Ottawa – If Canada’s productivity had matched that of the US between 1988 and 2008, individual Canadians would be much wealthier, corporate profits would be much higher, and all levels of governments would have raked in billions more dollars. This is the conclusion of a Conference Board of Canada study that looks at how much – in dollars and cents – Canada has lost as a result of two decades of sluggish productivity growth.
Real GDP per capita would have been $8,500 higher in 2008, personal disposable income would have been $7,500 higher, corporate profits would have been 40% higher, and federal government revenues would have been 31% higher, if Canada’s labour productivity had matched the United States between 1988 and 2008.
“Putting it plainly, increasing our productivity growth performance over the past two decades to equal that of our neighbour would have significantly increased Canadian wealth and improved our standard of living,” said Mario Lefebvre, director, Centre for Municipal Studies.
“These results should impress upon policymakers, as well as average Canadians, just how vital it is for Canada to improve its productivity performance.”
Based on 2008 figures, Americans were $13,000 richer than Canadians when measured in purchasing power parity. Under a scenario in which Canada’s productivity growth matched that of the United States, the gap would have been less than $7,000.
Labour productivity growth in Canada has been weak since the mid-1980s. For this analysis, the Conference Board developed a simulation boosting Canadian labour productivity growth by 0.8 percentage points per year higher from 1988 to 2008. This increase is identical to the difference between annual labour productivity growth in the United States (2.2%) and Canada (1.4%) over those 20 years.
The Conference Board has argued that productivity growth is based on three principal factors – labour quality, capital intensity and what economists call multi-factor productivity, which, in the main, is innovation. Multi-factor productivity includes technological progress and organizational changes.
Since the 1980s, Canada’s performance in both multi-factor productivity (or innovation) and capital intensity has been sluggish relative to the US performance, while labour quality has been relatively stable. Previous Conference Board research found that Canada’s relatively well-educated workforce does not have the physical capital required to maximize productivity performance.
This publication, Canada’s Lagging Productivity: What If We Had Matched the US Performance?, was conducted as part of the CanCompete program of research and dialogue, which is designed to help leading decision-makers advance Canada on a path of national competitiveness.