Canadian Productivity Growth Is On A Sharp Decline

PRLog (Press Release) – Jul 12, 2008 – John Tylak P.Eng, a former manager with a Canadian manufacturing company said, "We never thought the Canadian dollar would be at par with the United States. By the time it reached 85 cents, we were no longer productive. Poor productivity cost us $1 million for every cent the Canadian dollar increased."

Between 1996-2006 Canadian labor productivity growth lagged the US by 56%, the result of a 138% increase in hours worked versus the US. Given the increase in hours worked, Canada only showed a 0.2% increase in GDP over the US. Compared to Canada, the increase in US productivity was driven by a 150% increase in multi-factor productivity growth; a measure of technological progress and organizational change. The decline in Canadian multi-factor productivity growth is explained by a low Canadian dollar that favored the use of labor instead of investment in technological progress and organizational change.

Given the relative equivalence in today’s currency, Canadian manufacturers cannot use discounted labor as a means to offset poor productivity. This is evidenced in productivity statistics between 2000-2006. This period saw the Canadian dollar begin to rise while manufacturers realized a 200% decline in output per hour worked against the US, even though the growth in capital expenditures was the same in both countries. During this period, US technological progress and organizational change increased by 1800% fueled by a 33% increase in US labor composition compared to Canada.

Canadian technological progress and organizational change has fallen sharply compared to the US and led to dramatic declines in productivity. A continued decline will impede competition with the US, other countries, and may affect Canada's long term standard of living. To improve productivity, the Canada Revenue Agency recently raised federal tax incentives to stimulate technological advancement in an effort to increase multi-factor productivity growth.