New Zealand's track record on productivity has been poor and the lacklustre labour productivity performance has been masked by strong population growth and rising terms of trade.

The ASB has started a series to provide some of the findings from research economists had been doing on the labour productivity performance of the New Zealand economy.

ASB chief economist Nick Tuffley said one of the risks facing the economy was capacity constraints acting to slow the pace of domestic expansion.

On several conventional measures, the labour market was tight and the unemployment rate was at a nine-year low. Labour force participation, the employment rate and surveyed measures of labour shortages were at

elevated levels.

``Resources are finite so increasing the amount you can produce with the same inputs is the key to boosting per-capita incomes and overall living standards.''

GDP growth had averaged about 3% since the early 1990s.

More than half of the growth was due to increased inputs of labour. The growth in hours worked averaged about 2% a year, he said.

Linked to the latter had been strong growth in the working age population - average of about 1.5% a year - and increasing labour utilisation.

Of late, the stronger growth in hours worked had depressed aggregate labour productivity which was still close to 3%

below mid-2015 levels.

Annual GDP growth was expected to average 3% over the next couple of years, as slowing labour inputs were offset by a cyclical strengthening in labour productivity growth.

New Zealand had fared badly on a global scale, Mr Tuffley said.

Labour productivity - defined as output per hour worked - growth had averaged slightly more than 1% a year since the early 1990s, well below the OECD norms of about 2% a year.

The seeds were sown in the 1950s and 1960s when New Zealand lost considerable ground relative to its OECD peers. In the 1970s and 1980s, New Zealand lost ground in terms of labour productivity and in GDP per capital.

``Despite the solid performance of the New Zealand economy of late, output per hours worked has remained becalmed at about 80% of the OECD average.''

New Zealand's real GDP hours worked was about 40% below those of the United States and was close to 30% below those of Australia, he said.

Despite having an open trade and investment regime, and a solid economic performance of late, there were few signs the New Zealand economy was catching up with higher productivity countries.

New Zealand's small size and distance from key markets could be impediments.

The goods terms of trade were the highest since 1950 and the peak in net permanent and long-term immigration was looking to have passed.

There were limits to how much more could be gained from those influences in the current cycle, Mr Tuffley said.

``Achieving more growth in the next few years will need to come from strengthening labour productivity.''

In future weeks, the ASB would examine what had been happening for industrial sectors to examine whether the slowdown in labour productivity growth had been generalised.



