Is higher labour productivity always good?

Statistics New Zealand said labour productivity grew 3.7 per cent in the year to March 2010, the strongest increase in 10 years.

However, this was only because labour input dropped more steeply than output during a period of recession. (This is a common phenomenon which is why productivity figures are unreliable going into or out of recession.)

Paid hours, which Statistics NZ used to measure labour input, dropped 4.3 per cent, the steepest fall since 1992, while output shrank 0.8 per cent.

The drop in labour input was driven by the manufacturing and construction sectors as well as a substantial and widespread decline in self-employed hours, Statistics NZ said.

For the period 2006 to 2010, labour productivity growth was 0.9 per cent, less than half the 2 per cent average since 1978 and a third of the rate prevailing between the mid-1980s and the end of the 1990s.

However Statistics New Zealand notes that the 2006 to 2010 period does not cover an entire peak-to-peak business cycle.

The figures cover about 80 per cent of the economy. They exclude parts of the public sector where productivity is hard to measure, notably in health, education, government administration and defence.