New Zealand’s low productivity: What does that mean and how can it be remedied? - The Front Page

Should low productivity be blamed on workers, employers, or political decisions? Photo / 123RF

New Zealand’s low productivity has been a bugbear for economists and politicians from across the spectrum for years.

Stats NZ data shows labour productivity fell 0.9 per cent in the year ended March 2023 - the largest fall since 2009.

“A fall in labour productivity means that we are producing less output per hour of labour,” national accounts industry and production senior manager Ruvani Ratnayake said at the time.

But what does it actually mean?

NZ Herald business editor-at-large Liam Dann told The Front Page it whittles down to working smarter, not harder.

“One way you could look at it is you just got a factory with 100 workers that makes 1000 widgets a day. The productivity rate is 10 widgets per worker.

“Now, if you add 10 workers, you should get 1100 widgets. But that’s not really a productivity increase because you’ve just added it. You’ve added more input and you’ve got more output.

“But maybe if you upskill those workers, you don’t add any more workers, and they don’t work any more hours but you’ve put the effort into upskilling them, maybe you’ve invested in some new technology so they can work a little bit faster. Then you get 1100 widgets out of the same number of workers.

“That’s your productivity gain. And it’s by making people work smarter, not harder,” he explained.

Dann wrote this week that our productivity dilemma is complicated and much debated.

“The most productive countries in the world invest a lot more in research and development than New Zealand does.

“So we lag behind the OECD quite a long way and, not surprisingly, some of the top-performing countries for productivity invest a lot more. So Israel, South Korea, Germany, Japan - they’re all investing about 4 to 5 per cent of their GDP into research and development and New Zealand’s somewhere around 1.5 per cent,” Dann said.

Dann suspects politics is at play to some extent when it comes to working out why the issue’s not getting any better. He referenced Auckland’s light rail as a “worst of both worlds” situation, where all the time and money was put into researching and developing the project, but then it was cancelled with nothing gained.

“I’ve heard Christopher Luxon talk very well about productivity. I’d also heard Grant Robertson talk very well about productivity. So I am a little cynical about the ability to talk about it being one thing and the ability to get it done being another.”

If you wanted to compare us with Australia, Dann said there are two things they have that we don’t. “Compulsory superannuation savings and a capital gains tax have made a huge difference across decades of economic growth.”

As Dann wrote, Australia’s superannuation fund is worth $3.7 trillion - putting our efforts with KiwiSaver (about $100 billion) in perspective.

“Of course, we did once have a compulsory super scheme in place. A man called Muldoon killed it in 1975.”

Listen to the full episode to hear more about why our productivity is so stagnant and what can be done about it.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.