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Compared to other G7 countries, Canada performed relatively well after the global financial crisis in both aggregate labour productivity and multifactor productivity (MFP) growth, which is in sharp contrast to its relatively weak performance in the 2000s. The objective of this article is to analyse the sources of Canada’s superior performance by comparing it to other G7 countries. In particular, the article examines industry productivity performance, estimates the contribution of individual industries to both aggregate labour productivity and MFP growth, and highlights the differences between Canada and other G7 countries before and after 2010. To this end, this article develops a methodology to more precisely identify the underlying forces at the industry level that have either propelled or hindered productivity growth, and thereby identify which industries have been at the heart of the changes in productivity performance.

Research and development (R&D) is critical to innovation that enhances productivity. Going beyond a simple relationship between R&D and firm productivity performance, this article investigates what co-investments and other business operating conditions facilitate R&D in improving productivity. Using a rich micro database for Canada, we show that the actual effect of R&D on productivity depends on a number of factors that play important roles in determining R&D efficiency in im-proving productivity. These factors include adopting certain management practices, making investments in ICT, and maintaining a skilled workforce. In addition, the article shows that firm size, foreign ownership and market power are important positive forces in improving R&D efficiency. The findings highlight the complexity of R&D in improving productivity.

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.

Changing foreign and domestic supply and demand conditions have resulted in shifting industrial structures in the Canadian and U.S. economies. This article examines the contribution of individual industries to real GDP and labour productivity growth in the business sector in 1987-2000 and 2000-2008 in the two countries. It highlights the differences that have emerged through a new decomposition technique that is able to decompose real GDP expressed in chained dollars instead of constant dollars. The contribution of each industry is further decomposed in order to identify the role of quantity and price effects in real economic growth and pure productivity and shift effects in the case of labour productivity. This decomposition is able to more precisely identify the sectors and the underlying forces that have either propelled or hindered economic and productivity growth.

The transportation equipment industry is one of the few Canadian industries that is as productive as its U.S. counterpart. However, labour productivity growth in the Canadian transportation equipment industry declined from 4.5 per cent per year in 1981-2000 to 1.7 per cent per year in 2000-2007. This article investigates whether restructuring and the reallocation of output and resources within the industry after 2000 contributed to this decline. It shows that the dramatic decline in productivity growth was mainly due to the slowdown in productivity growth in sub-industries, which can largely be traced to the decline in labour productivity growth of continuing plants. Finally, the article shows that even if the Canadian industry mix were the same as the U.S. mix, the productivity growth profile of the Canadian transportation equipment industry would not change.

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.

This study, using the methodology given in Jorgenson and Kuroda (1995) and Lee and Tang (2001) and the new 1999 benchmark data on expenditure-based bilateral commodity purchasing power parities (PPPs) jointly developed by Statistics Canada and the U.S. Bureau of Labor Statistics, estimates Canada-U.S. bilateral PPPs for gross output, intermediate input, two types of capital stock [structures and machinery and equipment (M&E)] and value added in 31 industries. These PPPs in turn are used to estimate the Canada-U.S. labour productivity and multifactor productivity (MFP) level gaps for all these industries. These benchmark gaps in conjunction with the industry productivity growth rates in the two countries are then used to develop time series data on the labour productivity level gaps. The new estimates show that Canada’s aggregate labour productivity was more than 20 percent below the U.S. level in 2003 and widened significantly since 1995. In addition, they show that Canada is more productive than the United States in most of the resource-based manufacturing industries, but less productive in the two machinery industries and in all service industries. The new results in general are consistent with the existing literature on the subject, but there are two key differences. First, the Canada-U.S. manufacturing labour productivity gap in this study is significantly lower than previous estimates. This difference is mainly due to the significant downward revisions to the productivity gaps in the two machinery industries. Second, this paper shows that the differences in capital intensity levels explain about 30 percent of the aggregate labour productivity gap between the two countries in 2001, and more than 50 percent of the Canada-U.S. manufacturing labour productivity gap. These estimates are significantly higher than those in Rao, Tang and Wang (2003).

This paper analyzes the role of capital accumulation in the Canada-U.S. labour productivity gap in the 1990s. The empirical results indicate that the M&E capital intensity is more important than the structures capital intensity for labour productivity. The inter-industry variation in labour productivity level is highly and positively correlated with differences in M&E capital intensity. Similarly, the inter-industry differences in the labour productivity level gap between Canada and the U.S. are also highly and positively correlated with differences in the M&E capital intensity gap. At least 12% of the business sector Canada-U.S. labour productivity level gap in 2000 was due to the capital intensity gap between the two countries. More importantly, much of the widening of the labour productivity level gap at the aggregate level in the second half of the 1990s was due to the widening of the capital intensity gap. Depreciation of the Canadian dollar and the unemployment rate gap between the two countries seem to have contributed significantly to the faster rate of increase in the capital-to-labour cost in Canada in the 1990s, hence to the widening of the capital intensity and labour productivity level gaps.

Rapid progress in skill-biased technologies has increased the demand for skilled workers in all countries. Lack of skilled workers could become a serious impediment to innovation. In this study, we first examine the importance of skills and government support for innovation using firm-level data from Statistics Canada’s Survey of Innovation 1999. We then investigate the role of differences in skills in explaining the differences in productivity levels among Canadian manufacturing industries. After controlling for other factors, we find that firms’ practices of hiring new graduates from universities and hiring experienced employees have positive and significant impacts on innovation outcomes, and that they are equally important for both product and process innovation. In addition, after controlling for industries characteristics, inter-industry differences in labour productivity levels among Canadian two-digit manufacturing industries are positively related to differences in capital intensity, R&D intensity and skills intensity, proxied by two variables: the proportion of employees with 1-3 years post-secondary education; and the percentage of employees with a university degree and more.

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Copyright of International Productivity Monitor is the property of Centre for the Study of Living Standards and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)