Productivity matters. How productive we are as a country impacts our daily lives and overall wellbeing – how much we get paid, the quality of teaching for our children and the quality of healthcare available.
Yet, New Zealand’s productivity record is poor.
A new publication released by the New Zealand Productivity Commission reveals that New Zealanders work longer hours: 34.2 hours per week compared with 31.9 hours per week in other OECD countries. And New Zealanders produce less: $68 of output per hour, compared with $85 of output per hour in other OECD countries.
“New Zealanders are working harder rather than smarter, this makes improving living standards even more difficult,” says Commission Chair Dr Ganesh Nana.
“Poor productivity results in higher prices for everyday items which can impose a larger burden on those with low incomes.
“When productivity growth is lower, wage growth tends to be lower too, meaning some families struggle to make ends meet. The result is they work longer hours and have less time to spend with family and in the community.
“Even though New Zealanders are producing seven times more than one hundred and fifty years ago, this is significantly less than other countries.”
Looking back in history, the numbers haven’t always been so bleak.
New Zealand was in fact one of the most productive economies in the world (alongside Australia, the U.K. and U.S.) at the end of the nineteenth century.
But over time New Zealand has been overtaken and outperformed and has now fallen to a below average position. No initiatives have had the cut-through to lift New Zealand’s productivity. Working more hours and putting more people into work continues to be the main way that the economy has grown.
“Innovation is the key to unlocking New Zealand’s productivity. There are only so many hours in the day that people can work, so creating new technology and adopting new and better ways of working is critical to achieving effective change.”
Responses to Covid-19 have accelerated the adoption of digital technologies by several years and forced businesses to create new strategies and practices to survive.
It is focused investments and innovation from people, communities, businesses, governments and scientists that are essential to sustain long-term change, and to create a higher-performing economy that delivers sustained improvements in productivity for all.
*Content supplied by the Productivity Commission.
60 Comments
It relates to high immigration. See https://www.newsroom.co.nz/immigration-reset-to-worsen-skills-shortage-…?
""The skills shortage he says has been the result of fewer locals wanting to train as glaziers coupled with the fact he says is 'unrealistic' to pay a skilled tradesman $106,000 (Immigration NZ's priority skilled migrant criteria), which was not in line with the industry standard.""
A glazier earning over $106k is skilled and adds to NZ's productivity and wealth. They would earn that in Denmark. Paid less then as an immigrant they help the employer but simply add to NZ's problems.
NZ's productivity will improve when we increase the status of physical work as opposed to sitting behind a desk.
Paying the glazier $106k would lead to all trades having their pay rates lifted, significantly increasing the cost of a new house, reducing the building of said houses that we all need to be built, unless of course the glazier could double his output to finish twice as many houses in the same time. That is how productivity works.
But perhaps he could just go to Denmark instead.
I don't deny that one bit. The intention of hiring overseas workers is key here: undercutting wages or exceptional talent/skill.
We still issue thousands of residency visas to ICT support workers each year.
When I began my career a decade ago, most people manning helpdesks were Kiwis since it was a great way to train up non-tech grads in more non-technical IT work (project management, systems accounting, cybersecurity, etc.).
These days even government agencies hire older, overqualified engineers from overseas to work in these entry-level roles, not having to train locals from scratch.
ICT support may include your network support engineers.
I am non convinced that non technical people can do project management or cyber security well. Just trying to imagine a non technical cyber security “expert” makes me cringe and think of random “simulated phishing” email exercises. None of that will mater if you have unsecured ports and someone listening in on your layer 2 traffic, all it’ll take is a poorly secured RDP connection somewhere and malicious entities could have access you would prefer that they did not. I feel like cyber security “experts” are becoming more and more of a joke these days (but that is a whole other rant).
A worthwhile rant and one I would chip-in to for sure but perhaps not on topic here. I would put this in my poor management bucket, there are many IT managers who have never configured a router, backed up a database or written a line of code. This is the poison to good decision making, a simple lack of understanding about the very thing they are in charge of.
Excessive taxation pushes our promising businesses overseas as soon as they hit critical mass. Our geography already puts us at a disadvantage, but somehow instead of incentivising businesses to stay (or better yet move to New Zealand), we have tax (& maybe labour) policies that push them away. Even if we provide grants to a business that is starting up, the incentive to stay once the tax burden outweighs the grants is very low.
We have no special incentive (such as related industries - mining perhaps?) for businesses to stay despite the high taxation. Other small island nations with roughly 5 million people (such as Singapore) have much more favourable corporate taxation despite them being far less geographically isolated & possessing a more highly educated workforce.
Most of our internationally competitive successful businesses move overseas very shortly after becoming viable. If we could retain them or better yet get foreign companies to move here New Zealanders would own more of the productive enterprises and reap more benefits. We just need to stop pushing all our top companies, technology & talent away via disproportionately high taxation (for a small island nation). Especially given that we have geography working against us and no other major industry that the emerging high tech ones can piggy back off.
We are highly taxed, 33% + 15% = 48% tax on our (almost) average wage (70k). This is way beyond OECD average but required due to our social benefits culture which then lowers the tax paid by an order of magnitude and puts us right down the other end "In 2020, New Zealand had the 35th lowest tax wedge among the 37 OECD member countries, occupying the same position in 2019."
https://www.oecd.org/newzealand/taxing-wages-new-zealand.pdf
That just means we tax a smaller number of people (who start successful productive enterprises ) more and distribute the benefits. Not sure how that would encourage those that are productive to stay.
Regardless I am referring to corporate tax rates. Keep in mind that we need a margin to offset our geographic isolation.
A lot: The electron rocket is a high tech example.
Bunch’o’Baloons is a lower tech example (Zuru toy co).
Rocket labs has sold key tech to Lockhead Martin (more profitable than developing in NZ) and the Zuru toy co just moved overseas.
Stuff article about a bunch of others that moved: https://i.stuff.co.nz/business/innovation/109496402/making-it-big-in-th…
RNZ article about kiwi companies selling out to overseas buyers as soon as their product becomes competitive: https://www.google.co.nz/amp/s/amp.rnz.co.nz/article/280cea29-164a-4dee…
WARNING - long submission of rambling thoughts follows :)...
I agree that high immigration of people from countries with lower salaries has suppressed our earning capability but that is not the only road-block to better productivity.
Also, as David has pointed out our working age participation rate is fine (higher that the US for example) so it is not high levels of social welfare that is affecting it.
My view is that there are three pretty substantial drags on our productivity.
1) Number 8 wire. Having worked extensively overseas I am always disappointed anew when I talk to NZ employers and employees about process. "We are different in this market" "We need to be agile". Enjoy that poor productivity you artisans. The near total failure to recognise process design and more importantly adherence to process as key to productivity is uniform in NZ. How did McDonalds (and every single other large enterprise ever) become so successful? Adherence to process. The magic in processes is in being able to incrementally improve them over time, if you don't have a standard process this ability is removed from your organisation.
2) Capital misallocation and poor banking oversight. There can be no entrepreneurial culture when bank loans are punitively priced for new businesses. This leads to capital flowing into unproductive asset classes. The banks are highly profitable here and retain earnings that they are unable to make in their home countries. This will not be because local operations are world-leading in efficiency...
3) Failure in academia and general management training. Our STEM (I'm only talking about STEM subjects as we are discussing productivity, the rest of academia is in a seemingly full time war against it) tertiary education institutions have been highly incentivised to attract and fill their classes with international students. This has reduced the access to our small local STEM talent pools. I advise an IT School at a University in NZ on curriculum and while they are actively engaging they are unable to afford the local outreach programmes required to level the playing field. Management is archaic in the main. Look at the Waikato DHB for a highly visible example of NZ Management. The local IT team is not being given their head, moronic management is making calls about subjects they have no idea about. So it is with IT lead innovation.
Long but not rambling. Now retired from IT I am puzzled by NZ. I met great Kiwi computer professionals when I worked in Europe and the 3rd world. I didn't work for long in NZ before retiring but the only 'A-grade' IT professional I met was an immigrant from Kerala, South India. It is the nature of computer projects that many fail (fortunately bridge building engineers don't have the same failure rate) but surely NovaPay was a classic mega-bungle. NZ should train and employ locals, then pay them enough so they will stay - if Novapay had been written by Kiwis then they would have died of embarrassment.
Novapay was a classic bungle indeed! :) I understand that the issues with that implementation (amongst many I suspect) were a lack of understanding of the "process" for managing payment across higher duties allowances, holiday pay schedules and shift work overtime rate changes.
If ever there was an advert for a process design led development?
(1) absolutely.
The amount of error fixing and rework I see is just ridiculous. I used to joke with an old team leader that most of the data we were looking at was probably from the inputters bringing their cats into the office and letting them walk up and down the keyboard.
'You need to train your staff to follow the procedures'
'We don't have time, we're too busy fixing errors (and inputting new errors as well)'
FFS
And of course, we are taking our Level 1 economics/business/accounting topics in high school, combining them and dumbing them down. Same is happening with science topics like chemistry & Physics. Gets the NZ students exactly where the government needs them.......We can instead teach them about our NZ colonisation problem.
https://www.nzherald.co.nz/nz/ncea-changes-teachers-overwhelmingly-reje…
10 language choices, but only one science choice. Obviously the science is settled.
Neither rambling nor long considering the subject.
Could the lack of process be blamed on a sort term view we tend to have often, that is we don't see the process through because oh look if we deviate this way it's so much quicker, I have no doubts we have lacked that long term view. I find though that the McDs analogy is hard to swallow, if only cause I abhorre the stuff and consider it similar to the banking in terms of being a drain on society rather than a positive.
Regarding Lapuns comment, I heard and read a number of times lately about procurement policies being completely up the wazoo and costing exponentially more than a considered approach to local tenders. Novapay owners had no shame and I bet they still made money.
JAO. In support of your 'adherence to process' being key to improving productivity, recent research by McKinsey’s showed that 75 percent of the productivity gain necessary to keep up can result from simply “catching up” with existing best practices. But looking to a government for direction when its own institutions already lag significantly behind the poor productivity of wider NZ business, is doomed to disappointment. Especially the critical education and health areas which have even worse trends than the rest of NZs government services dismal productivity growth.
I hear you and that's a good call in regards to setting expectations around steerage of education and health.
Interesting about the best practices research, thanks for that. Unfortunately we have the situation where (for example) software can be bought that has out of the box best practice processes and we then customise the software to reflect the way we want to work. You can lead the horse to water...
Hamish,
Leaky buildings, not just homes but schools and hospitals too. It is a national scandal, but adds significantly to our GDP stats! All that remediation counts as economic activity which is a jolly good thing, isn't it?
When i moved here from Scotland in retirement in 2003, my intention was to buy a new build in Mount Maunganui, but then heard about this issue which I had already come across in Vancouver and instead bought an existing brick and tile house in which I still live-with no weathertight issues.
NZ education system does not produce competent students in math. NZ education standards are lowered and lowered to ensure everyone can jump over them. So you will have your amzaing Kiwi students who are by themselves high achievers and will do great. But the average student competency is way below an average student who needed to compete with other students to get anywhere good.
Many kiwi students are scared of STEM as the change of level of skills from high school to Uni is just so high.
150 years ago we were virgin territory of natural resources in a world that had been stripped for centuries....we just caught up in declining resources ...added to which those diminished resources are now supporting an ever increasing number.
It aint rocket science.
I love all these reports. Surely the focus of this country and by the government should be about getting bums of couch's and the benefit, reducing unnecessary compliance and supporting business growth.
The scale of waste by government is the biggest single problem facing so many countries.
Government compliance and red tape is the productivity killer. When you are paying more bureaucrats to sit on their ass and make rules that screw the population that IS actually working and being productive you end up like us.
Transfer of wealth from hard working productive part of society to people that only hinder it, while getting payed exorbitant salaries that only ever go up, because they can just increase taxes or rates to pay for it...
Competition and failure is what keeps the free market productive.
Something missing here is the attitude to industry. People set up businesses that are low wage, low productivity service enterprises. Like Cafes, salons, nannying services. Not enough Rocket Labs, Pertronic, Gallaghers, which is where things need to be. One person working their heart out doing things manually like making coffees is a hard worker, but not the path to great success.
Rocket labs is American. Kiwis taxed them out of NZ. Fairly sure Pertronic is Aussie, owner gets to keep more of the profit over there. You can generally rely on New Zealand’s policy of taking from those who try to be productive and giving to those who choose not to be productive, to drive our productive enterprises overseas.
Makes sense that, theoretically speaking, less migration and a shock to 'normal' operating models means businesses in demand forced to achieve increased outcomes with the same inputs by deploying capital and labour better.
Also more building activity in every type except tourism-related, retrenched workers from tourism turning to trade apprenticeships, businesses going digital tech and remote working cutting commute hours and traffic burnouts - vote for COVID in 2023!
So we should just close all those non productive businesses like tourism, cafes and restaurants etc? After all, tourism was only 7% of GDP and a big employer, same thing for restaurants. Of course, you can't drink coffee, but that's a lovely rocket........
We might decimate the GDP but the few that do work will be very productive - they better be!
Report after report after report all showing the same thing and we all know the fixes.
Governments of all stripes completely ignore them and continue on with a stupid tax system and massive support of an unproductive housing bubble. We are run by idiots that don't realise productivity is the ONLY THING THAT MATTERS in the long run.
The key issue is how do we help a lot of small business people to identify and adopt improved business practices - is it providing them with more information, more training, advice from accountant or bank manager, better skilled workers, more science and infrastructure, access to overseas markets and venture capital, increased competition?
Most small business owners learn management skills on the job, from their mates, in reaction to an issue, and look for a readily available solution rather than a lengthy search for the best solution, and then move onto the next issue.
How do we link into that environment - who can say to a lot of small business owners that they need to do something better and here is an easy solution to do it? Supply chain leaders, service providers, key business relationships, others? If this is the way to make small businesses do something different, how do we help them do that?
Working longer hours is not the same as working harder. I know a lot of older generation NZ men in particular who seem to place an unreasonable emphasis on hours worked rather than what's actually achieved. If I achieve 50% greater output value but work less hours, I've worked 'harder'. Of course, there are also structural issues relating to how work done is leveraged to achieve output, and that's really what we are meaning when we talk about productively, but as usual, the narrative is derailed by chunks of relatable (read saleable) commentary.
NZ education system is where things must change. Education system must (amongst other things offcourse) produce capable future workforce.
NZ education system may be doing wonders in some other very important areas. But when it comes to ensuring core capabilities for work (e.g. math and statistical knowledge and capability) it seriously underperforms.
No. NZ government must change it's priorities. They set the curriculum in NZ, they are in charge of the performance levels of students.
Until they properly incentivise/prioritise education, rebuild the broken tax system away from speculation, change the risk weights for lending, step change the R&D breaks for big and small businesses, refocus their investments into productive areas (infrastructure)... we will continue to fall behind.
Unfortunately the general public doesn't understand any of this and the government simply panders to the lowest common denominator, or special interest groups that grab their attention.
That's what I'd been saying to a bunch of entrepreneurs recently, NZ produces low value goods and try selling them at high prices through marketing or by the fact of a local captured market.
Therefore, wages in NZ are chronically over valued and the laws of economics eventually suppress the wages.
Consider this, if a NZ company produces a highly competitive product that require expertise, do you think migrant workers are able to move remuneration downwards for the locals?
Before asking for higher wages and blaming migrants, ask yourself what business are you in and what do you have to offer.
3 things:
1, improve the education system. Naturally this will require some improved public funding as part of this.
2. break the cultural obsession that Kiwis have with housing as a form of investment. Thankfully, this is underway.
3. crush the millenial work "ethic" and fairly compare it with those of Gen Xers (like me)
We used to make things.
It is Very Productive, making things.
I still make things, my construction product is the “go-to” for architects throughout the country.
With the help of the DSIR, and the Development Finance Company, manufacturing businesses in my town had considerable export potential in the nineteen-sixtees, seventies and eighties.
But now, with both Govt. departments collapsed, due mainly through real estate deals going bad, us widget makers have no-one to turn to when exporting. – AND -- Importing is so easy!
Having last week attended a Callaghan (and Northland) IT seminar, I found that my firm was too small to get help, but if I wanted to save an ailing tourism business, I could do that by extensive use of social media advertising.
Something seems to be wrong here: Never mind which party is “in”. The academic bureaucrats actually in power do not now think that we should be doing anything but overstocking our four legged, pooing protein factories, and denuding our hillsides of fast growing pines.
And by making beds for tourists - when they come back.
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