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a graph comparing hours worked for several OECD countries
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The Double-edged Sword: Which sectors support a higher Productivity – Myths and Hard Truths about New Zealand’s Low Productivity

a composite image of 9 different industry sectors

Since the release of the New Zealand Productivity Commission 2023 Productivity Data, there has been considerable interest in our series on the myths and hard truths of our low productivity. Among the questions: which sectors detract from our productivity numbers, and which sectors support a higher productivity (and our higher standard of living)? In episode five, we look into the data and find a doubled-edged sword, a (missed?) opportunity, and not much change at the bottom.

The double-edged sword first: Aotearoa New Zealand is a primary industry economy, and it should be no surprise that agriculture, fisheries and forestry, combined with the on-shore processing of our primary produce (and other manufacturing) carry our nation. This is about productive assets adding value to our primary produce. These sectors support a higher productivity and require the support from the public and our politicians, as well as our investment, especially when compared to our non-productive love-affair with investing in the housing market. But these productivity-enhancing sectors present us with a double-edged sword. I can already hear (and, to be frank, also understand) the voices of dissent regarding these sectors: they have the potential to degrade our planet if unsustainable practices are adopted. Fortunately, the voices among industry-leaders for these sectors to stay within our planetary boundaries are becoming mainstream, and are no longer from fringe activists. I am hopeful that a strong primary and manufacturing sector can both support a higher productivity for our nation and look after our childrens’ environmental heritage.

Second: a missed opportunity? The construction industry continues to be this half-pregnant, underperforming sector that is not meeting its potential. Setting aside supply chain disruption, covid, and labour shortages, the construction sector has average to low producitivty for labour, capital and multi-factor productivity (I won’t bore you with the different impacts here). This is a value-add business model and should be able to support a higher productivity, but it currently does not. Other underperforming sectors include utilities services (gas, water, electricity, waste water).

Third: the lowest ranked sectors have not changed much since the late sir Paul Callaghan presented the numbers first in 2011 (https://www.youtube.com/watch?v=OhCAyIllnXY). At the bottom of our productivity rankings sit tourism, hospitality, adminstration services and (some) retail. Tourism is great to provide opportunities and employment for some demographics and regions. Yet it was a blessing in disguise that the ill-advised push to boost tourism from a couple of governments back was curtailed by closed borders, otherwise it would have pushed us further down the rankings. And I won’t even talk about the ‘benefits’ of having 10,000 tourists a day trudging along the Tongariro Crossing.

Next time: A call to update our measure on Productivity.

About the author: Geerten Lengkeek is the Managing Director of Productivity People