Canadian Productivity Lagging

[Toro]

Canada's productivity growth has been abysmal as of late.

From today's Globe

But Canada's abysmal record has experts split over what to do, writes HEATHER SCOFFIELD

By HEATHER SCOFFIELD

Monday, November 14, 2005 Page B3

...

"I don't think we're about to see 3-per-cent productivity growth," said Andrew Sharpe, executive director of the Centre for the Study of Living Standards.

No one would disagree that Canada's productivity, defined as output as a percentage of hours, has been embarrassing these past few years. On average, Canada's productivity growth has hovered just above zero since 2000. The U.S., on the other hand, has seen productivity grow by an average of 3.8 per cent since the start of the decade.

Indeed, in the third quarter of this year, U.S. productivity jumped 4.1 per cent at an annual rate. (Canada's third-quarter numbers aren't out yet, but second-quarter growth was zero.) Since the end of 2001, Americans have created a total productivity gain of 13.2 per cent, while Canada's is a mere 1.5 per cent.

But according to Mr. Poloz, this is about to change. Manufacturing has already made serious strides in boosting its productivity, and now that the sector is operating at full capacity, more gains are in the pipeline, Mr. Poloz argues.

Business investment in machinery and equipment -- a key indicator that companies are buying new technology to improve their efficiency -- is surging too, he says. Volumes of imported machinery and equipment have risen 16.4 per cent so far this year from last, he points out. (Money spent on machinery and equipment has risen much more slowly, but only because the Canadian dollar is so strong that importing goods has become much cheaper.) Most important, he says, Canadian companies of all sizes are discovering how to cut costs and increase output by doing more business offshore.

...

Productivity blues

The past few years have been embarrassing for Canada. On average, our productivity growth has hovered just above zero since 2000. The U.S., meanwhile, has seen productivity grow an average of 3.8% over the same period. Some economists believe, however, that this trend is about to change.

Canada's slipping

Our country's productivity ranking out of 24 OECD* nations:

Year Rank

1970 5th

1980 12th

1990 16th

2000 16th

2004 17th

*Organization for Economic Co-operation and Development

Lagging behind

Canada's annual average business sector productivity growth is less than that of the U.S.

1980-1990

Canada 1.4

United States 1.8

1990-2000

Canada 1.8

United States 2.1

2000-2004

Canada 0.9

United States 3.8

SOURCE: TORONTO-DOMINION BANK

[August1991]

Interesting article.

As evidence, he points to an EDC survey of companies that showed 30 per cent were contemplating foreign investment. And Canada's trade commissioners are being run off their feet by companies asking for help in foreign markets.

Are Canadians aware that their tax money is used to assist Canadian companies in setting up operations abroad?

We will hear alot of economic issues raised in the next few weeks, in part to distract us from the Adscam scandal. The Liberals will repeat endlessly that unemployment is at its lowest in 30 years and the federal government has a healthy surplus. Job creation and government budget status are not measures of economic competence. Standard of living and in particular productivity changes are the best statistical measures.

While productivity is hard to measure, I think the evidence is clear that Canada has lagged behind the US in the past 10 or 20 years or so. As a result, we have a lower standard of living than Americans on average. What is the cause? I suspect that a falling Canadian dollar made it easier for Canadian firms to avoid making hard choices. But I don't know.

Lastly, I am inclined to be suspicious of the opinion of an economist working for a crown corporation who makes a pronouncement shortly before an election.

[Yaro]

defined as output as a percentage of hours

Grammatically this statement is meaningless, and what it implies is explicitly untrue. But I am beginning to see the tact that the hard right is taking to cover for the fact that standard of living is dropping despite the hard right changes and free trade. Interesting stuff.

[Toro]

Standards of living certainly are not dropping in the States. I sure would like to see statistics on Canada though.

[Riverwind]

Standard of living and in particular productivity changes are the best statistical measures.

The Canadian dollar has risen 30% against the US dollar in the last 4 years yet unemployment is at a record low. Productivity must be going up somewhere to cause that effect.

[RB]

Standard of living and in particular productivity changes are the best statistical measures.

The Canadian dollar has risen 30% against the US dollar in the last 4 years yet unemployment is at a record low. Productivity must be going up somewhere to cause that effect.

<{POST_SNAPBACK}>

inflation rates have gone up because of the gas prices - that explains the fall in unemployment rates

[Toro]

Standard of living and in particular productivity changes are the best statistical measures.

The Canadian dollar has risen 30% against the US dollar in the last 4 years yet unemployment is at a record low. Productivity must be going up somewhere to cause that effect.

<{POST_SNAPBACK}>

inflation rates have gone up because of the gas prices - that explains the fall in unemployment rates

<{POST_SNAPBACK}>

[Toro]

Standard of living and in particular productivity changes are the best statistical measures.

The Canadian dollar has risen 30% against the US dollar in the last 4 years yet unemployment is at a record low. Productivity must be going up somewhere to cause that effect.

<{POST_SNAPBACK}>

The loonie rising is a function of excessive monetary growth in the US, sounder fiscal policy in Canada, and high demand for Canadian raw materials. It has nothing to do with productivity in Canada.

[Riverwind]

The loonie rising is a function of excessive monetary growth in the US, sounder fiscal policy in Canada, and high demand for Canadian raw materials.  It has nothing to do with productivity in Canada.

You misunderstand my point. The high loonie makes many Canadian businesses less profitable. They cannot stay in business unless they increase productivity. At the same time we see unemployment going down when one would expect it to rise as Canadian industry adjusts to the higher dollar. Hence my point: productivity must be going up in some places because employment is rising.

[Toro]

The loonie rising is a function of excessive monetary growth in the US, sounder fiscal policy in Canada, and high demand for Canadian raw materials.  It has nothing to do with productivity in Canada.

You misunderstand my point. The high loonie makes many Canadian businesses less profitable. They cannot stay in business unless they increase productivity. At the same time we see unemployment going down when one would expect it to rise as Canadian industry adjusts to the higher dollar. Hence my point: productivity must be going up in some places because employment is rising.

<{POST_SNAPBACK}>

Productivity can fall if unemployment is falling because less skilled workers are being hired. This is likely to be happening as money pours into the Canada. I think maybe a better way to say it is that productivity will be going up. This certainly must happen if the loonie is to remain high, unemployment remains low and inflation doesn't rise.