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What is productivity?

Productivity is about ‘working smarter’ rather than ‘working harder’

 

 

Productivity

Productivity is a measure of how much output we produce from a given quantity of inputs.

It’s about how well people – individuals, businesses, communities – combine resources to produce goods and services.

Countries think about productivity as a comparison of national output – Gross Domestic Product (GDP) – to a measure of inputs (for example hours worked). It’s about how good countries are at turning their inputs – resources – into outputs. That is, how productive they are.

Productivity matters for wellbeing. Achieving higher productivity – producing more with what we have (people, knowledge, skills, produced capital, and natural resources) – means there is more to go around for current and future generations.

Workers in New Zealand work longer hours and for less reward than workers in most other OECD countries. In short, New Zealand works harder rather than smarter. We are one of a small number of OECD countries with both a low level of labour productivity and low productivity growth. For the last 25 years or more New Zealand’s income per person has stayed at about 70% of that in countries in the top half of the OECD. Find out more: Productivity matters - Productivity by the numbers (PDF)

It used to be said that New Zealand’s productivity performance was a paradox as it occurred despite policy settings in many important areas appearing at or close to best practice. Yet, rather than being a paradox this highlights how hard the challenge of lifting productivity in New Zealand is. 

New Zealand is unusual in the combination of its distance from international partners, small domestic markets, and industry structure. This works against the diffusion of new technologies and ideas into our economy and across businesses. Very few New Zealand businesses operate at the global frontier in their industry. And while New Zealand’s broader policy settings have been broadly sound and adaptive to an increasingly uncertain and volatile economic and geopolitical world, there are barriers to the reallocation of resources to their highest value use.

There is no reason to think that New Zealand cannot successfully lift its productivity performance, it is just that the path to success may be different to that of larger or more central economies. Turning around New Zealand’s productivity performance will require consistent and focused effort over many fronts and for many years.

The Commission undertook research into the drivers of, and the barriers to improved productivity.

Our inquiries have detailed policy recommendations to improve performance in specific areas.

Since the late 1990s, successive governments have pursued economic strategies aimed at lifting economic growth and productivity through boosting innovation, diversifying the economy and shifting economic activity up the value chain. Common threads have included building a skilled workforce, increasing international connections, supporting research and science, deepening capital markets, and investing in infrastructure. This has resulted in on-going initiatives to foster and underpin innovation:

  • The New Zealand Venture Investment Fund was established in 2002 to deepen the early-stage capital market. Now called New Zealand Capital Growth Partners, it received a $300 million boost in Budget 2019.
  • The telecommunications sector has been restructured and reformed, and its infrastructure upgraded through the rollout of ultra-fast broadband.
  • Callaghan Innovation was established in 2013, to partner with businesses by providing a range of research and development (R&D) services, and to improve the operation of the innovation ecosystem. In 2019 an R&D tax incentive was introduced.

 

The approach to supporting economic development has evolved over time and across governments, for example:

In 2019, the Labour-led Government issued its Economic Plan for a productive, sustainable and inclusive economy. Priorities include sharing the benefits of growth more widely (reducing inequalities) and transitioning to a low-emissions economy. Several strategies and initiatives sit within this economic plan, including an industry transformation strategy and a (draft) research, science and innovation strategy.

In 2018, the Ministry for Pacific Peoples published Pacific Aotearoa Lalanga Fou, which emphasised a need to develop more successful and sustainable Pacific entrepreneurs and Pacific-owned businesses.

In 2013, He kai kei aku ringa, the Crown-Māori Economic Development Strategy was launched, providing a vision and accompanying action plan for a more productive, innovative, internationally connected and export-oriented Māori economy. 

Turning around New Zealand’s productivity performance will require consistent and focused effort over many fronts and for many years. There is no simple quick fix.

New Zealand's laws, policies and institutions support the wellbeing of New Zealanders. The Commission provides the Government with independent policy advice and research to improve productivity. Whilst the Government is under no obligation to implement the Commission's recommendations nor to respond to its reports, in practice the Government has issued formal responses to most inquiry reports, specifying which recommendations it agrees with and will implement.

The Government’s responses to the Commission’s inquiry reports are published by the Treasury.

For more on how to lift productivity, read Productivity by the numbers.

New Zealand’s productivity performance is at the heart of achieving sustained higher living standards and greater wellbeing.

How productive we are as a country impacts our daily lives – for example, what healthcare we can afford, the quality of education available, how much we get paid, the interest rates we pay and how much time off work we can afford.

When productivity growth is stronger, real wage growth is stronger too. This may mean that more families can have decent incomes without having to work long hours.

Find out more: Productivity matters - Productivity by the numbers (PDF)