Labour productivity, hourly compensation and unit labour cost

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The labour productivity of Canadian businesses fell 0.9% in the second quarter, after increasing 0.4% in the first quarter. The decline comes against a backdrop of temporary factors which affected output more than labour, including wildfires in Northern Alberta and a tsunami in Japan.

Chart description: Productivity of Canadian businesses declines for the first time in a year

Businesses cut back production for the first time in two years while continuing to increase hours worked, which explains the productivity downturn in the second quarter.

The real gross domestic product (GDP) of businesses was down 0.3% in the second quarter. It was the first decrease since the second quarter of 2009. The decline was largely a result of the goods-producing industries, which retreated after six consecutive quarterly advances. At the same time, output in the services-producing industries remained flat, following two quarters of expansion.

In contrast, hours worked in the business sector maintained an upward trend, rising 0.6% in the second quarter. Employment growth slowed to 0.4% in the second quarter, while hours worked per job edged up by 0.2%.

Goods-producing businesses (-2.1%) contributed the most to the overall decline in business productivity, after rising 0.9% in the first quarter. The downturn was widespread, with the largest declines occurring in mining, oil and gas extraction (-3.0%) and manufacturing (-1.8%). Wildfires in Northern Alberta, as well as maintenance shutdowns in petroleum production and the tsunami in Japan that disrupted the supply of motor vehicle parts to North America, all contributed to reducing output in the second quarter.

Productivity in the services-producing industries edged down 0.2% in the second quarter, after two consecutive quarterly gains. The productivity declines seen in wholesale trade, retail trade, professional services, and accommodation and food services were partly offset by advances in other industries.

In the United States, the productivity of American businesses was down 0.1% in the second quarter, after falling 0.3% in the first quarter. This was the first time since 2008 that there have been two consecutive quarters of decline.

In Canadian businesses, labour costs per unit of production grew by 0.9%, their fifth straight quarterly increase. Since the second quarter of 2010, unit labour costs have risen on average 0.7% per quarter.

The growth of unit labour costs in the second quarter was due entirely to the productivity decline, as average compensation per hour worked was unchanged from the previous quarter. This came in the wake of three consecutive 1.0% increases.

The average value of the Canadian dollar (+1.9%) against its US counterpart continued to climb in the second quarter, but its appreciation rate was somewhat slower than in the previous two quarters. That was reflected in a 2.8% increase in the unit labour costs of Canadian businesses in US dollars, their third consecutive quarterly advance.

By comparison, American businesses' unit labour costs were up 0.9%, after advancing 1.7% in the first quarter.

The second quarter labour productivity figures released today were revised back to the first quarter of 2011 at the aggregate level and to the first quarter of 2010 at the industry level.

Note: Important changes are coming to Canada's System of National Accounts (CSNA), starting in May 2012. These changes will affect all users of CSNA products and statistics such as gross domestic product (GDP), balance of payments, international investment, and input-output tables. For more information, consult Canadian System of National Accounts 2012 Historical Revision.

The term "productivity" in this release refers to labour productivity. For the purposes of this analysis, labour productivity and related variables cover the business sector only. Labour productivity is a measure of real GDP per hour worked. Unit labour cost is defined as the cost of workers' wages and benefits per unit of real GDP.

All the growth rates reported in this release are rounded to one decimal place. They are calculated with index numbers rounded to three decimal places, which are now available on CANSIM.

Available on CANSIM: tables 383-0008 and 383-0012.

Definitions, data sources and methods: survey number 5042.

Additional tables and links to other releases from the national accounts can be found in the second quarter 2011 issue of Canadian Economic Accounts Quarterly Review, Vol. 10, no. 2 (13-010-X, free), available from the Key resource module of our website under Publications. This publication will be updated on September 13, at the time of the release of the National Balance Sheet Accounts.

Labour productivity, hourly compensation and unit labour cost data for the third quarter will be released on December 9.

For more information, or to enquire about the concepts, methods or data quality of this release, contact the information officer (613-951-3640, iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division.