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There is international interest in changes in the labour income share. In part, this reflects concerns that in a number of countries, real wage growth has not kept pace with labour productivity growth in an environment of rapidly changing technology.

This paper investigates changes in the labour income share in the “measured sector” of the New Zealand economy and provides insights into the causes of these changes. Changes in the labour income share are decomposed into contributions from productivity growth and changes in quantities and prices in labour, capital and product markets.

Industry contributions to changes in the labour income share are also examined, and comparisons with Australia are drawn. It turns out that the labour income share has fallen in the measured sector of the New Zealand economy over the past 35 years, in no small part because of sharp falls over three short periods. Aside from these falls, results also show that growth in real wages has been closely aligned with productivity growth and that there is no systematic relationship between strong productivity growth and falls in the labour income share. Indeed, the important message from this paper is that strong productivity growth sustains strong growth in real wages.

JEL Codes  E25, Aggregate Factor Income Distribution; J30, Wages, Compensation, and Labor Costs – General; J38, Public Policy, J39, Other.



Understanding New Zealand’s productivity performance

Our research aims to understand New Zealand's productivity performance and the role of policy in lifting productivity. 

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Productivity growth

The goal of our research is to facilitate a move from an economy that grows by using more “inputs” (such as labour or natural resources), to one where productivity plays a greater role in driving economic growth – essentially, working smarter, with greater financial and knowledge capital employed per worker.

Our research explores a wide range of productivity issues: employment, firm dynamics, technology diffusion, innovation, regional development, spatial and public-sector productivity.

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