Labour Productivity Growth Lowest on Record

Labour Productivity Growth Lowest on Record

“Today’s official productivity numbers should be setting off alarm bells in the Beehive”, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

“Contrary to the government’s aim of lifting productivity in the interests of raising New Zealand incomes to the top half of the OECD range, the latest statistics show labour productivity growth to be the lowest on record.

“At 0.4 percent for the measured sector (essentially the business sector) for the year to March 2006, labour productivity growth is the lowest since the series began in 1988. Multifactor productivity growth was actually negative at -1.1 percent, also the lowest since the series began.

Mr Kerr said that an even more important indicator was the trend in productivity growth.

“As the attached chart shows, there was strong growth in labour productivity of 2.7 percent a year on average for the period following the reforms of the 1980s and early 1990s and up to the year ending March 2000.

“During the government’s terms of office, that growth rate has plummeted to 1.2 percent on average. A similar fall is apparent in the rate of growth of multifactor productivity.”

Mr Kerr said that these numbers were strong evidence that government policies of high spending and taxation, increasing regulation and other forms of intervention were damaging productivity in the business sector and reducing the country’s growth outlook.

“On present policy settings there is no reason to expect an improvement in the period ahead”, he said. “Indeed, the recent trend suggests that the Treasury’s assumption of a 1.5 percent future growth rate for labour productivity, which would be insufficient to close the income gaps with leading countries, may be too optimistic.”

Mr Kerr said the government was correct to argue that its goal of raising incomes depended on a better productivity performance, but as each year went by the evidence was that this was not happening.

“It should drop its absurd rhetoric about ‘the failed policies of the past’ and acknowledge reality”, he said. “Although they were not perfect, the results speak for themselves relative to subsequent changes. The government should listen to the concerns the business community has consistently expressed about its entire growth strategy. There is an urgent need for New Zealand to move towards policy settings reflecting greater rather than lesser economic freedom.”

ENDS

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