PUBLISHED OCTOBER 2025

Wasted potential is driving New Zealand’s productivity problem

New Zealand’s productivity has lagged behind our peers for decades. Despite long working hours, our labour productivity gap has widened to around 40 per cent, compared to the top half of the OECD.

Treasury continues to identify this as our central economic weakness, and has been further downgrading its productivity forecasts for the last two years. However, productivity is not just about machines, hours, or exports — it is about people. And here, we are systematically squandering talent.

We’re shutting the door to potential

New Zealand is leaking talent from its future at every point. And worse, much of the rich potential we have in our population never even gets to start training for key professions in the first place. Meanwhile, BusinessNZ forecasts a workforce shortfall of around 250,000 people within two decades. That is not just a skills shortage — it is a productivity crisis

Neither talent nor potential is distributed by income. The innovators, leaders and thinkers of tomorrow are dispersed throughout socio-economic groups, rural and urban communities and across all ethnicities.

The problem is that opportunity is not spread evenly. Our most prestigious and productivity-critical fields continue to draw disproportionately from the most privileged schools. Students from lower-decile schools remain dramatically underrepresented among those studying medicine, dentistry, pharmacy, and physiotherapy.

The stats show we’re too slow to change

The University of Otago has been monitoring the social and demographic makeup of its health professional programmes for thirty years and has seen little increase in diversity.

Only 3.4% of health professional students admitted came from schools in deciles 1–3, compared with 53% from schools in decile 10.
Students from the lowest deciles were 15 times less likely to gain entry than those from the most affluent schools.
Even when high-achieving, students from low socio-economic backgrounds faced steeper hurdles in accessing competitive pathways.

Similar data was found when the country’s other medical school in Auckland was included.

The researchers conclude that a health workforce that represents Māori and the diverse contexts of our society in Aotearoa remains far from being realised.

Tomorrow we’ll look different

Building a talent pipeline that reflects our diverse society makes sense for a myriad of reasons, and productivity is only one of them.

Our population profile is shifting fast, which demands changes in our workforce. Fertility rates have plunged to 1.56, well below the replacement level of 2.1. By the mid-2040s, one in four New Zealanders will be over 65 years old. That means fewer workers to support a growing base of older people with increased healthcare and superannuation needs.

In economic terms, our country will be classified as ‘old dominant’, with many of the smaller regions experiencing ‘hyper-ageing’ – where more than a third of the population is over 65 years old.

Tertiary education is crucial

We get higher performing grads when we draw from a more diverse pool of students. Across OECD nations, low-performing students from wealthy families are more likely to enter tertiary education than high-performing students from poorer families. In productivity terms, this is catastrophic. The country is running with the handbrake on, wasting the potential of thousands of capable young people every year.

Our biggest productivity leak is exclusion. By failing to ensure equitable access to higher education, we are deliberately narrowing the talent pipeline into the very professions that drive long-term productivity and innovation.

Small changes will bring big rewards

The good news is that if we can get better talent into universities, we’ll get better talent out. Removing socio-economic barriers to tertiary study will have an outsized impact. We will unlock the full potential of our people — and the productivity gains our economy so urgently needs.

The link between parental income and access to opportunity must be broken. The sooner it happens, the sooner we’ll see the benefits.

If we are serious about productivity, we need to do three things now.

Invest in equitable access to tertiary study: expand scholarships, mentoring, and transition support for students from low-income families.
Link secondary and tertiary pathways: ensure capable students from all schools are connected early to high-value study options.
Reframe education as a productivity lever: support for disadvantaged learners should be seen not as welfare, but as economic strategy.