Productivity Commission on NZ vs Aussie productivity
Recently I’ve been talking a bundle about inequality in incomes, and fitting it within an idea of “equity”. However, as we’ve chatted about, policy choices often involve conceptualising an equity vs efficiency trade-off. A fundamental part of how we understand where we are in relation to this trade-off, especially with reference to “efficiency”, comes from thinking about productivity.
With this in mind, the Productivity Commission has been thinking about New Zealand’s productivity performance. And given that along many characteristics New Zealand and Australia are similar they have decided that looking into the productivity gap between these countries helps us to understand this issue. This led them to release a working paper titled “Investigating New Zealand-Australia productivity differences: New comparisons at industry level” on their main site (links can be found here).
By comparing what has happened to productivity in Australia to what has happened in New Zealand, this work adds additional understanding to their previous discussion of New Zealand’s productivity performance in September (their blog, paper, my reading). To quote straight from the Commission”
The majority of New Zealand industries under-perform from a productivity perspective compared to the same industries in Australia, including mining, agriculture, most branches of manufacturing, construction,
retail and wholesale trade and financial and insurance services. However, New Zealand has areas of relatively strong performance in food and drink manufacturing, utilities (electricity, gas and water supply) and arts and recreation services.In 2009, capital invested per hour worked across total market industries in New Zealand was almost 40% below the Australian level. Australia is also 3% ahead in terms of skills – measured here using data on workforce qualifications and relative pay levels – but this gap is much narrower than that found for capital per hour worked and multi-factor productivity.
Describing the industries where New Zealand firms are not as productive (note this is not meant as an insult) relative to Australia helps us to think about “why” the productivity difference exists – and whether it is due to specific characteristics of New Zealand (eg population density, distance to market), policy (eg relative tax treatment), or just bad luck and path dependence.
I wish they had pushed into the why, as this kind of descriptive decomposition has been around for some time. Eg here: http://nzier.org.nz/publications/industry-productivity-and-the-australia-new-zealand-income-gap-nzier-working-paper-2011
The “why” was a bit of what was covered at the Productivity Symposium, but ensuring that the stylized facts are clear, agreed upon, and replicated is an important starting point – as without that we can’t have too much confidence about why, and in turn what this implies with regards to the equity-efficiency trade-off and policy!
This paper is part of the Commission’s work on “what” does NZ’s productivity performance look like and sets the scene for our work on “why” does NZ underperform and “what” can be done about it. The later two streams are on-going in our inquiry and other research work.
The main area in which Geoff Mason’s work differs from previous contributions on the trans-Tasman productivity gap is its treatment of purchasing power parities, which gives a more accurate picture of productivity gaps at industry level.