Investigating New Zealand-Australia productivity differences: New comparisons at industry level

Average labour productivity (ALP) levels in New Zealand across the whole economy are now almost a third lower than in Australia. This gap began to open up in the mid-1970s and, with some fluctuations, has largely tended to increase over the decades since. Although much attention has been paid to the apparent causes of this gap at the aggregate economy level, only a few efforts have been made to identify the particular industries in which the New Zealand disadvantage lies and to investigate whether there are any industries in which New Zealand performance compares more favourably against Australia. In order to help fill this gap in knowledge, this report first presents new estimates of comparative ALP levels and growth rates for 24 market industries (that is, excluding industries that are dominated by public sector activities). These market industries account for just over three quarters of total hours worked in both New Zealand and Australia. We then draw on new estimates of physical capital-intensity and skills at industry level in each country to generate estimates of relative multi-factor productivity (MFP) levels and growth rates between 1997-2010. Since MFP captures the share of growth in ALP that cannot be attributed to measured growth in capital and skills per hour worked, it can be seen as a rough indicator of the efficiency with which capital and labour inputs are utilised. These estimates are based on standard growth accounting techniques which help to identify the "proximate" causes of inter-country productivity differences. The "ultimate" causes of Australian-New Zealand productivity differences must remain the subject of continued research and discussion.