Canada’s Lagging Productivity Compared to US Proves Costly
Canadians would be a lot richer today if only the country’s productivity growth had kept pace with that of the U.S. over the last two decades, says a new report published Wednesday.
A simulation conducted by the Conference Board of Canada for the period 1988 to 2008 found that real GDP per capita would have been $8,500 higher in 2008, personal disposable income would have been $7,500 higher, corporate profits would have been 40 percent more, and federal government revenues would have been 31.1 percent (or nearly $77 billion) greater
The report noted that in 2008 Americans were $13,000 wealthier than Canadians in terms of purchasing power parity, and if Canada’s productivity growth had matched that of the U.S., the gap would have been less than $7,000.
“Increasing our productivity growth performance over the past two decades would have cut in half the current per capita income gap between Canadians and Americans,” the report said.
Considering that productivity is fundamental to raising living standards and business competitiveness, “these striking results should impress upon policymakers, as well as average Canadians, just how urgent it is to improve Canada’s recent productivity performance,” said the report.
The report is based on findings from a model simulation that boosted Canada’s labour productivity growth by 0.8 percent per year for the 20-year period. This is the difference between Canada’s average productivity growth of 1.4 percent per year and that of the U.S. at 2.2 percent
The report is a follow-up to previous studies by the Conference Board on sluggish productivity growth in Canada.
Previous research found that Canada averaged 2.8 percent annually in productivity growth from 1962 to 1984, but growth slowed to 1.2 percent from 1985 to 2009.
The research concluded that Canada must invest in physical capital, labour quality, as well as so-called multifactor productivity (MFP) in order to increase productivity performance.
This includes investment in machinery, buildings, and other physical assets to advance technologically, and investment in education to allow the workforce to adapt to new technologies.
In addition, MFP includes technological progress, organizational change, and exploitation of economies of scale—factors that are key to innovation.
Earlier Conference Board research noted that Canada was not providing its relatively well-educated workforce with the physical tools needed to maximize productivity performance.
It found that, despite steady gains in educational attainment, physical capital growth and MFP in Canada have been sluggish since the mid-1980s.