News

This seminar given by Clare Lombardelli.  She is currently Chief Economist at the OECD, and is shortly to become a Deputy Governor and member of the MPC at the Bank of England. 

Her theme was “Reviewing Productivity Growth – Evidence and Policies”.  She talked about the positive and negative influences on productivity growth, looking at evidence from around the world.  But she also commented on NZ’s weaknesses and opportunities.

She started by commenting that Multi-Factor Productivity growth had been slowing in NZ.  We are not alone in this respect, but productivity in NZ is relatively low.

Drivers of productivity growth  

• Digitisation is the biggest influence currently. 
• Early evidence is that AI is having a large effect, but most of the evidence relates to Analytical AI, rather than Generative AI.
• Some tasks have been associated with large efficiency gains, especially in things like Writing and Coding, but there have been fewer gains in some areas like Customer service.
• Skills are needed to benefit from AI, especially (unsurprisingly) digital skills.
• Competition and regulation are important in driving effective use of digital technologies.
• A problem is that 25% of adults in OECD countries have no experience of using computers.
• Firm size.  Problem for NZ because most firms are micro or small.

AI adoption

• The greatest potential is in knowledge-intensive sectors, e.g. Telecoms, IT, Finance etc.
• The occupations in which the threat of being replaced by AI varies, but it seems to be less in areas like transport and construction.

Trade

• There are potential gains from integrating value chains, especially in the services, but less so in manufacturing.

Human capital

• Very important driver.
• The most productive firms differ from the rest in terms of the composition and skills of their workforce. 
• This explains one third of all the variation in productivity between firms.  Capital explains only one fifth of the difference.

The role of policy

• Investment in R&D is important in explaining productivity growth (see also our draft submission on the RSI system, shared by email yesterday 08/05/24)
• NZ is a laggard in terms of expenditure.
• NZ can increase R&D activity by attracting more foreign direct investment.
• Need to invest in the quality of management to increase productivity.  Quality of NZ management relatively low.
• Labour shortages at all levels have slowed productivity growth.
• Need to invest in Active Labour Market Policies, e.g. to better match people to jobs and skills training.  NZ doesn’t do this well.

Key issues ahead with implication for productivity

• Demographic change / Digitisation / Climate change / Labour supply constraints and mismatches are all important.
• NZ needs to confront all these issues and also Lack of capital investment / Lack of competition because of size of economy / Decline in education and skills standards.