Matt Nolan

Productivity Commission on NZ vs Aussie productivity

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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).

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Matt Nolan

Sumner praises Bill English

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Straight from the Money Illusion, Scott Sumner discussing his recent trip to Australia:

I was particularly impressed with the talk given by the representative from the New Zealand government (Bill English) but will admit to knowing little about that place, other than that that their people live in Hobbit-style dwellings.

Whether you agree with the policies of the National party, or the specific things that Bill English has pushed through as Finance Minister, you have to admit that he has done an incredibly good job over the past five years – during an incredibly difficult time.

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Matt Nolan

Resource booms and income distribution

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Via Vox Eu comes a piece looking at the distributional consequences of resource booms – using Australian data.  Their conclusion:

We need good time series data from developing countries to see whether the distributional impact is bigger there than what we find for Australia. Until then, the analysis here seems timely and relevant, not just for Australia, but for all resource-rich developing countries as the price volatility experienced by the former since the late 19th century was greater than that for the average commodity-exporting low-income country.

The distributional impact of commodity-price shocks in Australia (Canada and New Zealand) should yield important lessons for primary producers from the developmental south.

True – the idea that taxation should be more progressive the more dispersed income and wealth is is an old and widely accepted idea.  And this gives us another way to conceptualise it, with a relevant shock for the NZ and Australian context.  However, a couple of things to keep in mind when thinking about these issues are: Read more

jamesz

Models vs knowledge

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The Age reports on Australian legislation that forced banks to make ATM transaction fees explicit to the customer:

In place of the indirect fees were direct fees in which the owner of each foreign ATM took the money directly from our accounts each time we made a foreign withdrawal. But the size of the charge, typically two dollars, didn’t change. All of the economic models – including the Reserve Bank’s own model – suggested we would use ATMs pretty much as we had before. The incentives were much as they had been.

Instead withdrawals from foreign machines dived from around half of all ATM withdrawals to just 40 per cent. …A Reserve Bank study released yesterday says it’s behaviour that “cannot be accounted for by the model of ATM fees presented in this or any other existing paper”. To work out why, it has turned to research on retailing and a finding that point-of-sale displays can change purchasing decisions even when they convey no new information… The RBA’s tentative conclusion is that it is not the fee that is frightening us, it is being continually told about it.

  1. Framing effects such as loss aversion are hardly new so I’d be staggered if the RBA didn’t know about them.
  2. Just because your model doesn’t include an effect that you know to exist, that doesn’t mean it disappears or has no effect. It also doesn’t mean that you don’t know about it. I think we all know that being prompted to pay money affects behaviour so it would be surprising if the legislation was expected to have no effect. Of course, since it isn’t normally a relevant effect for the RBA they may well not have included it in their models previously. That doesn’t mean they’re idiots or didn’t know about framing.
jamesz

No free lunches in economic reform

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A recently released report from the Grattan Institute in Australia surveys ‘game-changing’ ways to increase GDP. Its conclusions on the priorities for economic reform are summarised in a diagram:

Notably, two of the three most urgent changes that they identify relate to lifting workforce participation. That’s a tricky topic because, while more labour might increase GDP, it also decreases leisure time. Read more

Matt Nolan

April 12 Aussie unemployment rate drops: What about NZ migration?

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There seem to be concerns about the number of New Zealanders permanently heading over to Australia.  In the year to March 53,237 people permanently left NZ for Aussie, up 12,331 from March 2011.  To put this in perspective Australia accounted for 61% of all permanent departures – and annual departures to other countries were actually down 1,106 from a year earlier.  This is all via good old Stats NZ.

To me this is all much of a muchness – however one thing I do know is that the level of the Australian unemployment rate, and the gap between their UR and NZ’s has a strong impact on the level of permanent departures over there … unsuprisingly.

As a result, the drop in the Australian unemployment rate to 4.9% in April should be seen as a signal that we will see departures stay high for a while yet.  We can easily see this by just comparing the unemployment rate figures (which you can grab simultaneously off the OECD site):

In this environment, people are moving overseas to find work.  It’s not surprising, and in of itself doesn’t lead to any policy conclusions – we need to add a few more pieces before we can really start to say anything.  So this is just a little thing to keep in mind.