Productivity up but input down

The drop in labour input was driven in part by the construction sector. Photo / Paul Estcourt

Labour productivity has jumped, according to official figures out yesterday, but for all the wrong reasons.

Statistics New Zealand said labour productivity grew 3.7 per cent in the year to March 2010, the strongest increase in 10 years.

But only because the labour input dropped more steeply than output during a period of recession.

Paid hours, which Statistics NZ used to measure labour input, dropped 4.3 per cent, the steepest fall since 1992, while output shrank 0.8 per cent.

The drop in labour input was driven by the manufacturing and construction sectors as well as a substantial and widespread decline in self-employed hours, Statistics NZ said.

For the period 2006 to 2010, labour productivity growth was 0.9 per cent, less than half the 2 per cent average since 1978 and a third of the rate prevailing between the mid-1980s and the end of the 1990s.

However Statistics New Zealand notes that the 2006 to 2010 period does not cover an entire peak-to-peak business cycle.

The figures cover about 80 per cent of the economy. They exclude parts of the public sector where productivity is hard to measure, notably in health, education, government administration and defence.

Output grew much more strongly in Australia over that period - an average annual growth rate of 3.5 per cent compared with 2.6 per cent here.

That reflected higher growth in inputs of labour - 1.4 per cent a year across the Tasman versus 1 per cent in New Zealand - and capital - 5 per cent a year versus 3.1 per cent here.

New Zealand firms were slightly more effective in using the resources of capital and labour at their disposal, with multi-factor productivity growing 0.7 per cent a year compared with 0.5 per cent in Australia.

But the essential difference was capital deepening. The capital-to-labour ratio improved at an average rate of 3.5 per cent a year in Australia compared with 2 per cent here.