Study: Changes in provincial labour productivity

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Relative levels of total-economy labour productivity among most of the provinces remained fairly stable from 1997 to 2005 when these changes in provincial productivity, measured in 1997 constant dollars, are benchmarked against changes in the national average, according to a new study.

However, the most notable exception was Newfoundland and Labrador, which experienced much stronger average productivity growth than all other provinces during this period.

Productivity growth in Newfoundland and Labrador was so strong, in fact, that it moved from sixth place in overall productivity in 1997 to third place in 2005, behind only Ontario and Alberta.

The study examined how differences in average productivity growth from 1997 to 2005 affected the relative levels of provincial labour productivity for the total economy.

Statistics on labour productivity are designed to measure how efficiently an economy is transforming labour inputs into outputs. Labour productivity is measured as the amount of constant dollar gross domestic product (GDP) per hour worked. Increases in labour productivity, over time, are linked to improvements in the standard of living.

Nationally, labour productivity, evaluated in real terms, grew at an average annual rate of 1.6% from 1997 to 2005.

But in Newfoundland and Labrador, it increased 3.2%, twice the national average, by far the strongest pace in the country. The only other province in which labour productivity grew markedly faster than the national average was Saskatchewan, where the average annual increase was 2.1%.

The smallest gains occurred in Quebec and Prince Edward Island, both of which had average annual gains of 1.3%, and in Alberta, where the average increase was 1.2%. In the other provinces, the average growth in labour productivity was at or near the national average.

The gains in Newfoundland and Labrador represented the only substantial shift in the provincial productivity rankings from 1997 to 2005. Newfoundland and Labrador moved ahead of three other provinces (Saskatchewan, Quebec and British Columbia) into third place.

In 1997, labour productivity in Newfoundland and Labrador stood at 89% of the national average, already substantially higher than in the rest of Atlantic Canada. By 2005, labour productivity in that province had caught up with the national average.

Meanwhile, Alberta, Ontario, British Columbia and Quebec, the four provinces with the highest levels of real GDP per hour worked in 1997, saw no improvement in their relative productivity by 2005.

Labour productivity can vary from province to province for a host of reasons, including differences in industrial structure, urbanization, prices and technology use.

The study also showed that changes in the relative prices that different provinces receive for their outputs can have a substantial impact on estimates of relative productivity.

For the two oil-rich provinces, Alberta and Newfoundland and Labrador, the impact of these relative price changes on productivity performance was dramatic.

When changing relative prices were not included in estimates of relative productivity, Alberta's relative GDP per hour worked in 2005 stood at 104% of the national average.

But when the productivity estimates for 2005 were modified to incorporate the impact of these relative prices movements across provinces, Alberta's relative labour productivity soared to 135% of the national average.

In Newfoundland and Labrador, improvements in relative productivity were already substantial before the impact of changing relative prices was taken into account.

In 2005, its GDP per hour worked, measured in 1997 constant dollars, was equivalent to the national average. But when its relative productivity was calculated based on the price conditions existing in 2005, Newfoundland and Labrador's GDP per hour worked increased to 119% of the national average.

The research paper "Provincial Labour Productivity Growth, 1997 to 2005" is now available in The Canadian Productivity Review (15-206-XWE2007007, free) from the Publications module of our website.

More studies related to productivity are available free of charge at (/studies-etudes/econo-eng.htm).

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