MEActive - October 2016
CEO COMMENT: Wages, Inflation and Productivity
In recent decades, New Zealand has been lagging behind many OECD countries in productivity. New Zealanders continue to work longer hours than many other OECD countries, but our productivity (output per hour worked) remains lower in comparison. Correcting this problem and accelerating productivity growth across our economy is a key part of creating a wealthier country and helping to improve living standards for everyone.
There is a link between labour productivity and wages – our failure to improve productivity has contributed to our poor progress in closing the income gaps between New Zealand and many of our trading partners that have higher per capita incomes – Australia is the often cited example.
In 2013 the Productivity Commission issued a report discussing New Zealand’s productivity – all the following data points come from that report, which is worth checking out.
The above shows New Zealand's performance compared to a section of OECD countries. You can see we still work longer hours than the selection, but our GDP per capita and GDP per hour worked is significantly lower, and the trend is moving in the wrong direction.
Growth in labour productivity in the goods-producing sector, which includes manufacturing, has been falling somewhat since the late 1970’s, averaging annual growth of 2.2% between 1978 and 1985, 1.8% between 1985 and 1990, 1.5% between 1990 and 2000, 0.6% between 2000 and 2008 and 0.8% between 2008 and 2011.
Another measure is Multi-Factor Productivity (MFP), which includes both labour and contributions from increased capital. For manufacturing, MFP increased 0.8% annually between 1990 and 1997, 2.5% between 1997 and 2000, 0.5% between 2000 and 2008, and -0.6% between 2008 and 2011.
While these don’t seem like results to write home about, when compared to other sectors, manufacturing has held its own. Between 1996 and 2011, manufacturing made the largest contribution to aggregate growth in labour productivity, capital intensity and MFP of all sectors. But there is obviously still room for significant improvement, both in manufacturing and across our economy.
How can we improve our productivity over time?
In terms of capital productivity, this means upgrading to new and more efficient equipment and processes. For many businesses, this may mean innovation in processes that allow your business to output more per hour, or creating a niche by using a unique process that gives an edge or point of difference from the competition.
There are a number of policies that could help fuel investment in innovation and equipment to improve productivity. R&D support with a focus on process innovation can play a big part in this, especially when made accessible to our small and medium sized manufacturers, as well as accelerated depreciation, to spread the tax burden of purchasing more efficient equipment over time. Manufacturing remains the largest business sector spender on R&D, with machinery and equipment manufacturing being the biggest spender on R&D within manufacturing.
Improving our capital productivity flows onto labour productivity – giving staff more efficient equipment allows them to produce more. But companies can also explore upskilling their staff to improve their productivity. The use of Lean principles is also an important part of stripping waste from manufacturing processes - the best way to achieve this depends on the business, and there are varying schools of thought. Ultimately we have to realise that improving labour productivity is a management responsibility, and a big one at that – and be it only through bringing out the best in people on the factory floor who often are the real experts when it comes to doing their job more efficiently.
There are many ways to tackle this productivity problem, and it is an area that needs continued research and investment. On November 1st the NZMEA will be hosting the Deputy Prime Minister, Hon. Bill English to speak to manufacturers on this very issue - you can find details for this event on our website.
Feedback Sought on Proposed Changes to the Skilled Migrant Category:
The Ministry of Business, Innovation and Employment (MBIE) is currently seeking feedback on proposed changes to the Skilled Migrant Category. This will affect all businesses who use migrants to fill skill shortages. These changes relate to three main areas:
• Introducing the use of salary levels to help define skilled employment.
• Strengthening the use of work experience to define skilled employment.
• Realigning the points system to better recognise highly skilled migrants.
The NZMEA will be placing a submission to this, and we would value any member feedback on these changes. You can read the full submission consultation document here - it outlines the proposals inculding a number of proposed salary levels and includes questions on each proposal.
There are a number of specific questions for which we would particularly appreciate feedback from manufacturers to better inform our submission - please click here to answer these questions. Due to the short time frame of submissions, we would need your feedback by end of day Thursday 27 October. We appreciate any feedback you can provide.
The events page on our website has more information on upcoming events. Click here to view our upcoming events or see below.
1 November - Invitation to a Forum with the Hon. Bill English - Christchurch
21 November - Invitation to NZMEA Leaders' Network: Panel Discussion “What does it take to encourage young people to set up their own manufacturing business?”- Christchurch
23 November - From the Factory Floor: Managing a Multicultural Workforce - Auckland
Where the NZMEA have been reported over the past month.
1 September - DEMM - Sales flat for manufacturers, but positive future expectations. Magazine
6 September - MSC Newswire - Signs of Challenges for Exporters – 6 September. Internet
6 September - Voxy.co.nz - Signs of challenges for exporters – NZMEA survey. Internet
6 September - Scoop.co.nz - Signs of Challenges for Exporters. Internet
7 September - MSC Newswire - Mayoral Debate Lacks Focus on Industry and Jobs. Internet
7 September - NZ Herald - Stubbornly strong kiwi hits exports. Internet
7 September - Scoop.co.nz - Mayoral Debate Lacks Focus on Industry and Jobs. Internet
8 September - NZ Herald Stubbornly strong kiwi hits exports. Newspaper
9 September - Stuff.co.nz - Skope moves with the times as margins trimmed. Internet
9 September - Timaru Herald - Skope moves with the times as margins trimmed. Newspaper
9 September - The Press - Skope moves with the times as margins trimmed. Newspaper
21 September - Scoop.co.nz - Financial Risks and Currency Need Continued Focus. Internet
21 September - MSC Newswire - Financial Risks and Currency Need Continued Focus - NZMEA. Internet
23 September - NZ Manufacturer - Wages, Inflation and Productivity. Magazine
28 September - Reuters - Economists urge RBNZ to declare war on painfully strong currency. Internet
29 September - Scoop.co.nz - Rick Smith of Sutton Tools Elected President of the NZMEA. Internet
30 September - AUDnews - Australian Dollar New Zealand Dollar Exchange Rate Falls from Monthly High. Internet
30 September - Exchangerates.org - Pound to New Zealand Dollar Exchange Rate: NZ Rise Ten Places On Global Competitiveness Index. Internet
Media releases submitted by the NZMEA during July. Click here to read the latest media releases.
6 September - Signs of Challenges for Exporters.
7 September - Mayoral Debate Lacks Focus on Industry and Jobs.
21 September - Financial Risks and Currency Need Continued Focus.
29 September - Rick Smith of Sutton Tools Elected President of the NZMEA.
NZ MANUFACTURER MAGAZINE:
Click here to read the latest edition of NZ Manufacturer Magazine online for free.
The NZMEA has been approached by Doug Green, editor of NZ Manufacturer magazine. Doug is wanting to write articles under a section called Rural Manufacturing. If you are outside of the main centres or related to rural sectors and would like to be interviewed for an article please contact the NZMEA and we will pass your details on to Doug to contact you directly.
The above graph shows indexes for productivity in the manufacturing industry, broken up by inputs, outputs and multifactor productivity (includes labour and capital). Input and output productivity have performed better than multifactor productivity, but all three have had a small positive trend. All three measures took a significant hit following the Global Financial Crisis.
For more graphs related to manufacturing and exporting, as well a large collection of data on New Zealand presented in a simple visual way, visit www.figure.nz.