Raising productivity and growth is high on the New Zealand Government’s growth agenda and has been so for some time. Across the economy as a whole, while growth has been strong, this has largely been driven by increases in labour input, while productivity performance has been described as “lacklustre” (OECD, 2007a). Average annual growth in labour productivity in the measured sector was 3.2% over the 1988–2006 period, compared with 1.7% for capital productivity (Statistics New Zealand, 2007).
A variety of policy prescriptions have been put in place to increase both the level and the rate of growth of productivity. Initial attempts in the 1980s and 90s focussed on increasing competition and reducing trade barriers. As a result, labour productivity grew through the late 1980s, but this was due to restructuring and employment losses, rather than as a result of output growth.
Since 2000, greater policy investment has been directed towards greater innovation, adoption of new technology, and investment in physical and human capital as stimulants of productivity growth. Attention to these factors is in line with international research and evidence on their importance, in the context of appropriate macroeconomic policies.
Nevertheless, research has drawn attention to the fact that these factors alone cannot explain differences in the level of productivity and rate of growth across countries, and within countries, of different firms and industries.
As a result researchers are asking questions about what other factors can influence firm, and at an aggregate level, national, performance. The argument is based on the view that productivity rates are influenced not so much by gross amount of investment in either human or physical capital, but by the way in which this investment is made use of within firms – different ways of working, how firms are organised, and how they use technology (Economic and Social Research Council, 2005). Even the OECD has noted the need for developed economies to gain a better understanding of the ways in which labour market and other policies might condition employee effort, and their willingness to align their workplace behaviour in ways which assist to achieve employer objectives (OECD, 2007b).
Purpose
This purpose of this paper is to try to summarise this material in a way that is relevant in a New Zealand context, by addressing the question “Why do workplaces matter?”. It is set out in four sections. The first section backgrounds the way in which policies adopted by successive governments have addressed the need to increase productivity growth. It concludes by suggesting that there are three reasons as to why these policies have had limited success in lifting labour productivity.