Unless otherwise stated, all references to average movements are annual geometric mean movements relating to the ‘measured sector’. In 2004 (the latest year for which current price industry value added data are available), the measured sector covered approximately 63 percent of the economy. It excludes the following industries: government administration and defence, health, education, property and business services, and personal and other community services. Refer to the Technical notes of this release for a more detailed definition and explanation of the measured sector.
Background
Productivity is a measure of how efficiently inputs are being used within the economy to produce outputs. Productivity is commonly defined as a ratio of a volume measure of output to a volume measure of input. Growth in productivity means that a nation can produce more output from the same amount of input. Productivity growth is an important contributing factor to a nation’s long-term material standard of living.
Productivity measures can be either single factor (that is, relating a measure of output to a single measure of input), or multifactor (that is, relating a measure of output to a bundle of inputs). Labour and capital productivity are single (or partial) factor productivity measures; they show productivity growth in terms of that particular input. Hence, productivity changes shown in these indexes may be due to a change in the composition of total inputs rather than a direct productivity increase from the relevant input. For example, if additional machinery (capital input) is used to assist in production, less labour input may be required to produce the same level of output. This will increase labour productivity, simply because the composition of the inputs has altered. On the other hand, multifactor productivity takes into account substitution between labour and capital inputs, and is therefore not directly affected by a change in the composition of total inputs. The growth accounting sections of this commentary provide a breakdown of the sources of growth in real gross domestic product (GDP) and labour productivity.
Statistics New Zealand’s official productivity statistics comprises series for labour productivity, capital productivity and multifactor productivity (MFP). The MFP series uses the labour and capital input indexes, which are combined and weighted appropriately to create a total inputs series. All input and output indexes measure growth in volumes and have a base year of 1996, with real GDP as the output measure. The development of these official statistics is consistent with Organisation for Economic Co-operation and Development (OECD) guidelines.
The productivity measures are for the years ended March 1978 to 2006. This period reflects the current availability of relevant source data. Statistics New Zealand has estimated growth cycles in the data to assist users in interpreting the results of the productivity series. There is general consensus that the productivity series are of the most interpretive value when viewed in terms of growth cycles.This is because factors such as capacity utilisation tend to vary from year to year, making interpretation of annual movements difficult. For more information, refer to the Estimating growth cycles section in the Technical notes.
Labour productivity
Labour productivity is measured as a ratio of output to labour input. The table below presents the average annual growth in labour productivity for the growth cycles identified within the series (see the Technical notes for more information on growth cycles).
Labour Productivity Average Annual Growth Rates (percent )(1)(2)
Year ended 31 March |
| Year |
Output |
Labour input |
Labour productivity |
| 1978–1982 |
2.1 |
0.4 |
1.7 |
| 1982–1985 |
3.4 |
2.0 |
1.4 |
| 1985–1990 |
0.7 |
-2.1 |
2.9 |
| 1990–1997 |
3.2 |
0.6 |
2.6 |
| 1997–2000 |
2.6 |
-0.8 |
3.5 |
| 2000–2006 |
3.4 |
2.0 |
1.4 |
| 1978–2006 |
2.6 |
0.4 |
2.2 |
(1) The average annual growth rate values do not include the movement for the first year of each cycle, eg the 1978–1982 average annual growth rate does not include the movement for 1978.
(2) Percentage changes are calculated on unrounded index numbers.
From 1978–2006, the average annual growth in labour productivity was 2.2 percent. This was derived from a 2.6 percent annual growth rate in output, and 0.4 percent annual growth in labour input.
From 1985–1990, there was a significant fall in the average annual rate for labour input, down 2.1 percent, while the average annual growth of output showed a relatively low increase of 0.7 percent. This led to an average annual increase of 2.9 percent in labour productivity. The fall in labour input reflects the declining employment (and rising unemployment) in the labour market during this cycle. For the year ended March 1990, the unemployment rate was 7.1 percent, compared to an unemployment rate of 4.1 percent in the year ended March 1987. Official unemployment statistics from the Household Labour Force Survey are unavailable prior to the March 1986 quarter.
Labour productivity growth peaked during the 1997–2000 cycle, with an annual rate of 3.5 percent. This was due to solid growth in output (average annual increase of 2.6 percent), and falling labour input (average annual decrease of 0.8 percent). The falling labour input was due to decreasing weekly paid hours per person in the measured sector, a trend that is evident from the beginning of the series, and that accelerated slightly in the 1997–2000 cycle. The number of people employed in the measured sector was either stagnant or falling throughout the late 1990s.
From 2000–2006, labour productivity grew again, but at a slower average annual rate of 1.4 percent. This was due to stronger growth in labour input, with an increase of 2.0 percent, compared with a fall of 0.8 percent in the previous cycle. The average annual unemployment rate during the 2000–2006 cycle was 4.7 percent, the lowest annual rate when compared with the previous three cycles.
Capital productivity
Capital productivity is measured as a ratio of output to capital input. The table below presents the annual average growth in capital productivity for the growth cycles identified within the series.
Capital Productivity Average Annual Growth Rates (percent)(1)(2)
Year ended 31 March |
| Year |
Output |
Capital input |
Capital productivity |
| 1978–1982 |
2.1 |
1.7 |
0.4 |
| 1982–1985 |
3.4 |
6.7 |
-3.1 |
| 1985–1990 |
0.7 |
4.9 |
-4.0 |
| 1990–1997 |
3.2 |
1.9 |
1.3 |
| 1997–2000 |
2.6 |
2.0 |
0.6 |
| 2000–2006 |
3.4 |
3.5 |
-0.1 |
| 1978–2006 |
2.6 |
3.3 |
-0.6 |
(1) The average annual growth rate values do not include the movement for the first year of each cycle, eg the 1978–1982 average annual growth rate does not include the movement for 1978.
(2) Percentage changes are calculated on unrounded index numbers.
From 1978–2006, average annual growth in capital productivity fell 0.6 percent. This was driven by strong annual capital input growth of 3.3 percent and 2.6 percent annual growth in output.
From 1982–1985, very strong growth in capital input (averaging 6.7 percent) and strong growth in output (averaging 3.4 percent) led to an average annual decrease of 3.1 percent in capital productivity. The strong growth in capital input was largely driven by significant investment in the energy sector on a number of projects collectively known as 'Think Big'.
This period of strong input growth continued on to 1985–1990, when capital input rose 4.9 percent on average. Output was still increasing during this cycle, but at a much slower annual rate of 0.7 percent, which led to the lowest level of capital productivity for any of the six cycles, an average annual decrease of 4.0 percent.
The highest period of capital productivity growth was from 1990–1997, when it averaged 1.3 percent on an annual basis. This was due to high output growth, which averaged 3.2 percent annually while capital input was averaging 1.9 percent on an annual basis.
Multifactor productivity
Multifactor productivity (MFP) is measured as a ratio of output to total inputs. It can also be defined as growth that cannot be attributed to capital or labour, such as technological change or improvements in knowledge, methods and processes. The table below presents the annual average growth in multifactor productivity within the growth cycles identified for the series.
Multifactor Productivity Average Annual Growth Rates (percent)(1)(2)
Year ended 31 March |
| Year |
Output |
Total inputs |
Multifactor productivity |
| 1978–1982 |
2.1 |
0.9 |
1.2 |
| 1982–1985 |
3.4 |
3.8 |
-0.4 |
| 1985–1990 |
0.7 |
0.5 |
0.2 |
| 1990–1997 |
3.2 |
1.1 |
2.1 |
| 1997–2000 |
2.6 |
0.3 |
2.3 |
| 2000–2006 |
3.4 |
2.7 |
0.7 |
| 1978–2006 |
2.6 |
1.5 |
1.1 |
(1) The average annual growth rate values do not include the movement for the first year of each cycle, eg the 1978–1982 average annual growth rate does not include the movement for 1978.
(2) Percentage changes are calculated on unrounded index numbers.
The average annual increase of 1.1 percent in MFP from 1978–2006 was due to output growth (up 2.6 percent annually) rising more than input growth (up 1.5 percent annually).
The MFP annual growth rates showed increases for five of the six cycles, with a range of 0.2 to 2.3 percent. The only cycle that showed a fall in MFP was between 1982 and 1985, with an annual drop of 0.4 percent. This was due to the average annual growth of total inputs (up 3.8 percent) increasing more than output growth (up 3.4 percent annually) during the cycle. The growth in inputs during this cycle was driven by strong growth in capital input, averaging 6.7 percent annually. Labour input also grew by an average of 2.0 percent on an annual basis during this cycle.
The average annual growth for MFP peaked between 1997 and 2000 at 2.3 percent. This was due to the strong output growth (average annual rate of 2.6 percent) compared to a relatively low total input growth (average annual rate of 0.3 percent). Output fell 0.6 percent in the March 1999 year, but it bounced back with an annual increase of 6.8 percent in the March 2000 year, which contributed to the strong average growth from 1997–2000.
From 2000–2006, MFP increased, but at a much slower average annual rate of 0.7 percent. This is because total inputs’ annual growth was relatively high (averaging 2.7 percent), compared to the previous three cycles, even though output growth was sustained during this cycle.
Growth accounting for real GDP
Growth accounting examines how much of the economy’s growth in output can be explained by the growth of combined inputs. In particular, growth in output (real GDP) can arise from three different sources: an increase in labour input, an increase in capital input, or an increase in MFP. The graph below presents growth in output between 1978 and 2006 for the growth cycles identified in the series.
The table below presents the annual average growth in output and its contributing factors for the growth cycles identified within the series.
Contribution to Measured Sector Real GDP Growth (percent)
Average annual growth rates (1)(2)
Year ended 31 March |
| Year |
Real GDP |
Capital input |
Labour input |
Multifactor productivity |
| 1978–1982 |
2.1 |
0.7 |
0.2 |
1.2 |
| 1982–1985 |
3.4 |
2.7 |
1.1 |
-0.4 |
| 1985–1990 |
0.7 |
1.9 |
-1.3 |
0.2 |
| 1990–1997 |
3.2 |
0.8 |
0.3 |
2.1 |
| 1997–2000 |
2.6 |
0.8 |
-0.5 |
2.3 |
| 2000–2006 |
3.4 |
1.6 |
1.1 |
0.7 |
| 1978–2006 |
2.6 |
1.3 |
0.2 |
1.1 |
(1) The average annual growth rate values do not include the movement for the first year of each cycle, eg the 1978–1982 average annual growth rate does not include the movement for 1978.
(2) Percentage changes are calculated on unrounded index numbers.
Over the entire 1978–2006 cycle, output growth averaged 2.6 percent. Capital input was the largest contributor to GDP growth throughout the cycle, averaging 1.3 percent on an annual basis. Labour input contributed 0.2 percent to this rise in output and MFP contributed 1.1 percent.
From 1978–1982, growth in output was positive, averaging 2.1 percent on an annual basis. This was driven by positive growth from all three contributors: capital input contributed 0.7 percent, labour input contributed 0.2 percent and MFP contributed 1.2 percent, on an average annual basis.
From 1982–1985, capital input was relatively strong, contributing 2.7 percent average annual growth to GDP. This, along with positive growth in labour input (averaging 1.1 percent on an annual basis) contributed to strong growth in GDP, averaging 3.4 percent on an annual basis. Output growth in 1985 was particularly high, at 5.8 percent. The positive growth in both capital and labour input was large enough to offset the negative contribution from MFP (which contributed -0.4 percent on average to annual GDP).
From 1985–1990, a decline in labour input contributed negative 1.3 percent annual growth to GDP. This negative contribution was an offsetting factor to positive capital input (which contributed 1.9 percent on average to annual GDP), and improvement in MFP (which contributed 0.2 percent to average annual GDP growth). Overall, GDP growth was low, averaging 0.7 percent annually over this cycle.
From 1990–1997, there was a marked improvement in GDP growth, averaging 3.2 percent on an annual basis. This reflected positive average annual growth from all three factors: capital input (0.8 percent), MFP (2.1 percent) and labour input (0.3 percent). In particular, the 1994–1997 period showed strong output growth, averaging 5.1 percent on an annual basis.
From 1997–2000, positive growth in capital input and strong growth in MFP, averaging 0.8 percent and 2.3 percent,respectively, on an annual basis, contributed to positive GDP growth (up 2.6 percent on an average annual basis) during this cycle. Output fell in the March 1999 year (down 0.6 percent), a combined result from the Asian economic crisis and two successive droughts that significantly reduced production of primary goods. However, the economic recovery following this was the main driver for the strong average growth from 1997–2000. In the year ended March 2000, output increased by 6.8 percent, the largest annual increase since 1994. There were three predominant factors contributing to the strong output growth in 2000. Firstly, a surge in export volumes (due to the combined effect of the low New Zealand dollar and growing demand from overseas) resulted in growth in prominent export-oriented industries, such as primary food manufacturing, forestry and agriculture. Secondly, sustained consumer spending was recorded throughout the year. Thirdly, business investment on fixed assets was up markedly, rising 7.4 percent in the March 2000 year. The positive growth in capital inputs and MFP was slightly offset by negative labour input (which contributed -0.5 percent on average to annual GDP).
Growth in GDP rose again during the 2000–2006 cycle (averaging 3.4 percent on an annual basis), reflecting positive growth from all three contributors: capital input contributed 1.6 percent, labour input contributed 1.1 percent, and MFP contributed 0.7 percent on an average annual basis. Growth in output was due to a combination of factors. High world prices for export commodities, a relatively low exchange rate for much of the cycle further boosting export growth, a booming residential construction sector and a strong labour market were key drivers in strong output growth during this cycle.
Capital to labour ratio
The capital to labour ratio simply measures capital inputs divided by labour inputs. An increase in the ratio is referred to as capital deepening, while a decrease is termed capital shallowing. The table below presents the average annual growth in the capital to labour ratio and capital and labour inputs for the growth cycles identified within the series.
Capital to Labour Ratio Average Annual Growth Rates (percent)(1)(2)
Year ended 31 March |
| Year |
Capital input |
Labour input |
Capital-labour ratio |
| 1978–1982 |
1.7 |
0.4 |
1.3 |
| 1982–1985 |
6.7 |
2.0 |
4.7 |
| 1985–1990 |
4.9 |
-2.1 |
7.1 |
| 1990–1997 |
1.9 |
0.6 |
1.3 |
| 1997–2000 |
2.0 |
-0.8 |
2.9 |
| 2000–2006 |
3.5 |
2.0 |
1.4 |
| 1978–2006 |
3.3 |
0.4 |
2.9 |
(1) The average annual growth rate values do not include the movement for the first year of each cycle, eg the 1978–1982 average annual growth rate does not include the movement for 1978.
(2) Percentage changes are calculated on unrounded index numbers.
The New Zealand economy has experienced great capital deepening during the last 28 years. The average annual growth for the capital-labour ratio was 2.9 percent from 1978–2006, due to 3.3 percent average annual growth in capital input, compared with 0.4 percent average annual growth in labour input.
From 1985–1990, the average annual growth rate for the capital-labour ratio recorded its highest increase of 7.1 percent. This was due to a decrease in the average annual rate in labour input (down 2.1 percent), while capital input increased 4.9 percent on an average annual basis. As previously mentioned, the labour market was characterised by declining employment (and rising unemployment) during this cycle, which contributed to the fall in labour input.
From 1990 onwards, capital input has increased at a higher rate than labour input. This contributed to the capital-labour ratio continuing to increase, but at a lower rate than the 1985–1990 period.
Growth accounting for labour productivity
As with growth in output, growth in labour productivity can be broken down into components. In particular, a change in labour productivity can come from two possible sources: a change in the weighted capital to labour ratio (that is, capital deepening or capital shallowing) and a change in MFP. The graph below presents growth in labour productivity between 1978 and 2006 for the growth cycles identified in the series.
The table below presents the annual average growth in labour productivity and its contributing factors for the growth cycles identified for the series.
Contribution to Measured Sector Labour Productivity Growth
Average Annual Growth Rates (percent)(1)(2)
Year ended 31 March |
| Year |
Labour productivity |
Contribution of capital deepening(3) |
Multifactor productivity |
| 1978–1982 |
1.7 |
0.5 |
1.2 |
| 1982–1985 |
1.4 |
1.8 |
-0.4 |
| 1985–1990 |
2.9 |
2.7 |
0.2 |
| 1990–1997 |
2.6 |
0.5 |
2.1 |
| 1997–2000 |
3.5 |
1.2 |
2.3 |
| 2000–2006 |
1.4 |
0.6 |
0.7 |
| 1978–2006 |
2.2 |
1.1 |
1.1 |
(1) The average annual growth rate values do not include the movement for the first year of each cycle, eg the 1978–1982 average annual growth rate does not include the movement for 1978.
(2) Percentage changes are calculated on unrounded index numbers.
(3) Contribution of capital deepening is equal to the growth rate in the capital–labour ratio weighted by capital's share of total income.
Over the entire 1978–2006 period, the average annual contribution to labour productivity growth from capital deepening was 1.1 percent. The average contribution of MFP growth was also 1.1 percent on an annual basis. Labour productivity growth averaged 2.2 percent annually.
In the 1980s, capital deepening was the main driver of growth in labour productivity. From 1982–1985, the contribution of capital deepening to labour productivity growth was 1.8 percent. The decline in labour productivity growth (down from 1.7 percent in the previous cycle to 1.4 percent) was due to a decrease of 0.4 percent in MFP, on an average annual basis. From 1985–1990, the contribution of capital deepening to the strong labour productivity growth (which rose 2.9 percent on an average annual basis) averaged 2.7 percent on an annual basis. During the late 1980s, unemployment increased rapidly, rising from 4.0 percent in the March 1987 quarter to a high of 10.9 percent in the September 1991 quarter. This led to declining labour input, and, coupled with strong capital input growth, resulted in significant capital deepening over this cycle. MFP contributed an average of 0.2 percent to annual labour productivity growth.
In the 1990s, a different picture emerges, as the main contributor to growth in labour productivity was MFP. From 1990–1997, labour productivity rose 2.6 percent on an average annual basis, reflecting on average contributions of 2.1 percent by MFP and 0.5 percent from capital deepening. The largest growth in labour productivity was from 1997–2000, when it averaged 3.5 percent annually. MFP contributed 2.3 percent to labour productivity on an average annual basis during this cycle. Capital deepening contributed an average of 1.2 percent to annual labour productivity.
Labour productivity over the 2000–2006 cycle was relatively low, averaging 1.4 percent on an annual basis. Contributions from capital deepening and MFP were subdued over this cycle, both showing small positive average annual movements of 0.6 and 0.7 percent, respectively.
Revisions
This release contains revisions arising from new and more up-to-date information. These result from the incorporation of:
- annual reweighted GDP data back to 1988, feeding into the output series
- March 2004 year constant price GDP data into the output series
- revised current price annual industry value added data for all industries for March years 2003 and 2004, which causes revisions to the industry-level factor income shares
- revised current and constant price productive capital stock data, for selected assets and industries for March years 2003 and 2004, into the capital input series
- 2006 Census data into the labour volume series, providing benchmarks for average working proprietor average hours and employees in industries outside of the scope of the QES.
This release also contains revisions resulting from improved methodology. These are:
- the incorporation of revised valued added data for the Agriculture industry, due to enhancements made to historic source data. These revisions feed into the output series.
- an improved methodology for benchmarking of annual constant price value added data for the Cultural and recreational services industry. These revisions also feed into the output series.
- incorporation of Linked Employer-Employee Data (LEED) for working proprietor and employee job counts from 2000 to 2006, into the labour volume series.
While there have been minor revisions to some annual movements, the underlying trend of the productivity series has remained unchanged.
Revisions to annual productivity indexes and movements are displayed in tables 7 and 8.
Future developments in productivity measures
Statistics NZ is committed to a multi-year programme to carry out enhancements to the productivity measures published in this release. The main priorities of this work will be to introduce quality adjusted labour input data; to develop industry-level measures of labour, capital and multifactor productivity; and to expand the measured sector to industries that are currently excluded. In addition, ongoing methodological and source data improvements will be made to the series, resulting in improved productivity measurement.
For technical information contact:
Brendan Mai or Thomas McNaughton
Wellington 04 931 4600
Email: info@stats.govt.nz