V. Trends in Labour Productivity and Wages in Canada, the United States and Other OECD Countries, 1961-2007

International Productivity Monitor, Fall 2008 | Go to article overview

V. Trends in Labour Productivity and Wages in Canada, the United States and Other OECD Countries, 1961-2007


This part of the report is divided into four sections. The first three sections respectively analyze trends in the relationship between labour productivity, product wages, and consumption wages in Canada, at the national, provincial and industry level, in the United States, and in other member countries of the Organisation for Economic Cooperation and Development (OECD). The final part of this part summarizes key findings from this analysis.

A. Canada

This section provides an overview of trends in labour productivity, product wages, and consumption wages in Canada from 1961 to 2007. First, aggregate trends are analyzed with reference to the changing labour share and labour's terms of trade. The next section analyzes trends in labour productivity and real wages at the provincial level. The final section analyzes trends by industry.

i. Aggregate Trends in Labour Productivity and Real Wages

Over the period 1961 to 2007, growth in both product wages (1.56 per cent per year) and consumption wages (1.67 per cent per year) has generally lagged labour productivity (1.73 per cent per year) (Chart 7and Summary Table 5).

[GRAPHIC 7 OMITTED]

When the period 1961 to 2007 is decomposed into sub-periods, the changing relationship between real wages and labour productivity is easier to see. Sub-periods were determined by peaks and end-points in the real GDP series (1961, 1973, 1981, 1989, 2000, 2007). From 1961 to 1973 and from 1973 to 1981, labour productivity grew slightly faster than product wages, reflecting a small decline in labour's share from 57.5 per cent of GDP to 56.5 per cent of GDP in 1981 (Chart 8). From 1981 to 1989 labour productivity grew somewhat faster than product wages, reflecting a decline in labour share to 55.6 per cent of GDP. Labour's share then shrank to 53.3 per cent of GDP by 2000 reflecting labour productivity growth of 1.54 per cent per year from 1989 to 2000, which significantly exceeded product wage growth of 1.15 per cent per year. In the 2000s, labour productivity growth only slightly exceeded the growth in product wages, reflecting a decline in the labour share from 53.3 per cent to 53.1 per cent of GDP. The declining labour share is the key trend that is the subject of potential explanations in part VI.

In Canada, labour's terms of trade improved slightly over the period 1961 to 2007, but this improvement concealed a major shift within the period (Summary Table 5 and Chart 9). Labour's terms of trade improved considerably from 1961 to 1973, driving consumption wage growth to exceed growth in labour productivity and growth in product wages. After further small increases to 1976, labour's terms of trade fell steadily until the early 1990s. This fall resulted in consumption wage growth from 1981 to 2000, which at 0.28 per cent per year was well behind growth in labour productivity or product wages. From 1989 to 2000, there was a further fall in labour's terms of trade, though less so than in the 1980s, but consumption wages still failed to keep pace with labour productivity or product wages. Finally, between 2000 and 2007 there has been a turnaround, consumption wage growth outpaced labour productivity and real wage growth for the first time since the 1970s. Part VI explores reasons for the major shifts in labour's terms of trade.

[GRAPHIC 8 OMITTED]

[GRAPHIC 9 OMITTED]

ii. Provincial Trends in Labour Productivity and Real Wages

This sub-section explores the relationship between labour productivity and real wages in the Canadian provinces. Over the period 2000-2007 (11) in Canada as a whole, labour productivity grew at an average annual rate of 1.03 per cent and product wages advanced by 0.98 per cent per year reflecting a decline in the labour share from 53.3 per cent of GDP to 53.1 per cent. Consumption wages grew by 1.24 per cent per year on average, as labour's terms of trade improved slightly. …

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