For several decades productivity in New Zealand has lagged behind leading OECD countries. A couple weeks back Peter (Connecting cities: it’s a matter of scale) mentioned Phil McCann’s great paper that convincingly explains New Zealand’s productivity problem (“Economic geography, globalisation, and New Zealand’s productivity paradox“). As our economy shifts to more skills-based occupations with digitalisation our distance to markets becomes less important. Instead, McCann argues our poor productivity can be explained by our economy’s lack of scale and scope.
The reason for the lower productivity appears to be related to both scale and connectivity. All the available economic geography evidence suggests that scale matters. Even though there is no simple direct relationship between urban scale and productivity, all of the world’s most productive cities are at least twice the size of Auckland, and most are between three and five times the size of Auckland (OECD, 2006a).
We know that people working in Auckland are more productive on average than other New Zealanders. People working in the city centre are even more productive relative to the rest of Auckland. This can be explained by agglomeration forces where productivity is enhanced when firms locate (or cluster) close to other firms.
Unsurprisingly, a CEO survey (Research: Drivers of Firm Location) reveals that one of the stated reason firms locate in the Auckland city centre is to benefit from agglomeration.
Proximity to clients and customers is also a key location criteria for all professional services firms, both perceptually and also to maximum efficiencies in terms of getting to and from meetings etc. Locating “in the centre of things” also means it is easier to meet people more often; whether it be a quick catch up coffee, a meeting with a number of people from different organisations, or simply bumping into people on the street – it is easier and less time consuming:
Clearly, the transportation and transaction costs that shape cities has returned with a new vengeance. Again, here is McCann:
The increased spatial transactions costs for knowledge activities and the resulting premium for face-to-face contact for high knowledge inputs also accounts for the increasing importance of cities and agglomeration in the current era of globalisation.
The evidence therefore suggests that there are major advantages associated with industrial clustering and agglomeration for high knowledge-intensive and high value-added activities, and that the geographical concentration of these types of activities is becoming ever more important.
A fascinating new study by Auckland Council’s research unit (RIMU) estimates how connectivity between workers is related to productivity in the Auckland city centre (“The relationship between pedestrian connectivity and economic productivity in Auckland’s city centre“”).
Agglomeration theory tells us that productivity increases with job density. Using building level spatial data (job by industry type), this study tests how job density (as measured by effective job density) relates to productivity in the “engine room” area of the city centre. In this case effective job density measures the proximity of jobs that can be accessed by walking. Labour productivity is estimated using an established proxy, the mean wage per worker by industry in the study area.
From the report:
Several studies have found that better walking connectivity and/or accessibility to jobs within close proximity within city centre environments is associated with higher productivity (Rosenthal and Strange, 2003; Arzaghi and Henderson, 2008; SGS, 2014). Furthermore, some studies found that density of jobs, rather than city size, is a primary driver of agglomeration economies (Ciccone and Hall, 1996 and Cervero, 2001). However, these relationships have not been investigated in Auckland or even in New Zealand. This study is the first research in New Zealand that investigates the correlation between walking connectivity and labour productivity.
Here is an overview of the method:
- A walking network including footpaths, lanes, stairs, etc was was developed. For each network facility type a travel speed was assigned. For example, intersections with long signal cycles were assigned a low travel speed and streets that could be crossed easily had fast walking speeds. etc.
- Using this pedestrian network, pairs were created between building centroids. Each building was given a score of it’s proximity to other jobs. A distance decay factor was assigned between jobs to reflect that closer jobs tend to be more important.
- The result is a measure of effective job density (EJD) an established measurement for agglomeration.
- EJD was compared to productivity to determine the statistical relationship between EJD and labour productivity.
Here are the headline findings of the paper:
Consistent with other studies (e.g. 2014 Melbourne city centre), this study concludes that there is a positive and statistically significant association between walking EJD and estimated labour productivity within the Auckland city centre. Locations that are more walkable tend to have higher productivity. This relationship is robust with them inclusion of controls for (estimated) industry composition at a building level, suggesting that it does not simply reflect the fact that higher-productivity industries choose to locate in more walkable places.
The point estimate [above] suggests that a 10 per cent increase in walking EJD is associated with a 5.3 per cent increase in productivity. This compares to the SGS (2014) results of 0.66 per cent. This means that a one per cent increase in walking EJD within each travel zone will increase the value of economy of the study area by 0.53 per cent or approximately $42 million based on the authors’ estimate of $8.01 billion GDP for the study area.
The findings clearly demonstrate the value of being able to walk around easily in the city centre. An accessible walking environment increases the scale (and thus productivity) of the city centre economy by allowing people to work closer to other people.
Economic development strategies to scale-up the economy are usually focused on regional transportation interventions that connect people to the city centre. The irony is that while we are happy to spend billions of dollars on mass transit to shave off a few minutes in travel times to get to the city, we don’t consider the time wasted standing at intersections on the way to a meeting.
As an urban designer it is common practice to connect-up places, resolve barriers and open up access by transportation networks. With this methodology we are closer to having an analytical framework to estimate he underlying value of urban design. This has the potential to promote the importance of short trips that currently go uncounted in today’s transportation evaluations.
In Stage 2 of this work, the authors Merhnaz Rohani and Grant Lawrence will be testing the productivity benefits from specific walking improvements: shorter signal timing, new pedestrian links, and additional shared streets. I’ll follow-up on their findings when they are available.