Insights on the New Economy: Information and communications technology and science-based industries

Information and communications technology (ICT) industries have dynamic output, employment and productivity characteristics, but they are not the only source of growth in Canada's high-tech economy, according to a new study.

This study, the first in a new analytical series that examines industrial transitions in the Canadian economy, focusses on companies in ICT and science-based industries, innovative sectors associated with the growth of the New Economy.

Production and performance trends in ICT industries during the late 1980s and much of the 1990s surpassed most other business sector industries that fall outside the ICT and science groups, often by a considerable margin. Gross domestic product (GDP) growth, productivity growth, investments in technology, and research and development expenditures are all areas in which the ICT sector excels.

The rapid growth of the technology sector is a central characteristic of the New Economy. From 1987 to 1997, real GDP in the ICT sector almost doubled (+96%). This was more than three times the rate of growth of 28% for industries outside the ICT and science areas.

Companies in the ICT sector employed 44% more workers in 1997 than in 1981, while employment outside the ICT and science industries rose by only 24%. At the same time, long-run multifactor productivity gains in the ICT sector averaged 1.7% a year, about four times the rate of growth of 0.4% for industries outside the ICT and science areas.

Productivity gains in high-tech sector heavily concentrated in manufacturing

This study divided industries that comprise the ICT sector into three groups: ICT manufacturing; core ICT services, such as computer services and telecommunications services; and other ICT services.

The study found that from 1987 to 1997, productivity gains in high-tech companies were heavily concentrated in manufacturing firms, not those engaged in services. During this 10-year period, labour productivity in ICT manufacturing firms rose 90%, or 6.7% a year. This was well above gains of only 27%, or 2.4% a year, in core ICT services (computer and telecommunications services).

Labour productivity, a measure of the output for every hour worked, is an indicator of a nation's standard of living. Multifactor productivity, a broader indicator, accounts for changes in both capital and labour, thus providing a productivity measure that more closely approximates changes in efficiency.

Even after controlling for differences in the use of capital, ICT manufacturing still showed a large productivity advantage over ICT services. From 1981 to 1997, multifactor productivity more than doubled (+126%) in ICT manufacturing, increasing an average of 5.2% a year.

In contrast, multifactor productivity rose only 13% in computer and telecommunications services, an average of only 0.8% a year.

However, core ICT services incurred the fastest growth rates in terms of both economic output and employment.

From 1987 to 1997, real GDP in computer services and telecommunications increased 8.2% a year, compared with only 2.5% for industries that were not part of these ICT and science groups.

From 1981 to 1997, employment in core ICT services increased 85%, or 3.9% annually, while remaining stable in ICT manufacturing.

Science-based industries: Dynamic performance not unique to the ICT sector

The science sector includes many other industries that are not part of the OECD's definition of the ICT sector. By analysing these non-ICT science industries, this study offers a more diverse perspective on the economy's high-tech landscape. Many of these industries also contributed to the growth of the New Economy - via investments in research and development and skilled labour.

Long-run production and performance characteristics in many of these science-based industries rivaled, or surpassed, those for the ICT sector.

For example, strong productivity performance in the New Economy was not limited to manufacturers in the ICT sector. Science-based goods industries, which include many "heavy manufacturing" industries such as petroleum products, aircraft industries, industrial chemicals and pharmaceuticals, also registered sharp productivity gains during the 1980s and the 1990s.

Multifactor productivity in science-based goods industries increased 51% from 1981 to 1997, substantially stronger growth than for any of the high-tech service industries studied. Science-based goods industries also had high rates of investment and enjoyed high profit margins.

Even in services, the march towards a New Economy involved more than core ICT services. Science-based service industries, which include professional services such as engineering, architecture, and scientific and technical services, place a higher priority on knowledge workers. In 1996, 71% of workers in science-based service industries were classified as knowledge-based, compared with 53% of workers in core ICT service industries.

In addition, there are many examples of industries with dynamic production and performance characteristics outside of the ICT and science groups. About one third of industries that were not classified as ICT or science-based had long-run multifactor productivity growth rates that exceeded the growth average for the ICT sector. And certain industries, including a cluster of motor vehicle industries, stood up well against the ICT average across a range of statistical indicators.

Two research papers from The Canadian Economy in Transition Series, A guide to research on the New Economy (11-622-MIE2003001, free) and The growth and development of New Economy industries (11-622-MIE2003002, free), are now available on Statistics Canada's website (). From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Guy Gellatly (613-951-3758), or Desmond Beckstead (613-951-6199), Micro-Economic Analysis Division.