Productivity still missing 2% target
About every November I usually will go checking up on Auckland’s productivity and see how it measures against Outcome 3 of the Auckland Plan – Productivity to be at 2% p.a. Target 6.2 states that productivity (how efficient businesses work) should be increasing from a 1% increase per year to 2% per year for the life of the Auckland Plan (2012-2042).
Last November I reported on how our productivity BOMBED -0.33% (Auckland Productivity Bombs #AKLPols). This year I am pleased to report that Auckland’s productivity for the full 2015 year increased 1%. Meaning we recovered our losses and in real terms productivity increased by 0.67%.
In table form:
|GDP per hour worked||GDP per employed person||Target||GDP per hour worked|
And some further information:
|6.2||Increase annual average productivity growth from 1 per cent p.a. in the last decade to 2 per cent p.a. for the next 30 years.|
|Measure||Auckland’s GDP per hour worked (*).|
|Source||Infometrics, regional economic profile and Statistics New Zealand, Earnings and Employment Survey|
|Availability||Customised data from Statistics New Zealand, and subscription to Infometrics portal http://ecoprofile.infometrics.co.nz/Auckland/Productivity|
|Note||GDP is in constant $2010 for year ended March; GDP for Auckland is modelled and subject to subsequent revision.|
|Relevance||Productivity relates to how efficiently a firm or any other organisation can turn its inputs, such as labour and capital, into outputs in the form of goods and services. Labour productivity is a measure of the amount produced for a certain amount of labour effort. It is closely related to individual incomes (i.e. wages and salaries) and living standards, and it can be measured with reasonable reliability.
The simplest measure is output per worker (GDP per employed person) which can increase if workers produce more in the hours they work, or if they work longer hours. The ideal measure, therefore, is output (GDP) per hour worked. The main advantage of this is it takes variations in the number of hours worked per worker into account, although it is more complex to estimate.
|Analysis||Since 2001, growth in both GDP per worker and per hour worked has mostly been well below 2 per cent, with a sharp drop in 2009 and rebound in 2010.
The average growth of GDP per hour worked for the year ending March 2015 was 1.0 percent, following shrinkage in 2014 (-0.3%) and nil growth in 2013 (0.0%). GDP per worker grew by 0.8 per cent in 2015, but in previous years had grown somewhat faster than per hour (2014 +0.9%; 2013 +0.6%, 2012 +1.2%), due to ongoing increases in hours worked per person employed.
Figure 11: Annual percentage change in productivity growth, Auckland (2001-2015)
(see graph at top of the post)
Source: Infometrics: Regional GDP statistics and Statistics New Zealand: Earnings and Employment Survey.
It is good to see productivity back into the positive again. Although 0.67% in real terms if we are also factoring in lost productivity from 2014 is still a very long way for the 2% per year as stated in the Auckland Plan targets.
What is a concern though is that we are working in total longer hours to produce more rather than producing more PER hour actually worked.
Using the increase in output method and assuming we product one unit of output per hour we have certainly increased our outputs from say eight (from an eight-hour day) to nine (on a now nine-hour day). This is rather than using the “per hour worked” method which would state we are producing the same nine units of output (so still an increase nominally) but still within that eight-hour day enjoyed earlier (so we are now producing 1.125 units of output per hour instead of one).
Working longer hours to get more outputs per day rather than increasing the outputs per hour to get that total increase of outputs per day does not bode well for our communities nor societies. It means less time with families, less time in recreation or relaxing, less time retailing or investing into other forms of capital (that further expands the economy). And a society/community that spends less time doing things that is not “work” will mean we become unhealthy and sick to the point the economy will backslide through lost productivity as a consequence.
Our energy when creating policy must be focused into driving up GDP per hour worked if we are to get productivity gains to 2% per year through until 2042.
- Are our business systems efficient to allow the GDP per hour work percentage to increase?
- Is our transport system adequate so workers are not strung up like high tension wires in the commute to or from work thus affecting productivity?
- Is the availability of good open spaces as well as retail and hospitality spaces near the home or work place and are those spaces easily accessible by active or transit modes (preferably so drink driving risks are mitigated)?
If any or all of those answers come back as a no (and to be blunt Auckland would fail all three questions right now) then we have a problem and a hindrance to that 2% target.
Therefore policy to address those questions need to be Auckland-wide and not City Centre centric in the perceptions of the citizen. That is why the Transform Manukau Framework Plan that comes out next month will be rather interesting to see if it addresses those three questions at least for South Auckland and its productivity.
So what will Council and the Government do?
Thanks to Auckland Council for compiling the data. 🙂