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NZ: Boost productivity, adapt to the changing labour market

OECD – Paris, 15 June 2017

New Zealand: Boost productivity and adapt to the changing labour market, OECD says

The New Zealand economy continues enjoying a strong, broad-based expansion, driven by booming tourism, high net inward migration, solid construction activity and supportive monetary policy. Policymakers must remain vigilant, however, against high levels of household debt linked to inflated house prices, the potential impact of rising protectionist trade policies abroad and slowing Chinese economic growth, according to a new report from the OECD.

The OECD Economic Survey of New Zealand discusses the gap between the strong short-term outlook and long-term challenges posed by low productivity growth and a changing labour market.

The Survey, presented in Wellington by OECD Chief Economist Catherine L. Mann and New Zealand’s Minister of Finance Steven Joyce, notes that GDP growth has averaged around 3% for the past three years and is expected to remain at this level through 2018. It identifies priority areas for future reforms to ensure growth is sustainable, greener and benefits all New Zealanders.

“New Zealand’s robust economic growth and high levels of well-being are enviable, even among the highest-performing OECD countries,” Ms Mann said. “The challenge going forward is to enact reforms that will boost productivity, to improve on today’s strong performance and ensure that future generations also share in the prosperity. Continuously up-skilling the workforce will also be essential to maintain high levels of employment in the face of a changing labour market.”

The Survey shows that employment in New Zealand is shifting to high-skilled occupations, with strong growth in the share of people working in managerial and professional jobs and declining employment shares in agriculture and manufacturing. As is the case in many countries worldwide, digitisation is driving demand for high-skilled workers while creating more difficult conditions for their lower-skilled counterparts.

With these pressures likely to grow, the Survey recommends New Zealand improve the education system, with higher minimum standards, better teaching of mathematics and stronger efforts to match fields of study in higher education with labour market demand. It also recommends increasing access to training programmes, to allow workers to acquire complementary skills, and strengthening today’s limited arrangements for supporting displaced workers.

The Survey recommends a range of reforms to improve productivity in New Zealand, which remains well below leading OECD countries. These include reducing barriers to foreign direct investment, lowering the corporate tax rate, expanding infrastructure funding options to increase housing supply, reviewing the insolvency regime and provisions for misuse of market power and increasing support for business innovation.

To make future growth greener and more sustainable, the Survey recommends New Zealand develop a long-term vision for a transition towards a low-carbon economy, which could include the introduction of pollution charges, cap-and-trade measures and an increase in the price of carbon emissions. The expansion of water trading and pricing would help ensure that scarce water goes to its best use, while increased funding for research into mitigation technologies would improve environmental outcomes, particularly in the farm sector, the Survey said.

An Overview of the Economic Survey, with the main conclusions, is accessible at:http://www.oecd.org/economy/surveys/economic-survey-new-zealand.htm.


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