business environment, including a high-quality low cost regulatory environment. These foundations require ongoing attention and improvement. A large number of other factors also matter, such as:

  • the degree of openness and competition in markets, which is important to incentivise innovation, improve allocation of resources and achieve more dynamic performance;
  • investment and other strategic choices made by organisations (eg, using new and smarter technology), which depend on the quality of governance and management;
  • the attitude and effort of employees toward ongoing training, finding business improvements and helping implement beneficial change;
  • the quality of education and the attitude of students toward the value of learning;
  • the quality of government decisions (at all levels), in setting policy and shaping regulatory environments, and deciding where public money is spent; and
  • the aspirations of individuals and families.

from productivity commission’s website

Will increased productivity increase living standards?

Paul Krugman an American Nobel Prize economist stated:

that while there has always been a strong and positive connection between rising productivity and living standards, since the global financial crisis (GFC) 2008 a number of economists have identified the uncoupling of higher productivity and higher living standards.

“Productivity isn’t everything but in the long run its almost everything. “