Academic journal article Monthly Labor Review

Differences in Productivity Growth: Canadian-U.S. Business Sectors, 1987-2000: Productivity Growth Picked Up Significantly in 1995 for the United States, and in 1996 for Canada, Driven in Both Cases by a Resurgence of Productivity in Services, However, Canadian Productivity Growth Has Remained Lower Than That in the United States. (Differences in Productivity Growth)

Academic journal article Monthly Labor Review

Differences in Productivity Growth: Canadian-U.S. Business Sectors, 1987-2000: Productivity Growth Picked Up Significantly in 1995 for the United States, and in 1996 for Canada, Driven in Both Cases by a Resurgence of Productivity in Services, However, Canadian Productivity Growth Has Remained Lower Than That in the United States. (Differences in Productivity Growth)

Article excerpt

The productivity performance of the Canadian business sector relative to its U.S. counterpart has been the subject of numerous recent studies. (1) However, previous work has focussed mainly on the manufacturing sector to explain the Canada-U.S. gap, without really exploring the role played by other industry groups. Furthermore, previous studies have tended to concentrate on Canada-U.S. industry-level productivity performance in the early 1990s. (2)

In this study, we use an industry-level decomposition to better assess the role played by various industries in the Canada-U.S. gap in productivity growth in the business sector. (3) Our methodology takes into account the fact that both industry-level productivity performance and the industrial composition of the economy affect aggregate productivity growth. (4) Ideally, our analysis should cover the period from 1985 onwards. (5) Because of data constraints, however, the study looks at Canadian and U.S. productivity growth from 1987 to 2000 only. (6) Furthermore, our analysis pays special attention to the sub-period 1996 to 2000 for two reasons. First, by the late 1990s, productivity growth had picked up in both the Canadian and the U.S. business sectors, but it remained lower in Canada. Emphasis on this period brings to light the industries most responsible for the remaining difference. Second, our study examines industry-level productivity growth for Canada and the United States for the post- 1996 period using comparable data. Therefore, we seek to highlight these new data in the study.

Trends

The slower productivity growth in Canada, compared with that in the United States is often identified as the main factor explaining the growing Canada-U.S. real income gap per capita. Since 1981, Canada's standard of living performance has lagged, on average, behind that of the United States. (7) The major break in the Canada-U.S. productivity performance seems to have occurred around 1985, when productivity growth in Canada slowed significantly, relative to U.S. growth. (8) (See chart 1.)

Two distinct time periods can be identified: from 1970 to 1985, productivity growth in the Canadian business sector gain ground on their American counterpart; after 1985, however, the United States outperformed Canada. By the end of the 1990s, the Canada-U.S. productivity level gap expanded by 7 percentage points, relative to its value in the mid-1980s.

Our analysis shows that productivity growth picked up significantly in the United States starting in 1995 and in Canada starting in 1996, driven in both cases by a resurgence in service sector productivity. However, this growth has remained lower in Canada than in the United States. Our analysis suggests that the service sector contributed most significantly to the Canada-U.S. business sector growth gap from 1987 to 1996, whereas the manufacturing sector was the dominant player in explaining the gap from 1996 to 2000.

The data

The sample period for our analysis is from 1987 to 2000, with special emphasis on 1996 to 2000. The analysis focuses on labor productivity, defined as output per hour worked. (9) To ensure comparability across countries, we measure productivity on a value-added chain-Fisher basis for both Canada and the United States. Our data allow for a comparison of annual productivity growth rates between the two countries over the 1987-2000 period for the total business sector and four major industrial sectors: primary, (10) construction, manufacturing and services. Because of data limitations for Canada, (11) we can perform more detailed analysis within each of these sectors for the 1987-97 period only.

Canadian data. Productivity data for Canada are from Statistics Canada. In the past, industry-level output and productivity data have been available with only a considerable lag. These data are derived from the input-output accounts and often lag the latest aggregate output and productivity data by 3 to 4 years. …

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