Truth Outs! Labour has crushed New Zealand productivity growth.

The Productivity Statistics (1988–2005). show the true reality of the damage helengrad has done to the New Zealand Economy.  They inherited a steadily growing economy with excellent growth in productivity and they have broken it. Multifactor productivity has reduced from trend 2.7% to a mere 1.1%.  Their only success has been to increase the number of people in work. 

This will not be simply a short sharp recession as Cullen spins, it is a deterioration with long term consequences.  Labour have milked high commodity prices and increased worked hours for the growth in the Economy over the last 5 years.  The benefit of increased working hours can only increase growth once.  The next government will struggle to keep that high nominal level of employment.  International Commodity prices cannot be relied on to keep increasing exponentially.  Evidence shows they have tanked. 

The only way that the people of New Zealand can become wealthier in the long term is to work more productively. 

The following table shows the Compound Annual Growth Rates of various productivity factors.  Labour have had power since Nov 99, effectively March 2000 on being the closest year before they got organised to start breaking things. 

The first few years of National control in the early 90's were marked by measures taken to control serious fiscal problems inherited from the out of control last year of Labour.  Statistics NZ marks 1993 as a change.  The growth in productivity started then.  At issue is what Labour has done to the trend they inherited from National.  I have also shown the full 10 years of National for comparison.

So making the comparison of the last 5 years under Labour vs the previous 7 under National we see the damage done. Labour have achieved only 1.5% growth in Labour productivity and 1.1% in multifactor productivity.  National achieved an exceptional 3.1% growth in Labour productivity and 2.7% in multifactor productivity.

March year	Productivity indexes
	Labour	Capital	Multifactor
	Index
1988	786	1000	858
1990	863	928	886
2000	1136	1032	1094
2005	1224	1060	1155
2005 vs 2000	1.5%	0.5%	1.1%
2000 vs 1990	2.8%	1.1%	2.1%
2000 vs 1993	3.1%	2.0%	2.7%
2005 vs 1988	2.6%	0.3%	1.8%

These are damning statistics.  The current recession, The blown out current account deficit and the sabotage of Productivity growth.

All the spin on riding the Growth wave is just meaningless twaddle.

The detailed data presented by NZ statistics over such a long time frame offered a genuine opporutnity to measure this governments performance.  Measurement has got better.  I challenge all those bloggers and commentators supporting this government to justify this appalling set of statistics.

UPDATE: link fixed.

Comments

[peter mck]

of course you are correct - but unfortunately this measure is new to the public areana and quite complex - certainly above the heads of the average non-interested kiwi. Cullen will not promote it left wing media will oblige in not reporting it and National will have difficulty in selling the concept. Shame as all the while, the rot will get deeper and do more damage before someone wakes up.

just another example of how stupid socialism really is.

[Keith Ng]

1) If you're doing a strictly Labour/National analysis, you should use 1999 as a point of reference, rather than 2000. It just so happens that the biggest rise on the graph is 99-00. (Thus, presumably, if you changed the reference point by one year, you'd get a *very* different result.)

2) 1% change in the average growth rate of an arbitary index is not quite enough to bring a government down.

3) What *is* the "Measured Sector Productivity Indexes"? What are measured sectors? Why does it exclude "business services" and other areas? What exactly is the purpose of this index?

It's all well and good to say that it's "above the heads of the average non-interested Kiwi", but could someone actually explain what this arbitary index is, and why we should take it more seriously than something more straightforward and tangible like the GDP per capital growth?

[Mark]

I think business services which include goverment sectors are excluded due to the difficulty in measuring productivity.

[Rob O'Neill]

If business services includes consultants, you could conclude that consultants and public servants are on a par.

You can't measure the productivity of either.

[tincanman]

Keith, considering that the 1999 election was held on the 27th of November and the new government was sworn in on the 10th of December I don't think it's unfair to only judge the government on their performance from the beginning of 2000 and onwards. To suggest that they have accounted for the Stellar performance of the 99-00 year in less than a month that includes the festive season seems a bit silly.

[Kimble]

1. Measuring from 1999 would be illogical if Labour was unable to make any changes in 1999.

2. A 1% change in productivity is not insignificant either, as productivity is related to standard of living. WHY has productivity fallen? This is an important question, and one the statistics dont give much of a clue to. I would be interested to hear how people would answer it.

3. Do your own research.

It might be interesting to see if there is a high correlation between NZ's productivity and the rise in both the availability of the internet at work and the popularity of NZ Blogs. Mr FARRAR might have some 'splaining to do!

[sagenz]

It would certainly be consistent for Labour to claim that taking control 9 months into a very successful financial year means they should take credit. I justify it mainly on the grounds that it was a response to the slowdown in 97-98 caused by Asian meltdown. so those years balanced each other.

the reduction in productivity growth rates is 60%. That is worth a headline. I will be very interested to see whether Brian Fallow corrects his article on this piece

[Keith Ng]

My rhetorical questions (sorry Kimble if you missed my point) was to highlight the complete lack of context with which you've used these numbers as political fodder.

It is not a matter of "number up = government good, number down = government bad".

First, productivity growth is but one component of economic growth. Bringing more people into the workforce, for example, will have no impact on productivity, but will have an effect on GDP growth. Same with increase working hours, as you mentioned. Productivity is important, but productivity is not by any means the sole, or even primary, measure of economic growth.

Second, you can't just judge an arbitary series of data without considering any external factors. Blaming the Government for a change in the absence of causal evidence is just plain baseless.

Third, productivity is the factor over which the government has the least influence. A government can create incentives for people to work more or less, etc., but a government cannot just say "Oi! Work better!" Every business *always* wants to work better. But a right-wing government can't just make programmers programme faster, and lower taxes can't make builders build better - that's the sort of stuff that constitutes "productivity", and my point, once again, is that you really should have a firm grasp of what a set of numbers really mean before you go using it as supposed evidence.

--

Nitpicky point 1 (feel free to ignore): It's not the point I really wanted to contest, but 99/00 thing - the data point was *of* 2000. i.e. The 2000 data point was data collect throughout 2000 (01-03-00 to 28-02-01, to be precise), and therefore, if you start the comparison from 2000, then you're comparing from a point when Labour had been in power for well over a year.

Nitpicky point 2: To say that the reduction in productivity growth is 60% is like saying that an inflation growth from 1% to 1.6% is a 60% increase - sure, it's correct, but you're just putting numbers together, and it doesn't necessarily give it statistical (or economic) significance.

[sagenz]

Addressing your points in reverse order. It really is statistically and economically significant. 1.6% growth difference is what has caused NZ to fall so far behind US and Aust in the last 30 years. it really does matter.

Nitpicky1 when data collected does not matter. it was for the March Year ended. Labour had been in power for 3 1/2 months and had no influence on trend. The growth they achieve in their first full year in power and subsequent years from the base is what is important.

Under national the growth in worked hours in the measure sector increased by 1.4%. Under Labour by 2.2%. So if you want to get really generous you would say that Labour replaced more productivity with more workers. A 0.8% difference. This reduces the Labour productivity difference 3.1% vs 1.5% to a difference of 0.7%. Still a deterioration. In addition they changed conditions for investment to the extent that it reduced by 75% from trend 2% to 0.5%.

All other things being equal that suggests Labour policy has reduced GDP growth by 2.2%( 0.7% + 1.5%) per annum from the trend established by National. This reduction has been disguised by the fact that commodity prices have been hugely beneficial to GDP growth. As the turn around the damage that Labour has done will become evident. Even Labour spin will not be able to hide it.

[sagenz]

btw A little bit dangerous to extrapolate hours in measured sector growth with whole economy but lets live dangerously :-)

[apple_pi]

"The only way that the people of New Zealand can become wealthier in the long term is to work more productively."

Well, that really does seem like a bit of an ask, doesn't it?

Out of curiosity, as opposed to..?

more friendly..?
more illegally..?
more colourfully..?
more hopefully..?

[sagenz]

rather than longer and longer hours. Labour government has raised workforce participation and hours worked. but for each individual grouping to country level we must work smarter. education or computers/machines doing manual work for less effort.

It may seem an obvious truism and I worded it simply. It means more capital investment, better training and education.

[GeniusNZ]

Some general thoughts

1) If Labour raises the amount of people in the workforce this should drop the productivity of the average person (as more almost unemployable people become employed).
This difference will often be pretty significant.
Over time this might cause companies to develop policies to improve this in the long run.
2) I would suggest tension in the market causes productivity growth - that is when there is easy money in a housing market based boom (for example) pressure to make productivity increasing changes is low, so gains are more likely to be made in "harder times".
3) There is the question of "what is the scarce resource" do we need optimal use of labour or optimal use of capital (etc)
In theory making capital easier to obtain should make labour productivity higher (because they can combine more capital with that labour)
Of course it matters how this is distributed across the businesses.

But productivity is worthy of analysis and since peopel often dont pay atention to it (and it is presumably a leading indicator) it should be highlighted.

[tincanman]

Keith Ng: The 2000 data point was data collect throughout 2000 (01-03-00 to 28-02-01, to be precise), and therefore, if you start the comparison from 2000, then you're comparing from a point when Labour had been in power for well over a year.

If we are being nitpicky then. How does mathematics work in your world? How can you say that The timeframe from 10 December 1999 to 1 March 2000 is well over a year. By my calculation that is four months, well short of a year.

But hey.

[Keith Ng]

Heh - "all other things being equal...". The ol' ceteris paribus is an assumption, not an argument. My point is that all other things are *not* equal. You can't simply ignore every other factor apart from productivity.

And of course, you still haven't shown the first shred of evidence of how productivity change is a direct result of government policy.

The most you can get away with saying is that rate of productivity growth has decreased over the past 5 years. You can argue that our economic wellbeing would be better if the productivity growth was higher, but it does not follow that because productivity growth was not as good, therefore economic wellbeing is bad.

By that rationale, a decrease in the average income in Taihape would mean - ceteris paribus - that the national economy was suffering. After all, an increase in the average income in Taihape would lift the national economy, right?

You can't make the "all other things being equal" assumption when all other things are, obviously, not equal.

--

And ffs tincanman, if the 2000 data point uses data collected from 01-03-00 to 28-02-01, then the data was last collected on 28-02-01. You need to count from the last date, not 01-03-00, because at that stage, the data set was empty.

[Kimble]

Keith, Labour won the election and was sworn in at the end of 1999, right? The data for 2000 was collected from 28-02-00, right? So the amount of time Labour was in power before they were being counted was only a few months, right?

[sagenz]

Unless I am completely missing the point of all data released by the stats dept the data is for the March year end. The 2000 year data is thus from 1/4/1999 through to 31/3/2000. Or 3 1/2 months after Labour took power.

Keith _ I say again. It is the trend.

I did not argue economic wellbeing was bad. GDP growth has been reasonable. But as I argue over at Dpf we need to raise labour productivity to raise GDP per capita in the long term. Labour have broken a positive long term trend. That is a statistical fact. In my opinion it is due to their policies and demonstrates they are an incompetent government. They have squandered an excellent set of economic conditions they inherited based on the 93 through 2000 trend. We are now in recession with an out of control current account deficit.

[phillipjohn]

Iv'e just finished reading the article that was referred to in the parent comment and discovered some facts that the original poster obviously didn't want us to know. Firstly however, let's look at labour productivity growth as a whole instead of just the convenient sectors. From 1985 to 1990 (when a labour government was in power) labour productivity growth averaged 1.9 %. From 1990 to 2000, a decade dominated by National, Labour productivity growth averaged just 1.3 %. The same rate of growth has continued since labour came to power in 1999. This is surprising as a period of enhanced labour utilization and decreasing unemployment (such as seen from 1999 to present) usually results in a decline labour productivity growth as marginal forms of employment expand relative to more productive forms (www.oecd.org/topicstatsportal/0,2647/en_2825_30453906_1_1_1_1_1,00.html)
Now to the facts of the report. You want to be very careful when you look at multi-factor productivity measurements as "they will change due to a combination of factors that cannot be explained by the change in measured inputs". In other words we don't really know exactly what influences MFP - therefore it's of very little descriptive value. Furthermore, you can't just take the convenient sectors of the economy and extrapolate findings thereof to the economy as a whole. That's just irresponsible and misleading. The main factor that has slowed labour productivity in the 1990's relative to the 1980 has been the deregulation of the labour market. National's 1991 Employment Contracts Act did this. For various reasons labour turnover increased so much that it got to ridiculous levels in the late 1990s at 15% of the labour force, the highest levels in the OECD. This meant that huge amounts of human capital were being consistently wasted. A further way in which the ECA destroyed labour productivity was through its lowering of wages. Simply put. Why invest in technology and skill training when you can hire workers for peanuts? 20 years ago our GDP per capita was at a comparable level to Australia, but not anymore. They kept theiir labour turnover at a reasonable rate. They also kept their unions, and consequently their high wages. This has meant that from 1988-2005 capital investment in Australia has grown at an average rate 30 per cent higher than that of New Zealand's. This is what we should be worried about. Not some inane babel about multi factor inputs.

[sagenz]

where are you getting your stats from. My post shows some clear comparatives and relates to the economy as a whole, not sectors. Refer to the table I put in. The trend is important, Labour, Capital and the combination of the 2 Multifactor HAVE ALL decreased in the last 5 years from a 7 year trend.

You get increased labour productivity by sacking workers and replacing them with more efficient machines. You get increased capital productivity when you replace machines with workers.

you get genuine GDP growth when you combine the 2 factors and achieve multifactor growth.

sorry if the reality does not square with your political affiliations phillipjohn

[phillipjohn]

you really just don't seem to know what you're talking about. Multi-Factor Productivity is a residual measure of productivity, it has nothing to do with measureable capital or labour inputs. Nothing much has changed within New Zealand since 1999 to effect labour productivity. The only thing that is apparent is the extension of labour input, which is typically negatively correlated with labour productivity. To my mind this is probably the reson why labour productivity growth has remained the same after 1999 as it was before 1999. Why don't you take a look at www.oecd.org/topicstatsportal/0,2647/en_2825_30453906_1_1_1_1_1
and see productivity measurements for the economy as a whole. You took that table from a stats New Zealand statistics paper which measures only a limited portion of the economy. In fact it leaves out sectors of the economy which accounted for 40 per cent of employment growth from 1999-2005 (see www.stats.govt.nz/NR/rdnlyres/CB10EA0-09CD-488B-AAEC-3E1950E8629F/0/part2.pdf.
The other statistics mentioned in the post above come from academic journal articles that I have collected over the course of my PHD research. I could dig them up but that's alot of effort.

[sagenz]

start with a step away from definitions. A dose of common sense. what other inputs can you have in a business except labour and capital. Bought in goods are simply unmeasured labour/capital from a different part of the economy or buying in efficiency from foriegn labour & capital.

MFP picks up those unmeasured parts of the economy by definition.

I take your point about labour productivity being negatively influenced by working harder. measured unemployment has fallen. But my point remains. The trend in all 3 indexes has been downwards.

[phillpjohn]

you said "what other inputs can you have in a business except labour and capital." Try disembodied inputs such as scientific advances. Try volume of rainfall. God knows what else could influence labour productivity. The point is that MFP could be many unknown things, and who knows what? It is at best an enigmatic form of measurement. The only reliable indicators are those measurable capital and labour inputs.

In fact my point still stands, after labour market deregulation labour productivity has fallen. Furthermore National and labour have produced the same levels of labour productivity, under the deregulated. The difference between National and Labour these days is absolutely minimal. No differences in their policies has any significant impact on labour productivity. They both promote a deregulated free-market economy with low labour productivity and wide income inequality. If you have time look at some other unionised counties' labour productivity levels. i.e. Ireland, Norway, Sweden, Australia (all of which also have low unemployment). You will be blown away. again I will provide you with this OECD link. www.oecd.org/topicstatsportal/0,2647/en_2825_30453906_1_1_1_1_1