Sunday, May 9, 2010

Productivity Paradox?

An article by Shaun Hendy about New Zealand's poor recent productivity growth points to a paper by McCann. As trade barriers with New Zealand's larger continental neighbor have fallen, New Zealand's productivity growth has been anemic. This is the productivity paradox. Hendy points out that the same thing is going on between Australian states, and links to a paper on the poor performance of South Australia's economy relative to the rest of the country. What's going on?

Hendy argues that as barriers to movement of capital and talent fall, capital and talent will tend to enucleate around the same locations and they will concentrate geographically, in what could be considered a big coordination game. How many Australians are moving to New Zealand to further their careers or find investors? How many people from Sydney are moving to Adelaide?

It's worth asking this same question for the United States. Anecdotally, I have known this recession to have forced multiple families to move to the coasts, and if this is representative, it's going to accelerate an internal U.S. productivity paradox. While Richard Florida's vision of vibrant, tolerant, creative-class-oriented cities is certainly a positive one, not everybody can be San Francisco and Seattle - and we may see a runaway productivity paradox within the U.S. The only productivity growth map I could find (below) does not show a clear separation by region, but it predates this recession.

From Steve Cochrane at

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