Thursday, March 30, 2006

Productivity

Sage has produced some analysis of productivity growth in NZ finding in favor of the right leaning opposition as a superior government in this regard.

A number of people have proposed responses almost all of which are very weak

1) The proposal that productivity is not everything

No one is proposing voting ONLY on sage’s analysis so most people seem to be attacking a straw man. The point is that sage’s analysis IS good evidence and in the absence of a plausible argument against it is the "status quo" in this debate. The argument is a bit like saying you should try to make money because money isn't everything. It may not be everything but it IS something!

2) NZ will never be as 'productive' as the US/Japan etc

That is a pretty defeatist approach. You could say "NZ will never be as rich as Japan with all their yen and their big cars and boats.
Once upon a time counties like Japan were much more like china or Mongolia (even further back) and they fixed their labour productivity problems.

If you are the labor source for the worlds you can expect lower per capita incomes than if you are the capital source for the world (not surprisingly). If your structure is wrong for long term productivity growth then change the structure.

3) It is just too simplistic.

This sort of thing is typical of problems in the real world.
For example global warming. You could argue the temperature in the future is a result of us burning carbon (like "government policy" - controllable) or you could say it is a result of the sun (pretty undeniable but not helpful).

If sage can draw a logical connection to some policies that is sufficient to make the point unless you can prove a stronger counter force.

I proposed some counter forces on sage's blog but besides that I haven’t seen anyone come up with anything that has more weight to it than just self justifying guesses.

A) If Labour raises the amount of people in the workforce this should drop the productivity of the average person (as more almost unemployable people become employed).
This difference will often be pretty significant.
Over time this might cause companies to develop policies to improve this in the long run.
B) I would suggest tension in the market causes productivity growth - that is when there is easy money in a housing market based boom (for example) pressure to make productivity increasing changes is low, so gains are more likely to be made in "harder times".
C) There is the question of "what is the scarce resource" do we need optimal use of labour or optimal use of capital (etc)
In theory making capital easier to obtain should make labour productivity higher (because they can combine more capital with that labour)
Of course it matters how this is distributed across the businesses.

3 Comments:

Anonymous Paul W said...

Genius, you're pissing in the wind with your commentary. Sage has anlysed nothing, he's recut a table from the Stats report and drawn a naive conclusion. It's repetition here and elsewhere does not make it any less false. Sage's commentary requires you to agree that productivity responds immediately to changes in policy which it almost certainly does not. Improving NZ's MFP is precisely the right objective, one to which both major parties are committed, but no one party can claim credit for the results achieved over the last 20 odd years. Labour can rightly point to the micro-economic reform they started. National wil point to their labour reform, although I'd question this.

You comment that increasing labour force participation decreases aggregate productivity is just plain stupid - if you mean marginal productivity you might have a point, however weak, but most domestic and international literature correlates increased labour force participation with improved productivity - OECD, ILO and recent Australian studies have been published on precisely this issue - if you're genuinely interested, I'll give you some electronic references.

5:43 PM  
Blogger sagenz said...

Paul - please post the references. I for one would be interested. I dont think for a second Genius has suggested aggregate productivity is reduced. Perhaps your problem is you do not read things properly. You add two unskilled workers to a pool of 100 semi skilled workers and it is blatantly obvious the aggregate productivity will increase even while the average productivity will come down.

It is the trend that is important. Labour have reversed a trend. Some of it may be due to increasing labour inputs, but clearly some is due to a change in policies. How difficult is that to accept.

With the same number of people in a population increased labour inputs can only come at the cost of leisure time. so in a modern society labour should always be a scarce resource.

11:55 PM  
Blogger Genius said...

Paul,
as sage noted you seem to have not read the post properly.

> but no one party can claim credit for the results achieved over the last 20 odd years

no one is responsible - la de da..... *closes his eyes* la de da.....

8:56 PM  

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