Bill English’s Trump-like denial of a productivity problem

Bill English said during the first election debate that an economist's claim of a productivity recession was "just wrong." Bernard Hickey fact checks the claim and counter claim to find English is wrong and the economist is right.

Bill English is a careful man who is deeply familiar with New Zealand's economic record. He has had the best facts and figures from Treasury, the OECD and the IMF at his fingertips for nearly nine years as Finance Minister and Prime Minister. So his outright rejection during the debate on Thursday of JB Were economist Bernard Doyle's comments about a productivity recession were surprising.

"JB Were are just wrong. They are way over-stating the case," he said.

Following up, Labour Leader Jacinda Ardern said productivity had flat-lined at best and she wanted to invest in people and skills through education to improve productivity.

So who is right? Here's a detailed look at the evidence. If you are time poor, the answer is Bernard Doyle is right and Bill English is wrong.

The charts published by Doyle in his report show what has happened to GDP overall, GDP per person and GDP per hour worked, both in percentage gain terms and in an indexed cumulative form.

One shows GDP per hour worked, a typical and broad measure of productivity, being negative for the last three years at least. It's worth remembering that real wages don't sustainably increase unless there is productivity growth.

Another shows the cumulative effect of that productivity recession on an indexed chart that includes how total GDP grew with the help of a net migration boom and a rise in labour force participation, rather than a rise in output per hour worked.

The OECD also made the point in its June report on New Zealand that New Zealand's productivity was lagging, and it made a series of recommendations about how to improve it.

Here's the chart it published to make that point.

The Government's own Productivity Commission, which English set up, reported in November last year in an 86 page report that New Zealand's productivity growth was still comparatively low.

As recently as August 7, Treasury reported its own analysis of various measures of labour productivity, including one measure using the Household Labour Force Survey (HLFS) showing that labour productivity growth was negative through 2016 and was down 3.3 percent in the year to March.

Even using an adjusted total hours worked series, Treasury found: "Labour productivity growth was estimated to still be negative in the year to March 2017 (-0.4 percent) and average productivity growth over the past four March years was essentially flat (-0.03 percent)."

"Using the QES (quarterly employment survey) weekly paid hours series as the hours component of labour productivity gives similar results (-0.2 percent growth in the year to March 2017 and slightly negative labour productivity growth on average over the past four years), suggesting the adjusted HLFS measure is a reasonable approximation.

Here's the chart it used to make its point.

In Parliamentary Question Time on August 15, Finance Minister Steven Joyce cited OECD figures in response to challenges from Grant Robertson using Doyle's and other figures.

Joyce said OECD figures showed New Zealand's GDP per hour worked had risen 9.6 percent since 2008, which was faster than Canada, Britain, Europe, Great Britain and the G7.

He used those figures again in a release put out on Friday.

But Joyce's figures include the natural bounce-back in productivity that happens during a recession when many businesses lay off workers. That was from 2008 to 2009, and another slowdown in 2011 and 2012. Over the last four to five years, productivity is flat, at best, as Ardern said in the debate.

Former senior Reserve Bank economist Michael Reddell also questioned the conclusion made by Joyce using the figures in a blog post on Friday. Reddell said productivity had gone slightly backwards over the last five years.

"That is sufficiently stark, and has now gone on for long enough, that it seems worth singling out," Reddell wrote.

In an earlier post on Friday, he pointed to New Zealand's slowdown in productivity over the last five years relative to Australia in this chart.

"Not only have we had no labour productivity growth for five years, but our near-neighbour Australia –  which the government was once willing to talk about catching up to – has gone on generating continuing labour productivity gains," Reddell wrote.

"Yes, there has been a productivity growth slowdown in much of the advanced world, dating back to around 2005. But our additional and more recent slowdown –  well, dead stop really – looks like something different, and probably directly attributable to New Zealand specific factors -- things New Zealand governments have responsibility for responding to."

My view

English's outright denial of a productivity problem in the debate was Trump-like in its brazenness and disappointing from a former Finance Minister who knows that productivity improvements are ultimately the only way New Zealanders get richer in the long run.

New Zealand's economy has grown faster than others in the last four years, but only because of a surge in its population from migration and an increase in the labour force participation rate. New Zealand's economy grew because more people arrived, more people worked and they worked longer hours.

They didn't work smarter.

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