C.D. Howe Institute: Canada Lagging Behind US & Europe for Labour Productivity – June 16, 2011

Toronto ON – In the race to improve productivity and household incomes, winners and losers emerge among the Canadian provinces, according to a report from the C.D. Howe Institute. InLagging Behind: Productivity and the Good Fortune of Canadian Provinces author Serge Coulombe says growing labour productivity is the most important determinant of future economic welfare and, on that measure, Canada is falling behind its major trading partners.

Increasing labour productivity does not mean workers working harder for less money, a common canard. Rather, says Coulombe, it means more investment in human capital (education or other learning); in physical capital (plants or other infrastructure); or in technology. Professor Coulombe shows which Canadian provinces, in the last 25 years, have advanced the furthest in labour productivity growth, and why.

Highlights of the provincial track records include:

  • The fastest productivity growth during the period was in Newfoundland and Labrador, followed by Saskatchewan and Ontario. The slowest productivity growth was in British Columbia, followed by New Brunswick.
  • Newfoundland and Labrador saw the largest improvement in its productivity because the province moved away from a low-productivity natural resource business, fishing, to a higher-productivity natural resource activity, oil extraction, and it recorded the largest improvement in human capital.
  • British Columbia clearly lags behind the other provinces in productivity growth, mainly because of anemic physical capital accumulation.
  • Alberta has had  among the lowest growth rates for human capital and labour productivity, reflecting a growing reliance on extracting resources from the oil sands, which require more labour and capital per dollar of output than did  past oil and gas reserves.

Overall, Coulombe points out, labour productivity growth for Canadian provinces over the period is very low from an international perspective; behind the average of the United States and the Euro 15 area.

For the study go to http://www.cdhowe.org/pdf/Commentary_331.pdf

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