There was nothing in the Budget for productivity. Education, the foundation of producitivty, was actually cut when you take into account inflation and population growth. There was a bit more for a few more roads but shaving a few minutes of the commute has no effect on productivity.
Yet Bill English is very keen for us to be focusing on productivity as a measure of his success as an encomic manager. Why would that be?
Because when there’s a recession on and employment is falling, productivity goes up.
An example: Joe, Mary, and Sue work in a factory producing widgets. Joe makes 8 an hour, Mary 9, Sue 7. What is the hourly productivity of the factory? Output/labour inputs – 24/3= 8 widgets per hour.
Ok, the economy’s humming and demand for widgets increases. The factory hires Sean. Sean has less experience than the others, maybe he’s just not as good a worker, and besides there’s less room and they have to use their backup equipment for him to work on. Sean produces only 4 widgets an hour. total production is up from 24 to 28. They have increased employment from 3 to 4. Both good things but look at productivity: 28/4=7. Oh noes.
A recession comes and widget demand falls. A job has to go. It’s Sean (last in first out makes sense because it’s likely to be the reason he’s less productive). Now the factory produces less and employees fewer people. But productivity is up from 7 to 8! Yay?
That’s what is happening in our economy right now. Output is falling as is the number of jobs. When people are made redundant it’s, quite logically, the least productive who go. even though everyone is poorer on average and there are more unemployed people to be supported by fewer workers there’s one economic metric that looks rosy – average productivity goes up and up. In fact, as one commentator wrote in the Dom (I think) recently ‘if I really wanted to boost productivity, I would go around shooting least productivity workers’. Higher average productivity does not mean we are collectively better off.
No wonder English wants us to concentrate on productivity. If we automatically and falsely accept a rise in average productivity must be a sign of broader economic well-being he looks good. That’s why we need to realise that productivity is just a ratio of GDP and hours worked. It doesn’t tell us squat about the health of the economy. For that we need to look to GDP and employment levels directly.