Low wages are also a disincentive for the business owner to invest in technology (maybe what you meant by “work better”?). When you can get more widgets per hour by either buying a machine for $lots or by employing more workers for $peanuts, and one is an up-front capital cost while the other is an ongoing operational cost, $peanuts will generally win. If workers cost $fair, the calculus starts to tend towards the machine, which might mean some people don’t get employed but also means that those who do are producing more while also being paid at a better rate.
I agree with that and see the challenge as moving from a development model based on working lots of hours and sweating resources (including the environment) to one based on using our available resources better. That's not easy but do we really have a choice?
Wages in NZ are on the low side and the cost of capital is on the high side (because long-term real interest rates are higher than elsewhere). So the tendency is to employ people instead of invest in capital (and we are a capital-shallow economy). So there are plenty of jobs in NZ, but they don't pay that well. Busting out of that to a high-productivity equilibrium (if you'll excuse me) is tricky and needs lots of different policy areas lined up and pointing in the right direction. I do think that inflows of low-skilled migration are too high at the moment. in some ways it provides an easy option for firms. But the more sustainable long-term approach is to encourage firms to invest in skills and equipment to lift productivity and wages.
So I had a read through and I can’t say I felt better. It feels like you’re blaming everything on lazy unproductive workers.
Not at all. NZ workers do some of the longest hours in the OECD. They (we!) just don't create much value from an hour at work compared to workers in other developed countries. So our wages are low and lots of NZers struggle to pay the bills.
While economic geography plays a key role, there are plenty of policy aspects that could be improved. I talk about some of those in our paper on "achieving NZ's productivity potential". That paper also talks about poor management quality in explaining NZ weak productivity and innovation performance.
But I don't really think of it as apportioning blame. But it is up to all of us - workers, management, policymakers and their advisors - to do what it takes to "get us out of here"!
total pleasure and I'll sign up for your mailing list. If you ever want to chat about "how we get out of here" just get in touch - It's one of my favourite topics!
Thanks for the article - good to see a summary of reaction to the budget and reflections on more structural aspirations for NZ's economic future. Thanks also for plugging our 2015 paper on the labour income share and the (rhetorical!) question we posed. The fact is, NZ is still a pretty difficult place to get ahead for many people because our productivity performance has been poor over many years.
To answer the question in your title - how do we get out of here - we published a paper on exactly last year: Achieving New Zealand's Productivity Potential. You can find it here: http://www.productivity.govt.nz/research-paper/achieving-new-zealands-productivity-potential
There is the main paper, which is still accessible but aimed at an economist audience, and a very accessible overview. The main paper includes around 20 pages on "big-picture policy considerations" that would help in "getting us out of here". It is not a fully baked economic strategy as such but does give a good idea of the types of policy reform that would help achieve our very high potential. Interested to know what you think.