Between 1980 and 1995, labor productivity in the business sector grew at an average annual rate in Canada, which was slightly faster than productivity growth in Germany, but significantly slower than labor productivity growth in France, Italy, Japan, and the United States. To better understand developments in labor productivity, it is useful to decompose its growth rate into changes in the capital/labor ratio and in total factor productivity. The contribution of information technology to labor productivity growth has been more modest in Canada than in the United States.

Abstract

Between 1980 and 1995, labor productivity in the business sector grew at an average annual rate in Canada, which was slightly faster than productivity growth in Germany, but significantly slower than labor productivity growth in France, Italy, Japan, and the United States. To better understand developments in labor productivity, it is useful to decompose its growth rate into changes in the capital/labor ratio and in total factor productivity. The contribution of information technology to labor productivity growth has been more modest in Canada than in the United States.

I. Labor Productivity Growth in Canada1

1. The surge in U.S. labor productivity growth since the mid-1990s has attracted considerable attention, as most other major industrial countries, including Canada, have not experienced a similar surge. This surge generated strong interest in understanding the role of information technology (IT) investment in boosting U.S. productivity growth and the conditions under which other countries might benefit from such investment. Given the high level of economic integration with the United States and broad similarities in the stance of policies over the past few years, Canada would be expected to experience a “U.S.-style” pickup in labor productivity growth sooner than other industrial countries, particularly those in Europe, where policy differences are more pronounced.

2. The contrast between high economic integration with the United States and lackluster productivity growth in Canada appears puzzling.2 To a large extent, however, the differences in labor productivity growth between Canada and the United States can be traced to the smaller size of the IT sector in Canadian manufacturing and to differences in the pattern of IT adoption and diffusion. They also reflect distortions caused by Canada’s employment insurance system and higher taxation on labor and capital relative to the United States, which may have limited capital deepening and total factor productivity growth in Canada. Nevertheless, investment in information technology has been buoyant in Canada since 1995, and recent policy actions aimed at eliminating distortions in the tax system should help to boost labor productivity growth in the period ahead, provided that the current macroeconomic policy framework and the structural reforms implemented over the past decade remain in place.

A. Trends in Labor Productivity in Canada: An International Comparison

3. Between 1980 and 1995, labor productivity in the business sector grew at an average annual rate of about 1¼ percent in Canada, which was slightly faster than productivity growth in Germany, but significantly slower than labor productivity growth in the United States, France, Italy, and Japan (Table 1). Since 1995, labor productivity growth has differed markedly among major industrial countries, accelerating in the United States and Germany, remaining broadly unchanged in Canada, and declining sharply in France, Italy, and Japan.3

Table 1.

International Comparison: Labor Productivity Growth in the Business Sector

(Annual, in percent)

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Sources: Staff calculations based on Statistics Canada; U.S. Bureau of Economic Analysis; and OECD.

4. To better understand developments in labor productivity, it is useful to decompose its growth rate into changes in the capital-labor ratio and in total factor productivity (Table 2 and Figure 1).4 In the United States, the acceleration in labor productivity growth during the 1990s, and especially since 1996, has been underpinned by both a rising capital-labor ratio and higher growth in total factor productivity. In contrast, labor productivity growth has remained largely unchanged in Canada through the 1990s, and has decelerated substantially since 1996, owing to a stagnant capital-labor ratio and slightly weaker growth in total factor productivity. Cyclical and structural factors may help to explain some of these differences. In particular, the 1990-91 recession was more severe in Canada than in the United States, and the Canadian economy also recovered more slowly. As a consequence, between 1990 and 1993, Canadian machinery and equipment investment lagged that in the United States (Figure 2). Since mid-1995, investment has been as buoyant in Canada as in the United States.5 As for the role of structural factors, the Canadian economy faced several important structural changes in the late 1980s and early 1990s, including free trade agreements and deregulation in the transportation, communications, and financial sectors, which intensified corporate restructuring.6 These changes may have contributed to the delayed recovery and weak growth in total factor productivity in Canada, owing to significant lags between restructuring and the realization of productivity gains. The introduction of new technologies and structural reforms may have a negative initial impact on productivity, as companies and workers require some time to adapt to new business conditions and as new technologies and practices are adopted and diffused across sectors in the economy.7

Table 2.

Canada: Labor Productivity Growth in the Business Sector

(Annual, in percent)

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Sources: Staff calculations based on Statistics Canada; and U.S. Bureau of Labor Statistics.

Data for the United States refer to 1996-98.

In Canada, improvements in labor quality are not presented separately, and are included in total factor productivity.

Figure 1.
Figure 1.

Canada and the United States: Business Sector Productivity

(1976=100)

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

Sources: Statistics Canada; United States Bureau of Labor Statistics; and staff estimates.
Figure 2.
Figure 2.

Canada and the United States: Real Investment in Machinery and Equipment

(Index 1990=100)

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

Sources: Statistics Canada; and U.S. Department of Commerce.

5. Given the increased integration of the Canadian and U.S. economies over the past two decades, the gap in labor productivity performance, especially since 1995, is somewhat surprising. It can be traced largely to the relative performance of the manufacturing sector. Labor productivity growth in Canadian manufacturing grew at an average annual rate of 2½ percent between 1980 and 1995, but subsequently decelerated, to roughly 1 percent in 1996-99, amid a decline in the capital-labor ratio and a weakening of total factor productivity growth. In contrast, labor productivity growth in U.S. manufacturing accelerated, from an average annual rate of 2¾ percent in 1980-95 to 4½ percent in the second half of the 1990s (Figure 3 and Table 3), reflecting a sustained process of capital deepening and an acceleration in total factor productivity growth. Recent studies by Statistics Canada (1999) and Gu and Ho (2000) suggest that the gap between the manufacturing sectors in the two countries may be explained by the relative performance of total factor productivity in specific industries. In electrical products and commercial and industrial machinery—which include computers and computer parts—U.S. productivity has significantly outperformed that of similar Canadian firms. This difference in performance, together with the fact that these industries have a larger share in manufacturing output in the United States, largely account for the differential in manufacturing productivity growth.

Figure 3.
Figure 3.

Canada and the United States: Manufacturing Sector Productivity

(1976=100)

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

Sources: Statistics Canada; United States Bureau of Labor Statistics; and staff estimates.
Table 3.

Canada: Labor Productivity Growth in the Manufacturing Sector

(Annual, in percent)

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Sources: Staff calculations based on Statistics Canada; and U.S. Bureau of Labor Statistics.

Data for the United States refer to 1996-98.

B. Adoption of Information Technology and Productivity Growth

6. As in the United States, the adoption of information technology accelerated significantly in Canada during the 1990s, and it is increasingly becoming an important source of economic, employment, and labor productivity growth. Since 1995, investment spending on machinery and equipment in Canada has increased at an average annual rate of 13½ percent, after remaining relatively flat in the first half of the 1990s (Figure 4). In particular, investment spending on computers and equipment and telecommunications grew at average annual rates of 30 percent and 17 percent, respectively.8 Strong spending on IT in Canada resulted in an increase in the IT sector as a share of the total economy, rising in real terms from about 4 percent in 1993 to 5¾ percent in 1999. Although the IT sector represents a relatively small share of the economy, its contribution to GDP growth has increased considerably since the mid-1990s, rising from about 8 percent in 1994 to 25 percent in 1999 (Figure 5).9 Although there has clearly been a step-up in IT-related investment spending in Canada, the acceleration has been more dramatic in the United States. Since 1995, growth in U.S. investment spending on machinery and equipment averaged about 12 percent, but spending on new computers and peripheral equipment averaged about 46 percent a year. Although IT accounts for less than 10 percent of output in the United States, the IT sector contributed about 30 percent of output growth on an annual basis over the period 1994-99.10

Figure 4.
Figure 4.

Canada and the United States: Real GDP and Real Investment Growth Average Annual Growth, 1995-99

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

Sources: Statistics Canada; and U.S. Department of Commerce.
Figure 5.
Figure 5.

Canada and the United States: IT Sector Contribution to Real Output Growth

(In percent of average annual growth)

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

7. Employment in Canada’s IT sector also exhibited strong growth, rising at an average annual rate of about 5¾ percent over the period 1994-98, compared to about 2 percent for total employment. As a result, the share of workers employed in the Canadian IT sector rose from about 3 percent of total employment in 1993 to about 3½ percent in 1998 (Figure 6). In the United States, employment growth in the IT sector employment was roughly the same as in Canada, although it started from a larger base and reached 5 percent of total employment by 1998. In both countries, these employment gains were largely concentrated in software and computer services, where the level of employment in these subsectors doubled over the period 1993-98.

Figure 6.
Figure 6.

Canada and the United States: IT Employment as Share of Total Employment

(In percent)

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

Sources: Industry Canada (2000); and U.S. Department of Commerce (2000).

8. The contribution of information technology to labor productivity growth has been more modest in Canada than in the United States. Recent evidence suggests that about 60 percent of the acceleration in U.S. labor productivity growth in the second half of the 1990s reflects an increase in total factor productivity growth, with the remaining 40 percent attributable primarily to a rising capital-labor ratio, reflecting to a significant degree investment in information technology.11 In contrast, growth in the capital-labor ratio and total factor productivity growth since 1996 have been largely unchanged in Canada, while the contribution of investment in information technology to labor productivity growth has been only one-third of that in the United States (Table 4). To a large extent, information technology capital is still a rather small part of total capital in the Canadian business sector, especially when compared with the United States (Table 5).12 In addition, the contribution from capital deepening from investment in other types of capital has been negative in Canada, in contrast with the United States where it has been slightly positive.

Table 4.

Canada: IT Contributions to Labor Productivity Growth in the Business Sector 1/

(Annual, in percent) 1/

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Sources: Staff calculations based on Statistics Canada; and U.S. Bureau of Labor Statistics.

Data for the United States are based on Oliner and Sichel (2000).

In Canada, improvements in labor quality are not presented separately, and are included in the capital-labor ratio.

Table 5.

Canada: Share of the IT Capital Stock in the Business Sector Capital Stock

(In percent)

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Sources: Staff calculations based on Statistics Canada; and U.S. Bureau of Labor Statistics.

Data are preliminary and are in real terms. For the United States, shares are also based on real capital stock data. However, since the stock data are chain-weighted, its subcomponents do not sum to the aggregate total. Nominal shares for 1974-90, 1991-95, and 1996-99 are 4.1 percent, 5.3 percent, and 5.6 percent, respectively.

9. In addition to the smaller size of the Canadian IT sector, the pattern of IT adoption and diffusion is distinctively different from that in the United States. According to Baldwin et al. (1999), the nationality of ownership and firm size have been important in explaining the pattern of technology adoption in Canada. Differences in technology adoption rates between domestically owned and foreign-owned firms in Canada have been quite significant over the past ten years. Based on information compiled in technology surveys for the manufacturing sector,13 the authors note that Canadian-owned firms significantly lagged foreign-owned firms in adopting new technologies between 1989 and 1993, the period in which Canada faced significant adjustment costs associated with the free trade agreement with the United States and a more severe recession than did the United States. The 1998 survey showed that differences in adoption rates for domestic- and foreign-owned firms had narrowed markedly for different kinds of technologies since 1993. The faster adoption rate in foreign-owned firms might be explained by the relatively large number of these firms that are multinationals, which tend to be larger and more likely to adopt new technologies. The authors conclude that lagging technology adoption rates in Canada have been primarily caused by a weaker performance of small- and medium-sized firms, as adoption rates for large domestically owned firms do not appear to differ significantly from those of multinationals in Canada over the past few years. In a previous study, Baldwin and Sabourin (1998) reported that small- and medium-sized firms in Canada tended to lag those in the United States in adopting or using new technologies. However, their analysis was based on data from manufacturing surveys conducted in 1989 and 1993, and therefore, may be heavily influenced by the effects of the 1990-91 recession and may not reflect more recent developments.

C. Adoption of Information Technology and the Policy Framework

10. In analyzing the acceleration in U.S. labor productivity growth, many observers and policymakers have emphasized the importance of having in place a flexible labor market and a sound tax regime. U.S. Federal Reserve Chairman Greenspan (2000) has noted that more costly labor markets tend to depress the rates of return on investing in new technologies, as businesses face higher costs of displacing workers, and therefore delay the rewards from incorporating new technologies. In the same vein, Bassanini et al. (2000) have emphasized that excessively high employment protection regulation and other policy-induced restrictions—such as a high level of taxation or a distortive tax system—tend to inhibit the adoption and diffusion of new technologies and the associated adjustments in the labor force that new technologies induce. As a result, labor productivity growth tends to be lower.

11. In terms of employment protection regulation, a recent study by Nicoletti et al. (2000) shows that the stringency of Canadian regulations is low relative to other OECD countries but high relative to the United States (Figure 7).14 To some extent, the difference in the stringency of employment protection between Canada and the United States lies in regulations affecting regular employment contracts and reflects higher direct costs of dismissals in Canada. For example, the statutory entitlement in the case of no-fault dismissals after four years of employment is higher in Canada than in the United States. The study also shows that Canada and the United States have not changed the stringency of their regulations on regular and temporary contracts between 1990 and 1998, while other industrial countries have tended to make regulations on regular contracts more stringent and temporary contracts less stringent during the 1990s.

Figure 7.
Figure 7.

Selected OECD Countries: Employment Protection and Dismissal Costs

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

Sources: OECD.

12. Disincentives in labor force participation associated with differences in the structure of unemployment insurance systems between both countries may pose some additional constraints in the functioning of labor markets in Canada. The Employment Insurance (EI) system in Canada has been considered to be a contributing factor to the higher level and persistence of unemployment in Canada during the 1990s. While significant reforms to the system have been introduced to lessen disincentives to work and reduce structural unemployment in the 1990s, the current EI system still provides important disincentives vis-à-vis the United States. The EI system in Canada is not experience-rated as in the United States, relying instead on uniform contributions from employers which are not linked to the costs they impose on the system. The result is significant cross subsidization of industries that are more prone to generating unemployment. For example, seasonal resource-based industries in the Atlantic provinces have been the largest net beneficiaries of the EI system, and industries in these provinces may have structured job duration based on the benefits available from the EI system.15 In addition, reducing or eliminating the current practice of regional extended benefits, which is primarily based on regional unemployment rates, would encourage labor mobility across provinces and discourage the use of the EI system by employers in seasonal industries to maintain their workforces.

13. The tax burden on capital and labor in Canada has been high by international standards, especially relative to the United States. Carey and Tchilinguirian (2000) show that average taxation levels on capital and labor in Canada have trended upwards over the past 15 years, especially during the 1990s, outpacing the increase in average tax levels on capital and labor in the United States and the EU (Figure 8). In addition, marginal tax rates on personal income have been very high, especially at the middle-income bracket, while the burden of corporate income taxes has not only been high relative to the United States (Table 6), but also has tended to penalize “new technology” sectors (Table 7). The measures introduced in The Budget Plan 2000 and the October 2000 Economic and Budget Update, particularly the reductions in personal and corporate income taxes, as well as in capital gains taxes, are expected to reduce the distortions embedded in the Canadian tax regime and increase the attractiveness of business operations and new investments in Canada (Table 8).

Figure 8.
Figure 8.

Canada and the United States: Tax Rates on Capital and Labor

Citation: IMF Staff Country Reports 2001, 157; 10.5089/9781451806939.002.A001

Sources: OECD.
Table 6.

Canada: Corporate Tax Rates in Canada and the United States

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Sources: The 2000 Economic Statement and Budget Update. Department of Finance, Canada.
Table 7.

Canada and the United States: Corporate Tax Rates Across Sectors

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Sources: Department of Finance, Canada.
Table 8.

Canada: Measures to Promote Entrepreneurship in Canada

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Sources: The 2000 Economic Statement and Budget Update, Department of Finance, Canada.

Annex: Cross-Country Comparisons of Labor Productivity Growth: Methodological Issues

14. Labor productivity represents the amount of output produced per unit of labor, and is typically measured as the ratio of real GDP to hours worked. In disaggregated terms, labor productivity growth reflects the amount of capital per hours worked (capital deepening), the growth in the quality of labor, and in total factor productivity. While straightforward in concept, labor productivity is difficult to measure in practice, particularly in the context of cross-country comparisons because of significant variations in Statistics methodologies.

Comparison Between Canada and the United States16

Differences in measuring output

15. There are several important methodological differences in how real GDP estimates are constructed in Canada and the United States. First, Canadian and U.S. national accounts differ in how information technology (IT) goods, and in particular software, are treated. In the 1999 revisions to the U.S. national accounts, software was reclassified as an investment good—previously software was considered to be an intermediate good. This change resulted in higher output growth than previously estimated, and accordingly, higher productivity growth. Canada has yet to adopt this change in its national accounts. Second, Canada’s measure of business sector output includes the crown corporations (government-owned companies), whereas, the U.S. measure excludes government enterprises.

16. Third, in constructing real GDP, Canada uses a fixed-base-volume index in which quantities are valued in terms of a fixed set of prices for a particular base year, which is updated roughly every fifth year. A drawback of this type of index is that it suffers from “substitution bias,” in that it does not reflect changes in relative prices that occur from year to year. Sectors in which prices are falling sharply and output is rising rapidly—for example, the IT sector—tend to be overweighted by the fixed-weight index, and as a result, real GDP growth is overestimated. As part of its comprehensive revisions to the national accounts in 1996, the United States adopted a chain-type index in which the price weights are updated every year, and therefore the problem of substitution bias is eliminated.17

17. Fourth, there are also differences in the construction of prices used to deflate nominal output, particularly in the IT sector. Improvements in IT-product quality and the introduction of new goods have presented challenges for how price indices should incorporate these changes. The United States has adopted a hedonic approach to price measurement, particularly for the IT sector. The price of a good is specified in the form of a regression equation as a function of its various quality characteristics. Changes in these characteristics can then be used to estimate quality-adjusted prices. Canada has adopted the hedonic price approach for many segments of the IT sector and supplements Canadian price data with some U.S. series for specific IT goods. For semiconductors, however, Canada continues to employ the traditional method that uses the change in the cost of production as an indicator of the change in quality.

Differences in measuring components of labor productivity growth

18. Labor productivity growth is typically decomposed into contributions arising from capital deepening, growth in labor quality, and growth in total factor productivity, which is derived as a residual. As a result, in conducting cross-country comparisons of total factor productivity growth, it is also important to understand the methodological differences in measuring capital and labor.

19. Measuring capital deepening is particularly difficult. In the United States, a broad definition of the capital stock in the business sector is used and includes equipment, structures, rental residential capital, inventories, and land.18 In contrast, Canada uses a narrower definition which excludes land and inventories. Because land and inventories tend to grow at a slower rate than the total capital stock, this narrower definition tends to overstate Canadian capital stock growth relative to that in the United States, tending to understate Canadian total factor productivity growth vis-à-vis the United States. At the same time, the Canadian depreciation rates for capital are significantly higher than those used in the United States which results in an underestimation of capital growth, and therefore an overestimation of relative total factor productivity growth. Coulombe (2000) suggests that this underestimation of capital stock growth more than outweighs the overestimation arising from the exclusion of inventories and land, implying that overall, total factor productivity growth in Canada may be biased upward relative to that in the United States.

20. There are significant methodological differences between Canada and the United States in how labor quality is measured. In Canada, relative wages by industry are used to weight growth in hours worked; therefore, compositional changes in the labor force depend on structural shifts across industries.19 In contrast, in the United States, growth rates in hours are weighted by relative wages for worker classes that are based on gender, experience, and education.

Cross-Country Differences in National Accounts

21. On a broad cross-country basis, there are considerable methodological differences in the underlying data used to measure productivity growth, making multi-country international comparisons difficult to interpret. In particular, important differences lie in how various countries account for quality changes in price indexes and the extent to which countries have revised their system of national accounts (see table below).

Cross-Country Comparison of Methodological Differences

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Sources: OECD (2001) and Gust and Marquez (2000).

SNA 1993 and ESA95 are the United Nations 1993 System of National Accounts, and the 1995 European System of National Accounts, respectively. NIPA is the National Income and Product Accounts.

22. Because measures of productivity growth are based on real output and real capital, price deflators to deflate nominal values of these variables are important. Rapid improvements in product quality, particularly in the computer industry, underscores the need to use hedonic pricing whereby prices are adjusted to reflect these improvements. Hedonic pricing is used most widely in the United States and Canada and to a lesser extent in France, but not at all in Germany and the United Kingdom. Countries that use hedonic price indices, particularly for computers will tend to show higher output growth in their information technology (IT) sector, and accordingly, higher labor productivity growth.20

23. Cross-country comparisons of labor productivity growth are also affected by how various countries construct their national accounts. Many countries are in the process of updating their systems of national accounts to conform to either the United Nations’ 1993 System of National Accounts, or the 1995 European System of National Accounts.21 A complete updating will entail considerable changes over time, and include a broader definition of investment that incorporates software, as well as greater use of chain-weighted price indexes. Both of these recommended changes would have the effect of raising the growth rate of real GDP, and therefore labor productivity growth. Although the United States has already implemented these changes, many countries have made less progress, making U.S. data less comparable to that of other countries.

List of References

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1

Prepared by Martin Cerisola, Paula DeMasi, and Victor Culiuc.

2

In line with recent attention in the literature, this paper primarily focuses on labor productivity growth rather than on total factor productivity growth. Cross-country comparisons of productivity are somewhat limited by methodological differences in how the underlying data are constructed. This paper largely focuses on a comparison between Canada and the United States because the methodological differences between these two countries appear to be less pronounced than with respect to other industrial countries. The annex to this paper provides a description of some of the most important differences in estimating productivity between Canada, the United States, and other industrial countries.

3

In contrast to the United States, the acceleration of labor productivity growth in Germany appears to reflect the substitution of capital for labor, as evidenced by a high rate of unemployment.

4

This decomposition assumes that the production function depends exclusively on two inputs, labor and capital, as well as on the “current state of technology” or total factor productivity. The growth rate of labor productivity can be decomposed into the growth rate of the capital-labor ratio, weighted by the contribution of capital in production, and the growth rate of total factor productivity.

5

However, methodological differences overstate the pickup in Canadian investment relative to the United States. In the Canadian national accounts, a Laspeyres index is used to deflate investment. If a Fisher-type index were used as in the United States, Canadian investment growth would be somewhat lower in the post-1995 period. For a more detailed description, see Productivity Growth in Canada (2001).

6

A similar process of deregulation and corporate restructuring took place in the United States during the early 1980s. Kwan (2000) notes that the extent of corporate restructuring in Canada was greater in the 1990s than in the 1980s, and that the most common type of restructuring was the adoption of new technology and mergers and consolidations.

8

In the first half of the 1990s, investment spending on computers and telecommunications grew at an average annual rate of 19 percent and 3 percent, respectively.

9

The contribution of the IT sector to aggregate GDP growth is somewhat overstated because real GDP is valued at 1992 prices and prices for goods produced in the IT sector have declined considerably since then. See the annex for a more detailed explanation.

10

The IT sector as a share of GDP in real terms increased from about 5 percent in 1994 to 10 percent in 1999. However, because U.S. real GDP data are chain-weighted, calculating shares can be potentially misleading. Contributions to real output growth are based on inflation-adjusted data for gross domestic income because the data used in calculating GDP are not sufficiently disaggregated to capture the growth of the IT sector alone.

11

Results based on Oliner and Sichel (2000). For a review of other studies which decompose the acceleration in labor productivity growth into capital deepening and total factor productivity, see “Does the Pickup in Productivity Growth Mean That There is a New Economy?” in United States: Selected Issues, (2000).

12

The estimated contribution rate was based on chain-weighted indices published by Statistics Canada for labor productivity and capital and labor services for the business and manufacturing sectors. Data for information technology capital stock, which were also provided by Statistics Canada, were based on 1992 prices. These data are preliminary and unpublished. They were used as a proxy for information technology capital services, and they may bias upward the relative contribution of IT investment to labor productivity growth, because these data are not based on a chain-weighted index as the rest of the data are. However, in the recently published study, Conference Board of Canada (2000), based on 1992 data for labor productivity as well as for all factor inputs, very similar results to those presented here were reached.

13

These surveys were conducted in 1989, 1993, and 1998.

14

Employment protection regulation is measured by applying factor analysis to several indicators for regular and temporary contracts such as the direct costs and delay of dismissals associated with procedural obstacles.

15

See “Experience Rating of Employment Insurance Premiums,” in Canada: Selected Issues(2000); and Green and Sargent (1995).

16

Eldridge and Sherwood (2000) analyze the methodological differences in constructing labor productivity in both Canada and the United States and conclude that these differences, at least at the aggregate level, do not explain much of the observed gap in labor productivity, particularly in the manufacturing sector.

17

For example, in Canada, based on the fixed-base-volume index, labor productivity increased by 2½ percent over the period 1999Q2 to 2000Q2. However, if a chain-type index were used instead—as in the United States—for calculating real output, then Canadian labor productivity growth would be reduced to 2 percent. See Bank of Canada (2000).

18

Rental residential is not included in the manufacturing sector.

19

Therefore, the growth in relatively higher wage industries is assumed to reflect an increase in labor quality.

20

Without quality adjustments, a change in price will be overstated, and the corresponding change in real output will be understated.

21

The 1995 European System—used by EU members—was designed to be consistent with the 1993 System of National Accounts—used by other countries.

Canada: Selected Issues
Author: International Monetary Fund
  • View in gallery

    Canada and the United States: Business Sector Productivity

    (1976=100)

  • View in gallery

    Canada and the United States: Real Investment in Machinery and Equipment

    (Index 1990=100)

  • View in gallery

    Canada and the United States: Manufacturing Sector Productivity

    (1976=100)

  • View in gallery

    Canada and the United States: Real GDP and Real Investment Growth Average Annual Growth, 1995-99

  • View in gallery

    Canada and the United States: IT Sector Contribution to Real Output Growth

    (In percent of average annual growth)

  • View in gallery

    Canada and the United States: IT Employment as Share of Total Employment

    (In percent)

  • View in gallery

    Selected OECD Countries: Employment Protection and Dismissal Costs

  • View in gallery

    Canada and the United States: Tax Rates on Capital and Labor