Summary

While economic growth was strong from 2002 to 2006, labour productivity growth was weak. New Zealand has had low labour productivity growth compared with our international competitors and in relation to our level of tertiary education.

The proportion of New Zealanders in employment with a bachelors degree or higher doubled from 1992 to 2008. There has also been higher demand for unskilled workers as the economy grew from 2002 to 2006. The average English-based literacy skills of those in employment have not increased, in part due to increased reliance on migration from non-English-speaking countries.

There is evidence that increases in tertiary education have contributed to productivity growth. However, the effect has been dampened by the expansion of the workforce to include more low-skilled workers and greater reliance on migration to fill skill gaps. Firm turnover may also have had some effect on dampening productivity. New Zealand's small size and relative economic isolation also have a significant effect on limiting growth in labour productivity.

Increased skills derived through tertiary education do contribute to increased productivity. How these skills are used and combined with capital, technology and knowledge investments is also important. Raising capital, multifactor and labour productivity need to be addressed together, along with improving industry investment in R&D. An emphasis on building economies of scale and reducing the cost of getting goods and services to market is also essential.