How much do you know about the services sector?
1. What sector makes up the largest share of New Zealand’s GDP: manufacturing, primary industries or services?
Perhaps you’d be guessing primary industries – but actually the services sector accounts for a whopping 70% of GDP, more than double the contribution of the primary and manufacturing sectors combined. What’s more, services’ share of the economy is continuing to grow – a pattern that is common across developed countries.
2. Will a typical manufacturing firm spend more on staff wages and salaries or on the services that the firm relies on?
You might be surprised to find that firms spend 40% more on services than they do on wages and salaries. This is because services such as finance, telecommunications and transport are such an important part of many businesses.
3. Which sector is responsible for the greatest share of New Zealand’s exports, manufacturing, primary industries or services?
If you said primary industries (agricultural products), this time you’d be right… but only if you consider the final product that is exported. If you include all of the inputs that go into our exports, services make up the greatest share, accounting for just over half of the total value. Even for a relatively unprocessed export such as a log, the contribution of services such as transport and logistics amount to over 50% of the log’s value when it leaves New Zealand.
4. Which sector has the greatest potential to raise New Zealand’s productivity?
The answer to this question is less certain, but if you answered "services" you’d be on pretty safe ground. Not only are services by far the largest sector of the New Zealand economy, they are also closely interlinked with the rest of the economy, including our exports. Because services account for such a large proportion of the total economy, even small productivity improvements affect the economy overall. But unfortunately, the productivity performance of the services sector lags behind that of many other developed countries and there is no sign that the gap is closing.
5. What can be done to improve productivity in the services sector?
Unfortunately there is no single solution when it comes to raising productivity in the services sector. But a good place to start is to look at the level of competition in the sector, and how effectively firms in the services sector use ICT. These issues will be examined in detail in the Productivity Commission’s report on Boosting Productivity in the Services Sector. The full inquiry report, along with summary material and associated research papers, will be released at 3pm on Thursday 5 June.
- Terry Genet, Senior Advisor, Services Inquiry.
Disclaimer: Blog posts are written by staff members and do not represent the official views of the Productivity Commission.