Sunday, 31 July 2011

Comparing Labour Productivity in Canada and the US

Statistics Canada recently released the results of a new study comparing productivity in Canada and the US.

"The productivity of the unincorporated sector relative to the corporate sector is much lower in Canada than in the United States. As a result, when the unincorporated sector is removed from the estimates for the business sector of each country and only the corporate sectors for the two countries are compared, differences between Canada and the United States are much lower.

The Canada–United States ratio for labour productivity in the business sector as a whole was 88.0% in 1998 while the productivity ratio for the corporate sector (after removing unincorporated businesses) was much higher, at 99.2%. From 1998 to 2005, the level of productivity of the unincorporated sector in Canada relative to the unincorporated sector in the United States remained about the same; however, the relative productivity of the corporate sector fell. By 2005, the overall Canada–United States ratio for the business sector had declined to 81%, and the productivity ratio for the corporate sector fell to 89%."

My take away from this is that 1) yes, Canada has a large number of small unincorporated businesses that are less productive than their counterparts in the US but the productivity ratio for unincorporated businesses between Canada and the US remained the same over the period 1988 to 2005, and 2) productivity in the Canadian corporate sector has fallen a lot (relative to the US) over the period 1988 to 2005. Falling productivity in the corporate sector is not good for economic wealth creation in Canada. So, what is going on? Here are two possible explanations.

1. Corporations are not stressing the importance of productivity enough. The Canadian dollar was relatively weak over the period studied and the weak Canadian dollar may have been viewed as a competitive advantage that distracted away from productivity improvements.

2. Highly productive workers are not being paid real wages equal to their marginal productivity. In this case, there is not much point for a worker to be more productive if he or she is not being appropriately compensated.

1 comment:

  1. Productivity is a multi faceted concern and not surprisingly Stephen Gordon has added to his list of mediocre articles today: Forget productivity, our incomes are rising via @globeandmail

    Granted, how does one accurately measure productivity when the major sectors are resources based? While there is a reluctance to learn from history there must also be legacy institutional factors at work here: guilds are promiment in Canada as is cronyism.
    Being a 'yes man' in Corporate Canada will get you a lot further than being an iconoclast but it encourages groupthink and mediocrity.
    A hidden secret of Ontario's manufacturing sector is a branch plant mindset with comparatively (on a global scale) backward management approach --sub in cheap labour for capital.
    Canadian manufacturing's addiction to a falling loonie came home to roost as the secular commodity bull run began in 2003.