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Productivity >

Overview and description of publications

Overview of the research program

This study examines the method used to measure productivity growth and considers long- and short-run trends in Canadian productivity growth, the importance of productivity for overall economic growth and the contribution of productivity growth to the standard of living.

Baldwin, J.R., T.M. Harchaoui, J. Hosein and J.-P. Maynard. 2001. "Productivity Concepts and Trends," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

Productivity growth in Canada and the United States

These studies investigate the course of productivity growth in Canada compared to that of the United States, and compare differences in trends in labour productivity, multifactor productivity and GDP per capita. They find a close relationship between the two economies for the overall business sector but greater differences for the manufacturing sector. In the latter area, the largest differences are in computers and electronics.

It also considers what happens to standard comparisons when allowances are made for the differences in methodology that exist between Canada and the United States. It finds that when estimates of multifactor productivity are revised to produce input growth by simply summing hours worked across all categories and capital stock across all assets, the United States has a small productivity advantage over the period 1961-1997.

Wells, S., J.R. Baldwin and J.-P. Maynard. 1999. "Productivity Growth in Canada and the United States." Canadian Economic Observer. Catalogue 11-010-XPB. September. Ottawa: Statistics Canada.

Baldwin, J.R., J.-P. Maynard and S. Wells. 2000. "Productivity Growth in Canada and the United States." ISUMA: Journal of Policy Research 1(1): 119-24.

Baldwin, J.R., T.M. Harchaoui and J.-P. Maynard. 2001. "Productivity Growth in Canada and the United States," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

Prosperity, productivity and the labour market structures: a Canada-Australia comparison

This study compares Canada's economic performance to Australia. The comparison is performed in terms of: a) living standards and its proximate sources of growth-labour productivity and labour utilization (or hours worked per person) and b) the underlying sources of labour productivity growth. There are marked differences in the structures of the labour market between the two countries, reflected by a more rapid growth in hours at work and labour utilization rate in Canada. However, this rapid growth in hours at work has muted Canada's labour productivity growth, which increased less rapidly than its Australian counterpart.

Harchaoui, T.M., J. Jean and F. Tarkhani. 2003. Prosperity and productivity: A Canada-Australia comparison Economic Analysis Research Paper Series 11F0027MIE2003018. Analytical Studies Branch. Ottawa: Statistics Canada.

Restructuring and productivity growth in the Canadian business sector

This study examines how interindustry differences in productivity growth affect prices and wages. Two main issues are addressed. The first is the extent to which Canada has been shifting production away from sectors with low productivity to those with higher productivity. Over the last twenty years, resources have been gradually shifted towards those industries with lower productivity.

The second part of the study asks whether and how productivity growth influences structural change. The study finds that productivity gains are primarily passed on to consumers via changes in prices, rather than to workers in terms of relative wage changes.

Baldwin, J.R. R. Durand etJ. Hosein. 2001. "Restructuring and Productivity Growth in the Canadian Business Sector," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

The precision of productivity measures

This study examines the precision of productivity estimates and suggests the types of confidence intervals that should be employed when using productivity estimates. The study highlights the need for statistical indicators that will provide a measure of the reliability of productivity measures to data users. In doing so, it identifies several ways of assessing the boundaries that should be placed around the point estimates of productivity growth—ranging from classical estimation techniques to comparisons of productivity growth rates based on alternate estimation techniques for capital stock. It also discusses problems in international comparisons that use employment rather than hours-worked as a measure of labour input. Based on the differences in the results of these different techniques, it notes that conclusions about changes in productivity trends and differences across countries need to be made cautiously.

Baldwin, J.R. and T.M. Harchaoui. 2001. "The Precision of Productivity Numbers," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

The structure of investment in Canada and its impact on capital accumulation

This study focuses on the history of investment in Canada and the extent to which the mix between machinery as opposed to buildings and structures has changed over the last twenty years. Since the mid-1980s, the national savings rate has averaged just over 18% of GDP, compared with 24% during the 1960s. One explanation for slower productivity growth since 1975 is that this lower savings rate has constrained investment and thereby deprived the nation of both the tools and the technologies it needs. The study shows that the types of private domestic investment in machinery and equipment that determine productivity have fallen less than one might infer from the decline in overall savings. The study also notes that capital stock per unit of labour is rising in Canada, but not as fast as in the past. The slower growth of the capital-to-labour ratio is not the result of a restructuring from goods to services. Finally, the study notes that the ratio of investment to GDP in Canada has fallen below the United States over the last fifteen years.

Baldwin, J.R. and T.M. Harchaoui. 2001. "The Structure of Investment in Canada and its Impact on Capital Accumulation," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

Productivity and infrastructure

These two studies document some facts about public infrastructure in Canada and examine the extent to which it has contributed to the performance of the Canadian economy over the 1961-2000 period.

The first study provides an overview on the size of public infrastructure in Canada by level of government, its structure by asset type, its evolution over this period and its contribution to Canada's prosperity.

Harchaoui, T.M., F. Tarkhani and P. Warren. 2003. Public infrastructure in Canada: Where do we stand?. Insights on the Canadian economy. Catalogue No. 11-624-MIE2003005. Analytical Studies Branch. Ottawa: Statistics Canada.

The second study quantifies the contribution of public capital to productivity growth in the Canadian business sector. The approach developed here incorporates demand and supply forces, including the contribution of public capital, which may affect productivity performance. The model is estimated using disaggregated data composed of 37 industries in the Canadian business sector for the period 1961-2000. The results indicate that the main contributors to productivity growth, both at the industry and aggregate levels are technical change and exogenous demand (representing the effect of aggregate income and population growth). Public capital contributed for about 18% of the overall business sector multifactor productivity growth over the 1961-2000 period. The magnitudes of the contribution of public capital to productivity growth vary significantly across industries, with the largest impact occurring in transportation, trade and utilities.

Harchaoui, T.M. and F. Tarkhani. 2003. Public capital and its contribution to the productivity performance of the Canadian business sector Economic Analysis Research Paper Series 11F0027MIE2003017. Analytical Studies Branch. Ottawa: Statistics Canada.

Economic growth, capital accumulation, changes in labour quality: A Canada/U.S comparison

Using revised Statistics Canada estimates of outputs and inputs, this paper examines changes in the patterns of capital formation and the sources of economic growth for the Canadian business sector over the 1995-2000 period and makes comparisons with the 1981-95 period. The changing composition of investment and the growth of capital services across broad asset classes is explored first. Then the growth in output is decomposed into components coming from the growth in labour, capital and multifactor productivity. Finally, the extent to which information and communications technologies have made a key contribution to economic growth is investigated. Comparisons are made of the performance of the Canadian and U.S. business sectors in each of these areas.

The data show that increases in capital and labour continue to be important contributors to economic growth. The increase in the growth rate of investment during the 1995-2000 period, which has occurred across many asset classes, has led to an increased growth contribution of capital services to output growth. A considerable increase in the number of hours worked has also contributed to economic growth; the substantial increase in labour inputs has muted the capital deepening effects of the rapid increase in capital services. The third primary source of growth in output, multifactor productivity growth, was 1% higher on average over the post-1995 period in Canada and 1.3% higher in the United States. This increase was considerably higher than in the 1980s and early 1990s, especially in Canada. Although the resurgence in multifactor productivity in both countries does not surpass the pre-1973 performance, it was one of the most important stylized facts of the last five years of the twentieth century.

Armstrong, P., T.M. Harchaoui, C. Jackson and F. Tarkhani. 2002. A Comparison of Canada-U.S. Economic Growth in the Information Age, 1981-2000: The Importance of Investment in Information and Communications Technologies. Economic Analysis Research Paper Series 11F0027MIE2002001. Analytical Studies Branch. Ottawa: Statistics Canada.

Baldwin, J.R., T.M. Harchaoui and F. Tarkhani. 2002. "The Importance of Information Technology: A Canada - U.S. Comparison". ISUMA. Canadian Journal of Policy Research. Volume 3, No. 1, Spring, 48-53.

The cyclical behaviour of industrial labour productivity in Canada

This study examines the cyclical behaviour of labour productivity. It asks whether the slowdown in growth during the post-1973 period is accompanied by increasing volatility in productivity growth. The study analyses the volatility, persistence, and co-movement of 37 industrial labour productivity series for the period 1961-1996. It seeks to identify the size, source, and correlation of fluctuations in the productivity performance of specific industries within various sample periods and to analyze possible changes in these characteristics over time. It finds that productivity growth in the post-1973 period has become more volatile, that changes have become more persistent, and that the importance of common factors behind these changes has also increased.

Baldwin, J.R. and T.M. Harchaoui. 2001. "The Cyclical Behaviour of Industrial Labour Productivity in Canada," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

Productivity growth in the Canadian manufacturing sector: a departure from the standard framework

This study provides alternate, experimental estimates of productivity growth that are based on a different methodology than the non-parametric technique that is normally used. It uses parametric multivariate analysis to estimate multifactor productivity growth rates that allow for scale economies and capital fixities. The principal findings are that the normal assumptions used to estimate productivity—that markups are non-zero, that excess capacity generally exists, and that there are constant returns to scale—are incorrect, but that relaxing these assumptions has a relatively small effect on the productivity estimates. It finds that the assumption of constant returns to scale and full capacity tends to decrease the estimate of productivity change by roughly 30% over the period 1961 to 1995, but that the estimate of this 'bias' is not very precise.

Baldwin, J.R., V. Gaudreault and T.M. Harchaoui. 2001. "Productivity Growth in the Canadian Manufacturing Sector: A Departure from the Standard Framework," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

New estimates of multifactor productivity

Three studies provide the foundation for a recent upgrading of the multifactor productivity estimates to take into account best practice techniques that are now outlined in a recent productivity handbook released by the OECD.

Depreciation rates

The first project made use of a technique that employs the prices of used assets to estimate depreciation rates. Our research project made use of a large database on the prices of Canadian used assets that has been collected by Statistics Canada. It introduced a new statistical technique to estimate rates of depreciation for a large number of assets and compared the new estimates of depreciation to existing estimates.

Accurate estimates of depreciation are required both for statistical programs (for example, the estimation of capital stock that uses perpetual inventory techniques) and for other research purposes (for example, comparing the cost of capital across countries or industries).

Best practice in the North American economics profession employs used-asset prices to estimate depreciation. Using a micro data base on used-asset prices for the period 1987 to 1996 (that come from Statistics Canada's Investment Survey), a research project was mounted to produce a set of depreciation rates that are compatible with the actual rates of decline in the prices of assets as observed in resale prices.

The project finds the type of high depreciation rates in autos and computers that were hypothesized to exist on the basis of well-known evidence on used prices. But it also finds depreciation rates are relatively high across a wide range of assets, thereby confirming stories that the pace of obsolescence is high in recent years.

The paper also asks what would happen to estimates of the rate of growth in capital stock should these depreciation estimates be incorporated into the calculation of capital compared to the previous methodology that was used in the productivity program.

Gellatly, G., M. Tanguay and B. Yan. 2002. "An Alternative Methodology for Estimating Economic Depreciation: New Results Using a Survival Model," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

Estimates of capital services

The seminal work of Solow has inspired an extensive literature that examines the sources of economic growth from the perspective of the aggregate production function. Economists have spent considerable effort in testing assumptions, refining the theory, and improving the data used in these calculations. One important line of research emphasized that a simple measure of capital stock—such as the one used heretofore by Statistics Canada's multifactor productivity program—is not the appropriate measure of capital for an aggregate production function analysis since the wide array of heterogeneous assets that are in use have different productive characteristics.

The second project makes use of the new depreciation estimates to derive new estimates of the growth in the services derived from capital investments that recognize that the services rendered by different assets are not equal. This project required an extensive research effort to estimate the cost of capital. This effort used the depreciation rates mentioned previously, estimated capital stock using these estimates and the perpetual inventory technique, and derived the rate of return from these estimates of capital stock and the profits produced by the input/output tables. Finally, new estimates of the components of capital that are important but that had previously been omitted (land and inventories) were also developed.

Statistics Canada's new methodology underlying the concept of capital services recognizes that tangible assets, purchased for the same number of dollars, have different service lives, depreciation rates, tax treatments, and ultimately different marginal products. Also, the methodology makes use of new estimates of depreciation based on age-price profiles of individual assets and provides estimates of capital services under alternate behavioural assumptions of the user cost of capital. As a by-product, the paper ascertains the implications of these new estimates of capital services on Canada-U.S. comparisons of productivity performance.

Harchaoui, T.M. and F. Tarkhani. "Estimating Capital Services: A Comprehensive Revision of the Capital Input Methodology for Statistics Canada's Multifactor Productivity Program." in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

Estimates of labour compostion (quality change)

The third major research project recognizes that heterogeneity in the labour force exists just as it does in investment and develops an index of hours-worked that recognized this fact. The project calculates a weighted average of the growth rates of different types of labour by weighting individual growth rates by relative wage rates. The project made use of the census of population back to 1961 along with other data sources (SLID) to develop average wage rates for strata defined by various characteristics-age, education, and class of worker (employed and self-employed). This exercise required the development of a large database across 6 censuses that reconciled definitions that had changed over time. It also made use of multivariate analysis to test whether two alternate techniques that had emerged as competing candidates for the estimation of quality change produced the same results. It was found that they did.

Gu, W., M. Kaci, J.-P. Maynard and M.-A. Sillamaa. "Composition of the Canadian Workforce and Its Impact on Productivity Growth," in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

Interprovincial productivity profiles

Differences in the performance of provincial economies are often attributed to their relative success in attracting capital and implementing advanced technologies. These factors are manifested in a province's relative labour productivity. Building on the newly created provincial input/output tables, a research paper has been prepared to examine overall and specific 1996/97 differences in output per worker across Canadian provinces.

It found that Alberta had the highest levels of output per worker, some 18% higher than Ontario. Saskatchewan, Quebec and British Columbia trailed Ontario by amounts ranging from 4% to 8%. Well behind were Manitoba and Atlantic Canada at 22% and 26%, respectively.

The paper also focused on which industrial differences were more important. When it controlled for the Natural Resource sector, the differences between Alberta, Ontario, Saskatchewan, Quebec, and British Columbia lost their statistical significance; but Manitoba and the Atlantic region continued to lag behind the others. The gap experienced by both Manitoba and the Atlantic region is generally not the result of differences in industrial structure (where structure is measured using the finest level of detail available in the industry input-output tables).

Outside of the Natural Resource sector, large differences exist between provinces in the Services sectors that generally pay the highest wages-finance, wholesale, pipelines, and utilities. Ontario and Alberta have large advantages here.

Baldwin, J.R, J.-P. Maynard, D. Sabourin and D. Zietsma. 2001. Differences in Interprovincial Productivity Levels. Analytical Studies Research Paper Series 11F0019MIE2001180. Analytical Studies Branch. Ottawa: Statistics Canada.

Sabourin, D. and D. Zietsma. 2001. "Interprovincial Productivity Difference". Canadian Economic Observer. Catalogue 11-010-XPB. August. Ottawa: Statistics Canada.

Studies in the productivity performance of individual producers

Studies in this series examine the performance of producers using Census of Manufactures data.

Heterogeneity in labour productivity growth in manufacturing: differences between domestic and foreign-controlled establishments

This study focuses on micro-data taken from the Census of Manufactures and examines labour productivity differences between domestic and foreign-owned firms in the manufacturing sector for the period 1973 to 1993. In doing so, it also examines the extent to which differences exist between small and large establishments and across industry sectors and how they have been changing over time. Foreign-controlled establishments are shown to have higher labour productivity and the highest growth rates over time in labour productivity. In addition, labour productivity has been growing more quickly in large plants than small plants.

Baldwin, J.R. and N. Dhaliwal. 2001. "Heterogeneity in Labour Productivity Growth in Manufacturing: Differences Between Domestic and Foreign-Controlled Enterprises" in Productivity Growth in Canada. Catalogue No. 15-204-XPE. Analytical Studies Branch. Ottawa: Statistics Canada.

The importance of advanced technology use for productivity growth in the 1980s

Innovation policy often tends to focus almost exclusively on an R&D-centric approach as a cure for productivity problems. Yet it is advances on the technology side, which are driven by engineering and production units in the firm, that may more directly impact on productivity growth.

Micro-level data on plant performance across different plant types sheds light on whether technology use is a driving force behind success. Over the course of a decade, some 47% of market share shifts from the less-successful to the more-successful plants in an average manufacturing industry. Associated with that growth are changes in relative labour productivity that give some plants a cost or quality advantage.

This study, using micro-economic data on establishment technology use and productivity, finds that the productivity of plants that had adopted new advanced manufacturing technologies by 1989 grew at a considerably faster rate in the 1980s than plants that were not using these technologies.

The study also found that it is particular technologies—the so-called advanced information and communication technologies (ICTs)—that are most closely associated with productivity growth.

Baldwin, J.R., B. Diverty and D. Sabourin. 1995. Technology Use and Industrial Transformation: Empirical Perspectives. Analytical Studies Research Paper Series 11F0019MIE1995075. Analytical Studies Branch. Ottawa: Statistics Canada. Also published in Technology, Information, and Public Policy. T. Courchene (ed.). John Deutsch Institute for the Study of Economic Policy. Kingston, Ontario: Queens University.

The importance of advanced technology use for productivity growth in the 1990s

This study replicates the earlier one done for the 1980s. It investigates the evolution of the industrial structure in the Canadian manufacturing sector and its relationship to technological change by examining the take-up of advanced technologies in the 1990s and how it is related to the stochastic growth process in the plant population. Its framework is grounded in the view that growth is a stochastic process that involves learning. Experimentation with new technologies rewards some firms with superior growth and profitability. Examining how growth is associated with the choice of different technology strategies indicates which of these is being rewarded.

The evolution of this process is studied by examining the relationship between the uptake of advanced technologies and the performance of plants in the manufacturing sector. This is done by using cross-sectional data on advanced technology use and by combining it with longitudinal panel data on plant performance. In particular, the paper examines the relationship between the use of information and communications technology (ICT) and the growth in a plant's market share and its relative productivity.

The study finds that a considerable amount of market share is transferred from declining firms to growing firms in the 1990s. At the same time, the growers increase their productivity relative to the decliners. Those technology users that were using communications technologies or that combined technologies from several different technology classes increased their relative productivity the most. In turn, gains in relative productivity were accompanied by gains in market share. Other factors that were associated with gains in market share were the presence of Research and Development (R&D) facilities and other innovative activities.

Baldwin, J.R. and D. Sabourin. 2001. Impact of the Adoption of Advanced Information and Communication Technologies on Firm Performance in the Canadian Manufacturing Sector. Analytical Studies Research Paper Series 11F0019MIE2001174. Analytical Studies Branch. Ottawa: Statistics Canada.

Baldwin, J.R. and D. Sabourin. 2002. "Advanced technology use and firm performance in Canadian manufacturing in the 1990s." Industrial and Corporate Change. Volume 11, number 4, 761-789.

The decline in the productivity of smaller producers

Several research studies have asked whether productivity growth in small manufacturing plants has kept pace with productivity growth in large plants

The research finds that small-firm output growth has not increased at the same pace as has its employment growth. In turn, this means that productivity (output per worker) has fallen in small manufacturing plants relative to large plants. Wage rates have also fallen behind. Together, these two findings mean that small firms are not the engines of growth that employment statistics suggest.

Earlier work demonstrated that firm turnover makes a substantial contribution to productivity growth. The more productive firms gain market share at the expense of the less productive. As a result, average productivity in the population increases. Our research that examines whether small manufacturing plants were the engines of growth also investigates how much of the productivity slowdown that occurred in the 1980s may be attributed to a basic change in the nature of the competitive process and whether there has been a reduction in the extent to which the turnover process contributes to productivity growth. The paper finds that a fundamental change has occurred. In particular, new smaller firms are not contributing to productivity growth as they once were.

Baldwin, J.R. 1996. Were Small Producers the Engines of Growth in the Canadian Manufacturing Sector in the 1980s? Analytical Studies Research Paper Series 11F0019MIE1996088. Analytical Studies Branch. Ottawa: Statistics Canada.

Baldwin, J.R. 1996. "Job Creation, wages and productivity in manufacturing". Canadian Economic Observer. Catalogue 11-010-XPB. November. Ottawa: Statistics Canada.

Baldwin, J.R. 1996. "Productivity Growth, Plant Turnover and Restructuring in the Canadian Manufacturing Sector". In Sources of Productivity Growth. D. Mayes (ed.). Cambridge: Cambridge University Press.

The second paper focuses on whether the changes that have been occurring in Canada as the value added per worker in small manufacturing plants fell relative to larger plants have placed Canada at a disadvantage relative to the United States. In particular, it asks whether there are structural differences between Canada and the United States with regards to the importance of small firms? And have changes in firm-size distributions disadvantaged Canadian industry?

A study, therefore, investigated changes in the size distribution of manufacturing plants in Canada and the United States to ascertain whether Canada's experience was different than that of the United States. It found that both countries experienced an increase in the small-producer sector. While the percentage of employment in small producers in Canada has always been higher than in the United States, the percentage point increase of total employment that is located in small producers was about the same in the two countries. Moreover, the decline in the relative labour productivity of small plants was about the same in the two countries. In conclusion, the changes in the size distribution and the declining relative productivity of small plants that have been taking place in Canada are a North American phenomenon.

Baldwin, J.R., R. Jarmin and J. Tang. 2002. The Trend to Smaller Producers in Manufacturing: A Canada/U.S. Comparison. Economic Analysis Research Paper Series 11F0027MIE2002003. Analytical Studies Branch. Ottawa: Statistics Canada.

Baldwin, J.R., R. Jarmin and J. Tang. 2003. "Small North American Producers Pull Back". Journal of Small Business.

Productivity gap between Canada and the U.S. affected by growth in self-employment

This study focuses on the smallest of producers-the self-employed-and examines the influence of the growth in this group on labour productivity in the business sector.

This paper focuses on the impact of the self-employed on labour-productivity growth in the Canadian business sector. Over the decade from 1988 to 1998, self-employment provided the majority of growth in jobs in Canada. But during this period, earnings per worker in the self-employed sector fell behind those in the business sector as a whole. This paper investigates the impact of these two events on aggregate productivity growth.

In order to measure the impact of self-employment on labour-productivity growth, the net income accruing to the self-employed is removed from aggregate business sector GDP to produce a residual, which measures growth in output in the Business-sector Apart from Self-employed (BASE). Then output per hour-worked in this category is compared to the growth in output per hour-worked in the aggregate business sector-the normal measure of productivity growth.

Over the decade, the growth in the BASE sector cumulative productivity growth rate is higher than the growth rate in the aggregate business sector. This occurs because the growth in the net income per job (hours worked) accruing to the self-employed falls behind the growth in output per job (per hour worked) in the BASE sector beginning in 1994 and the resulting gap continues over the reference decade. The increasing proportion of self-employed in the economy and the lagging growth in the net income that they earned contributed to lower the growth in labour productivity in the aggregate business sector over the decade.

A comparison is also made of Canada to the United States, asking whether the different productivity performance of the two countries over the 1987 to 1998 period is due to differences in the self-employment sector. The comparison shows that the self-employment category in the United States has had a significant positive effect on the growth in nominal output per hour-worked. Over the decade, the self-employment category has pulled up U.S. business-sector productivity; in Canada, the self-employment category decreased business sector growth in nominal output per hours worked. When the nominal output measures are deflated and the difference in cumulative growth rates is calculated, the gap in labour-productivity growth between the United States and Canada almost disappears.

Baldwin, J.R. and J. Chowhan. 2003. The impact of self-employment on labour-productivity growth: A Canada and United States comparison. Economic Analysis Research Paper Series 11F0027MIE2003016. Analytical Studies Branch. Ottawa: Statistics Canada.

Productivity and prosperity in the information age

In the late 1990s, the Canadian economy put on a remarkable performance. Economic growth was more rapid than in the 1981-1988 expansionary period (3.8% compared with 3.1%).

Canada's increase in multifactor productivity in the 1990s improved not only relative to the U.S. but also by international standards.

Dachraoui, K., T.M. Harchaoui, and F. Tarkhani. 2003. "Productivity and prosperity in the information age". Perspectives on labour and income. Catalogue No. 75-001-XIE. June (Vol.4, No.6) . Ottawa: Statistics Canada.

Dachraoui, K., T.M. Harchaoui, and F. Tarkhani. 2003. Productivity and prosperity in the information age: a Canada-U.S. comparison. Insights on the Canadian economy. Catalogue No. 11-624-MIE2003002. Analytical Studies Branch. Ottawa: Statistics Canada.

Sources of the Canada-United States productivity growth gap

The paper uses an experimental method that benchmarks the multifactor productivity growth of various industries against an estimated "best practice" productivity frontier. This method is used to obtain additional insights into the sources of the Canada-United States productivity gap. This approach enables productivity growth to be decomposed into two components: technical efficiency and technical change.

The measure of technical efficiency shows whether production is getting closer (catching up) or further away from the best North American practice over time. This component quantifies the effectiveness of the technology diffusion. The measure of technical change captures the improvement in the best practice over time, a reflection of innovation.

Using this method, this study finds that over the 1981-2000 period, productivity growth in the aggregate business sector in Canada was behind that of the United States, primarily because of the deterioration in technical efficiency in Canada. Thus, the primary problem was the slower rate of diffusion of best-practice technology in Canada.

The manufacturing sector presents a similar story. In this sector, the productivity growth gap in favour of the United States during the 1981-1997 period, much like its business sector counterpart, was a result of Canada's efficiency degradation compared with the United States. Both countries showed an almost identical pace of technical change over this period (7.5% for Canada and 7.6% for the United States).

Dachraoui, K. and T.M. Harchaoui. 2003. A Frontier Approach to Canada-U.S. Multifactor Productivity Performance. Economic Analysis Research Paper Series 11F0027MIE2003010. Analytical Studies Branch. Ottawa: Statistics Canada.

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