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The prospect of a trade-off between employment growth and productivity growth may create uncertainty among policy makers who strive to create jobs, and at the same time, seek to improve productivity. This article re-visits the issue. It shows that employment growth may be negatively correlated with productivity growth at the industry level. But this is not a trade-off. It is an outcome of market forces in reallocating production resources to rebalance changes in demand and supply conditions of different industries within an economy. At the aggregate level, employment growth may also be negatively correlated with labour productivity growth through its negative influence on capital intensity and labour quality. But, after controlling for those input factors, this article finds that employment growth does not negatively affect multifactor productivity growth.

National statistics offices in different countries, as well as individual researchers, make a range of different assumptions and use different approaches to estimating multifactor productivity (MFP) growth. As a result, MFP growth estimates can vary for methodological reasons across countries and for a particular country over a given time period. These methodological choices typically reflect a combination of data availability and the objectives of the study. In this article, we use “reasonably” comparable data for output, labour and capital in Canada and the United States to investigate the sensitivity of MFP growth estimates (by industry and for the business sector in the two countries) to three alternative methodological assumptions. We show that MFP growth estimates for both countries and the Canada-U.S. MFP growth gap are fairly robust to the alternative methodologies and assumptions considered.

This article provides consistent estimates for capital stock and multifactor productivity (MFP) for Canada and the United States across major industries for the 1987-2007 period. For this purpose, capital stock estimates are developed for Canadian and U.S. industries using the same asset depreciation rates (either from the U.S. Bureau of Economic Analysis or from Statistics Canada) for the two countries. The results show that on an hours worked basis Canadian industries invest more in total capital than their U.S. counterparts. This situation reflects much greater investment in structures, with less in machinery and equipment (including information and communications technologies). The results imply that all of the Canada-U.S. labour productivity gap arises from the multifactor productivity gap.