New Zealand a technological laggard – productivity commission

17 September 2019

The Productivity Commission’s draft report on Technological change and the future of work finds that we are slow to adopt new technology and that this is part of the explanation for our poor productivity growth.

A further three reports – covering employment, education and skills, and future preparedness – will be released over the next three months.

Submissions across all four will close on 20 January 2020. Final recommendations are due with the Government by 31 March.

Findings but no recommendations

The report makes a number of findings but does not contain any recommendations.

Key findings:

  • There is little, if anything, in the available evidence to suggest imminent disruption to work. Those indicators you would expect – high rates of firm start-ups, high productivity growth and high levels of job churn – are not present yet across the developed world. In fact, “the data indicates the opposite”, particularly in New Zealand.
  • The likely pace and scale of technological change in New Zealand will be driven by overseas developments.
  • If recent history is anything to go by, technological and labour market trends in New Zealand will tend to lag those overseas and will be more muted.
  • New Zealand needs to embrace technology, not treat it as a threat. The problem here is not that there is too much technological change and adoption but too little.
  • A continuation of existing trends seems the most likely scenario internationally and here, including further automation of routine tasks and the concentration of knowledge-intensive industries in major cities.
  • It is unlikely that, in the next 10 to 15 years, automation technologies will widely displace human labour in New Zealand.
  • Recent labour market changes in New Zealand have favoured people with higher skills, the services sector and Auckland. The share of low paid and low education jobs has declined.

The Commission provides an interesting analysis of the factors driving our slow diffusion of technology, the main points of which are outlined in the table below.

Factor Strengths Weaknesses
Uncertainty, relative costs and benefits   Small local markets and geographical remoteness may limit the ability of New Zealand firms to learn from others.
Access to skills and inputs   Skills specialisation is riskier in small markets, so firms may need to recruit migrants.
Expensive housing can reduce worker mobility.
Some important inputs (utilities, transport, construction) are expensive by world standards.
Labour market dynamics Low barriers and costs to hiring and firing staff and more flexibility for temporary contracts than most developed countries New Zealand management capability is “middling to poor”.
Strong customer relationships   New Zealand firms have low levels of engagement with global value chains.
Many of New Zealand's large firms are SOEs or co-ops, legal forms that tend to promote risk aversion. (This can also make capital difficult to obtain).
Competition   Low levels of competition in many New Zealand industries, particularly in the service sector.
Government policy New Zealand has generally low regulatory barriers. The exception is foreign direct investment, where our regime is rated 8th most restrictive in the OECD.

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