Long-term trends

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The estimates of the level of Canada–United States productivity can be combined with long-run trends in growth rates to generate a picture of differences in the growth process in the two countries.

The cumulative growth in business sector gross domestic product (GDP), labour inputs and labour productivity over the post-1961 period are presented in Figures 7, 8, and 9 respectively— with 1961 being set equal to 100 in both countries.

Figure 7
Real gross domestic product trend, business sector

Figure 8
Hours at work, business sector

Figure 9
Labour productivity trend, business sector

Canadian output growth exceeded that in the United States in the 1970s, kept up with the U.S. output growth in the 1980s, experienced a greater slowdown in the early 1990s and then broadly paced that of the United States in the 1990s (Figure 7). In contrast, labour input grew at a more rapid pace in Canada than in the United States in most decades, with the largest divergences occurring after 2000.

Labour productivity grew more quickly in Canada during the earlier period, reaching a zenith around 1985, came back to the same relative level about 1990, stayed the same throughout the 1990s, and has fallen behind since then (see Figure 10). Over the entire time period, the rate of growth in labour productivity is not significantly different—though the most recent decline is of concern in some circles.

Figure 10
Relative Canada–United States labour productivity level in the business sector, 1961 to 2005

The differences in labour productivity performance can be decomposed within the growth accounting framework into differences in multifactor productivity (MFP) growth, differences in the growth in capital intensity, and differences in skill upgrading (what the growth accounting framework refers to as changes in the composition of labour).²⁰ Figure 11 tracks the relative difference in each of these components.

Figure 11
Trend in Canada–United States difference in growth of multifactor productivity, capital intensity and labour composition, business sector (in percentage points)

The following conclusions emerge. The Canada–United States labour productivity growth gap in favour of the United States over the period from 1961 to 2005 owes much to the MFP growth gap which existed throughout the period. Over the period from 1961 to 2005, annual labour productivity growth in the Canadian business sector was slightly, but not significantly, lower (0.2 percentage point) than in the U.S. business sector. The annual MFP growth in Canada was 0.7 percentage point lower than in the United States.

In contrast, there was no continuous investment gap in Canada over the entire period from 1961 to 1996. Indeed, early in the period, the contribution of capital deepening to business sector productivity growth was higher in Canada than in the United States; but starting in the late 1970s and early 1980s, Canada's rate of growth in capital intensity fell behind that of the United States only to see the two countries follow much the same path over the late 1980s. A significant capital intensity gap opened up in Canada after 1996. Over the period from 1996 to 2005, the slower rate of capital deepening accounted for 0.2 percentage point, or 19%, of the Canada–United States aggregate labour productivity growth gap.

The contribution of labour composition to business sector labour productivity growth was higher in Canada than in the United States over much of the period from 1961 to 2005—though the advantage declined later in the period. Over the period from 1961 to 2005, a more rapid shift towards more educated and more experienced workers occurred in Canada, which raised the labour productivity growth by 0.2 percentage point per year in the Canadian business sector relative to that of the U.S. business sector.

 

20. For further details, see Statistics Canada 2007a.