The Canadian Productivity Review

Volume 2007
Number 7

Abstract

Introduction

Provincial productivity growth,
1997 to 2005

Provincial labour productivity
1997 and 2005

Conclusion

References

Figures

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Provincial productivity growth, 1997 to 2005

We begin by reporting the average annual rates of labour productivity growth from 1997 to 2005 (Figure 1). Nationally, labour productivity grew at an average rate of 1.6% per annum during this nine-year period.¹ Newfoundland and Labrador (3.2%) experienced much stronger average productivity growth than the other provinces. Saskatchewan (2.1%) was the only other province whose labour productivity grew markedly faster than the national average. Average labour productivity growth in New Brunswick, Manitoba, Ontario, Nova Scotia and British Columbia was near or at the national average (ranging from 1.7% in New Brunswick to 1.4% in British Columbia). Quebec (1.3%), Prince Edward Island (1.3%) and Alberta (1.2%) experienced the smallest average gains in labour productivity during this nine-year period.

What do these differences in medium-term growth imply about the relative strength of labour productivity in different parts of the country? Before we examine this, these growth averages, and the implicit rankings they engender, should be set in context. They are designed to tell us something about the changes in economic progress that have occurred over the better part of the last decade. During this time, Newfoundland and Labrador clearly stands apart from other provinces in terms of improving its labour productivity. Alberta, despite its booming economy, experienced relatively lackluster average productivity growth during this period.

It is important to bear in mind that these perceptions of relative performance can be at odds with short-run movements, such as the growth in provincial productivity that occurred between 2004 and 2005. Indeed there is a negative correlation between the medium-term growth rates reported here and the 2005 growth rates (the correlation coefficient between the two series is -0.31). These discrepancies between the medium and short runs can certainly complicate perceptions of relative progress. Let us consider Alberta and Newfoundland and Labrador — the two provinces with the smallest and largest nine-year growth averages respectively. At 3.4%, Alberta enjoyed the largest increase in productivity in 2005, while Newfoundland and Labrador, at -0.2%, had the second lowest rate of productivity growth in 2005, ahead of only Prince Edward Island.

While rates of productivity growth can look very different in the short and medium terms, productivity growth in individual provinces can also vary substantially in the short run. The relative distribution of productivity growth rates across provinces is often quite different from one year to the next. When we examined the correlation between productivity growth rates in adjacent years, only one of the seven sets of adjacent rates exhibited a strong positive correlation. Most were strongly or weakly negative. Hence, provinces that experience large increases in productivity in one year often experience much weaker growth in the next, and vice-versa. Here too, Newfoundland and Labrador is illustrative, as it generally posted either very high or low rates of productivity growth, depending on the year.

This year-to-year volatility is consistent with the view that growth is a highly stochastic process — which implies that one must exercise caution when extending short-run perceptions of relative performance to the longer term. The nine-year averages reported in Figure 1 capture the cumulative effect of these year-to-year movements. While these growth rates tell us something about the sum of all marginal changes during this period, the real issue for many is what these growth differences imply in terms of the actual productivity differentials that exist between provinces. Simply put, how wide are the productivity gaps between provinces, and to what extent have these gaps changed over time? We turn to this in the section entitled "Provincial labour productivity, 1997 and 2005."

1. All tabulations in this analysis are based on gross domestic product (GDP) at market prices. Average annual productivity growth for province i from 1997 to 2005 is calculated as
   
   where labour productivity, , is GDP divided by hours worked. These productivity estimates cover the total economy, and include economic activity in both the business and non-business sectors.