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November Working, policy perspectives papers

8 November 2005

Immediate Release

Treasury Releases November round of Working papers and policy perspectives papers

The Treasury today released its November round of Working Papers and Policy Perspectives papers.

The Policy Perspectives series aims to bring ideas, analysis and empirical research to bear on topical policy issues. The papers seek to share important insights from economic literature, international policy experience and Treasury research in a manner that is accessible to non-specialist audiences.

The papers released today are:

- Regional Economic Performance in New Zealand: How Does Auckland Compare? (WP 05/08)

- The Effect of New Zealand Superannuation Eligibility Age on the Labour Force Participation of Older People (WP 05/09)

- Measures of Human Capital: a Review of the Literature (WP 05/10)

- Income Growth and Earnings Variations in New Zealand, 1998-2004 (WP 05/11)

- The Contribution of the Primary Sector to New Zealand’s Economic Growth (PP 05/04)

- The Economics of Knowledge: What Makes Ideas Special for Economic Growth?(PP 05/05)

Summaries of the papers follow.

The full papers can be found at: www.treasury.govt.nz/workingpapers



The two Policy Perspectives papers released today are:

1. The Economics of Knowledge: What Makes Ideas Special for Economic Growth?
Knowledge is a fundamental input to innovation and, as a result, is important for economic growth. The paper explores the special characteristics of knowledge that together create the potential for markets on their own to fail to deliver the best outcome for society. Various institutions and policies have evolved to address potential problems around knowledge creation and diffusion. This paper provides a basis for further and more detailed analysis of specific policy proposals. Important questions to answer are those about the costs of policy options relative to their benefits, and whether New Zealand is creating and diffusing less (or more) knowledge than is socially optimal.

2. The Contribution of the Primary Sector to New Zealand’s Economic Growth
Primary sector growth has been strong relative to the whole economy over the last 25 years, and the sector has a generally positive growth outlook. Some of the key factors that will influence the sector’s future performance include international trade conditions, environmental constraints (in particular water and climate change), property rights, biosecurity threats and human capital issues. This paper highlights the government’s role as being able to provide a business-friendly environment (through, for instance, strong institutions, clearly defined property rights, clear price signals and low levels of regulation), to continue to promote free international trade, and to carefully manage environmental impacts.

The four Working Papers released today are:

1. Regional Economic Performance in New Zealand: How Does Auckland Compare?
This paper investigates Auckland’s economic performance relative to other large cities in New Zealand, to medium-sized urban centres and to small towns and rural areas. It uses data from the annual New Zealand Income Survey to examine hourly earnings and other measures of labour productivity and utilisation for a number of regional areas. Previous measures developed by two non-governmental organisations have suggested that Auckland is underperforming relative to other regions in New Zealand. In contrast, the findings of this paper suggest that Auckland’s productivity performance is mostly better than other regions.

2. The Effect of New Zealand Superannuation Eligibility Age on the Labour Force Participation of Older People
New Zealand experienced a sharp rise in labour force participation rates among older people over the period 1991–2001. In most other OECD countries, such participation rates have been in steady decline. The predominant reason for this turnaround was that the age of eligibility for New Zealand Superannuation was raised from 60 to 65 over a nine-year period. Combining an earlier reduction in eligibility age with this later policy reversal, this paper estimates the effect of public pension eligibility on the labour force participation of different age groups.

3. Income Growth and Earnings Variations in New Zealand, 1998-2004
This paper provides an update of changes in the income distribution over the period from 1998-2004. It focuses on changes in working-age individuals' earnings and total income distribution and also their equivalised household total income distribution. There have been broad gains in income to both individuals and households, suggesting the spoils of growth have been shared widely across the income distribution. Inequality was more stable: individual earnings inequality fell 4 percent, individual income inequality was unchanged, while equivalised household income inequality increased 2-3 percent. The main contributors to the observed changes appear to be employment and real wage growth.

4. Measures of Human Capital: a Review of the Literature
Human capital is increasingly believed to play an important role in the growth process; however, adequately measuring its stock remains controversial. This paper identifies three general approaches to human capital measurement: cost-based, income-based and education-based. It presents a critical review of the theories and their applications to data from a range of countries. Emphasis on empirical evidence is given to the case of New Zealand.

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