MRO Magazine

Slight productivity increase in Canada matches U.S. in 4th quarter 2006

Ottawa, ON -- Productivity in Canadian businesses increased 0.3% between October and December, 2006, after a weak p...


Human Resources

March 14, 2007
By MRO Magazine
MRO Magazine

Ottawa, ON — Productivity in Canadian businesses increased 0.3% between October and December, 2006, after a weak performance over the two preceding quarters, according to Statistics Canada. The Fourth Quarter 2006 results reflected a slight slowdown in growth in gross domestic product (GDP) and a more noticeable slowdown in the growth in hours worked. Productivity improves when the GDP increases more than hours worked.

With the depreciation in the Canadian dollar, unit labour costs expressed in U.S. dollars were down in the fourth quarter for the first time in six quarters. This allowed Canadian businesses to recover some of the competitiveness they had lost in relation to their U.S. counterparts starting in the third quarter of 2005.

Annual productivity growth reached 1.2% for 2006 as a whole, lower than the 2.1% recorded in 2005. This moderate gain in productivity can largely be attributed to the slowdown in productivity growth in the goods sector, while the services sector (mainly wholesale and retail trade) made a more positive contribution.

In particular, shortages of skilled labour in the West contributed to the productivity slowdown; and developments associated with activity in Alberta’s tar sands, which resulted in strong growth in the volume of hours worked without yet generating commensurate increases in production (see The Daily, February 23, 2007).

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CANADA AND U.S. PRODUCTIVITY ADVANCES AT THE SAME PACE

Productivity advanced a modest 0.3% in both Canada and the United States during the last quarter of 2006.

Canadian business sector real GDP grew 0.3% in the fourth quarter, a slightly slower pace of growth than in the previous two quarters. GDP had posted a strong increase of 1.0% in the first quarter and then slowed to 0.4% in the second quarter and 0.5% in the third quarter of 2006.

On the labour market front, hours worked in Canadian companies edged up 0.1% in the fourth quarter, while employment rose by 0.8%. Hours worked grew less than employment because of a decline in hours worked per job. A large part of this decline came from a relatively higher growth in the number of part-time jobs, a decline in overtime hours and the unusual storms in British Columbia.

Growth in U.S. business sector real GDP accelerated slightly to 0.6% in the fourth quarter, reflecting the strong rise in consumer spending and the downturn in imports. Stronger exports also contributed to the growth in the U.S. GDP in the last quarter of 2006. GDP growth in the fourth quarter followed gains of 0.5% in the third quarter and 0.7% in the second.

Hours worked in American businesses increased 0.3% in the fourth quarter, down from 0.6% in the previous quarter.

UNIT LABOUR COST CONTINUE TO INCREASE

Unit labour cost, salary costs and benefits of workers per unit of economic production, rose more quickly in the United States than in Canada in the fourth quarter, when measured in their respective national currencies.

Without taking the exchange rate into account, unit labour costs in Canadian businesses accelerated in the latter half of 2006, by 0.7% in the third and 1.1% in the fourth quarter. U.S. businesses saw their unit labour costs jump to 1.6% in the fourth quarter, a large increase compared to the two previous quarters.

The competitive position was even more favourable for Canadian businesses in the fourth quarter when the unit cost of labour is adjusted for the exchange rate. In the fourth quarter, the Canadian dollar depreciated by 1.6% against the U.S. dollar. This depreciation resulted in a 0.5% decline in Canadian unit labour costs, expressed in American dollars.

YEAR 2006 IN REVIEW

Productivity in Canada was up 1.2% in 2006. This growth was considerably above the levels in 2003 (+0.0%) and 2004 (+0.3%), but below the level in 2005 (+2.1%). Canadian productivity growth rates over the last four years have fluctuated considerably.

In comparison, annual productivity growth in the United States was 1.7% in 2006, continuing the slowdown since the 4.1% peak recorded in 2002.

In 2005, Canada had closed the gap in productivity growth with the United States, bringing its annual growth to 2.1%. The gap re-emerged in 2006 because of differences in GDP growth. The growth in business sector real GDP decelerated to 2.7% in 2006 from 3.0% in 2005. Meanwhile, south of the border, business sector production climbed 3.8% in 2006 from 3.7% in 2005.

In contrast, growth in hours worked accelerated in both countries by the same amount. In Canada, hours worked growth increased to 1.5% from 1.0% in 2005 while, in the United States, hours worked growth increased to 2.1% from 1.6%.

From an employment standpoint, the growth in employment in Canada in 2006 was highly concentrated in full-time work. The volume of hours worked and the number of jobs in Canadian businesses rose at the same pace (+1.5%). In contrast, the volume of hours worked increased by 1.0% in 2005, much less than the 1.8% growth in the number of jobs.

In 2006, the volume of hours worked in American businesses increased by 2.1% from 1.6% in 2005. This is the second year in a row that hours worked in the United States grew more than in Canada. Prior to 2005, the growth in Canadian hours worked had been larger than in the United States every year since 1997.

In 2006, the tightening of the labour market in Canada, particularly in the western part of the country, led to an increase in the escalation of hourly compensation growth for a second consecutive year. The latter was up by 3.8% in 2006 compared with 4.4% in 2005, more than the 2.6% average observed between 2001 and 2004.

This stronger growth in hourly compensation, combined with productivity gains of 1.2%, led to a 2.6% increase in the unit labour costs of Canadian businesses in 2006. The increase in 2006 was the largest since 2001, when this indicator posted 3.0% growth. Unit labour cost has been increasing steadily since 2004.

In the United States, unit labour cost has also been increasing steadily since 2004. Prior to 2006, unit labour cost increases in the U.S. were less than in Canada. From 2006, they exceeded the increases experienced in the Canadian economy, when each are measured in their respective currencies. However, when measured in U.S. dollars, the annual growth of unit labour costs in Canada have been close to 10% since 2004, far exceeding the U.S. experience.