Productivity Commission Chair, John Shewan

The Productivity Commission has produced a report which in some ways states the obvious but in others answers one of the Government’s most vexing questions; why is Auckland growing and why are so many provincial cities not growing.

The concern about the sluggish growth in the provinces is reflected in the establishment of the $1 billion Provincial Growth Fund and conversely, concern about the growth of Auckland in promises (so far, unfulfilled) to cut back migration.

National’s Immigration spokesperson Stuart Smith made that point in Parliament yesterday when he said net immigration was now at 54,000 against the coalition promise to bring it down to 20,000.

But the Commission’s report says Auckland has grown in part because people there has been “an increasing willingness  of people to live in locations that have desirable amenities such as a good climate or scenery.”

Auckland has grown, in part, because provincial New Zealand has shrunk.

“Five of the twelve slowest growing urban areas are in the south or west coast of the South Island (New Zealand’s least sunny region) while the remaining seven are small regional towns in the North  Island,” the report says.

“In contrast, the fastest-growing urban areas include three areas in the climate-favoured upper North  Island, two sunny areas in the South  Island, and  two satellite areas on the outskirts  of major cities.”

But there is more to it than the weather.

Between 1976 and  2013, employment in New Zealand’s thirty largest cities and towns increased by 48% or by an average of 1.1% per year.

“However,  this average masks considerable variation,” says the report.


“Employment increased by more than  65% in nine urban areas, including Auckland, Hamilton and Tauranga. In contrast, employment increased by less than 15% in eight other urban areas, and it decreased by a small amount (less than  10%) in three more.

“Employment in one  urban area, Tokoroa, decreased by nearly half.”

There has also been a change in the kind of jobs that New Zealanders do.         

The report suggests that smaller towns specialised in particular kinds of enterprise.

Thus in 1976, 50% of Tokoroa’s workforce or 3 700 workers were employed in the wood-processing and pulp and paper industries.

By 2006 only 650 people were employed in these industries, and total employment in the town had decreased from 7 500 to 4 750.

At the other end of the spectrum, between 1976 and  2006 employment in the accommodation, hospitality and recreation industries in Queenstown increased from 550 to 1 950 as the town transformed itself into one of the key centres of New Zealand’s tourism industry.

The problem that Tokoroa faced was that the “new” jobs in the economy were in the so-called non-tradable or services sector like accountancy, wholesaling or transport.

And enterprises in those industries wanted to locate in the big sunny urban centres.

The workers left behind in Tokoroa had nowhere to go as word in the wood processing industries became more automated, and sawmills and other plants were rationalised, and thus the town required fewer workers.

That was part of a similar process that occurred in many other towns as manufacturing jobs across the country.

Between 1976 and 2013, employment in manufacturing declined from 25% to 10% of the workforce.

The report found that employment shocks to regionally specialised manufacturing industries were absorbed less well and were not associated with expansions in specialist service industries.

“Since these manufacturing industries are disproportionately located in smaller towns,  smaller towns had a much more difficult transition to the decline in manufacturing than larger urban areas,” it says.

“Manufacturing job losses  in most  large and  medium-sized urban areas did not reduce employment overall because employment in other industries expanded, particularly  in the personal and professional service sectors.”

The report says small and medium-size areas are now, relative to large areas, much more specialised in manufacturing than they used to be and undertake very different types of manufacturing than large areas.

“But they have also suffered because the sectors that have expanded nationally,  such as the finance or the professional services sectors, have disproportionately expanded in Auckland.

“ In theory,  accountants could have displaced manufacturing workers in Wanganui, Invercargill, or Napier.

“ In practice, they have not, because accounting firms prefer to be located in Auckland.  

“Since the work of many of the new expanding industries is best done in big cities, the sectoral shift of the economy has made it difficult for many small and  medium-sized urban areas to expand.”

The paper points the way in which regional development policy could become more effective.

It says that if the Government wishes to help regional economies recovering from employment downturns, it should recognise that the transition path out of some industries is harder than others.

“Government programmes aimed at enhancing the way non-tradeable businesses improve their productivity are likely to produce the widest regional benefits, as they have the potential to improve productivity in many sectors everywhere,” it says.

“There  is growing recognition of this principle in regional development strategies around the globe.”