Download CAPE 3rd Annual Engineering Knowledge Conference Wednesday

Productivity Performance and
Government Policy
Andrew Sharpe
Executive Director, Centre for the Study of Living Standards
Annual Meeting of the Canadian Economics Association
Laval University
Quebec, Quebec
Saturday, May 29, 2010
Outline of Presentation
I Canadian Productivity Performance

Overall Productivity Trends

A Growth Accounting Perspective

An Industry Perspective

A Provincial Perspective

Impact of the Reallocation of Labour
II Productivity Drivers and the State of Policies Affecting Productivity

Investment

Innovation

Human Capital

Macroeconomic Framework Policies

Microeconomic Framework Policies
III Policy Priorities for Improved Productivity in Canada
2
Real Output per Hour Growth, Business Sector, Canada and the United States, Per Cent, 1947-2009
Average Annual Rates
3
4
%
Relative Labour Productivity Levels in the Total Economy in Canada, 1961-2009
(Canada as % of the United States)
100
95
90
85
80
75
70
65
1947
1951
1955
1959
1963
1967
Source: CSLS Canada-US Productivity Database
5
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
Chart 3: GDP per Hour Worked Growth in OECD Countries, 2000-2007 (Compound Annual Rate of
Growth, Per Cent)
Slovak Republic
Czech Republic
South Korea
Turkey
Poland
Greece
Iceland
Ireland
Sweden
Finland
United Kingdom
Hungary
United States
Japan
Australia
Norway
Germany
New Zealand
France
Luxembourg
Canada
Netherlands
Denmark
Switzerland
Belgium
Austria
Portugal
Spain
Mexico
Italy
5.1
4.6
4.5
3.9
3.4
3.1
3.0
2.8
2.3
2.3
2.3
2.1
2.0
1.9
1.7
1.6
1.3
1.3
1.2
1.2
1.2
1.1
1.0
1.0
0.9
0.9
0.9
0.9
0.7
0.0
-0.5
6
0.5
1.5
Source: Groningen Growth and Development Centre: www.ggdc.net.
2.5
3.5
4.5
5.5
Productivity Elasticity, Business Sector, Canada and the United States, 1947-2007
1.2
Canada
United States
1.00
1.0
0.8
0.80 0.79
0.68
0.61
0.6
0.47
0.51
0.42
0.50
0.45
0.56
0.38
0.4
0.2
0.0
47-73
73-00
73-89
89-96
96-00
00-07
Sources: GDP in chained dollars and total hours worked from the Productivity and Costs Program of the Bureau of Labor Statistics for the United States, and annual averages of quarterly
estimates from the Productivity Program Database of Statistics Canada for Canada.
7
Sources of Labour Productivity Growth in the Canadian Business Sector, 1973-2000 and 20002007
Post-2000
1973-2000
8
2000-2007
Change
B-A
A
B
Average Annual Rate of Growth
Output
3.35
2.59
-0.76
Total hours
1.66
1.51
-0.15
Labour composition
0.60
0.54
-0.06
Capital services
4.65
3.90
-0.75
Capital stock
2.86
2.49
-0.36
Capital composition
1.75
1.35
-0.39
ICT capital services
19.56
10.17
-9.38
Non-ICT capital services
3.54
3.24
-0.31
Capital services intensity
2.94
2.35
-0.59
ICT cap. serv. Intensity
17.60
8.53
-9.08
Non-ICT cap. serv. Intensity
1.85
1.70
-0.16
Average Annual Percentage Point Contributions to Labour Productivity Growth
Labour productivity
1.66
1.06
-0.60
Labour composition
0.36
0.31
-0.05
Capital services intensity
1.15
1.01
-0.14
Capital stock intensity
0.70
0.68
-0.02
Capital composition intensity
0.43
0.32
-0.11
ICT cap. serv. Intensity
0.46
0.34
-0.13
Non-ICT cap. serv. Intensity
0.67
0.66
-0.01
Multifactor productivity
0.15
-0.26
-0.41
Average Annual Percent Contributions to Labour Productivity Growth
Labour productivity
100.0
100.0
100.0
Labour composition
21.7
29.6
7.8
Capital services intensity
68.9
95.2
22.8
Capital stock intensity
42.2
64.3
3.5
Capital composition intensity
25.9
30.3
18.2
ICT cap. serv. Intensity
27.8
31.7
20.9
Non-ICT cap. serv. Intensity
40.5
62.5
1.8
Multifactor productivity
8.9
-24.5
67.5
Source: CSLS Calculations based on the Canadian Productivity Accounts from Statistics Canada,
CANSIM Table 383-0021.
Labour Productivity Growth by Province, 1997-2007
Average Annual Rate of Growth
9
Capital Productivity Growth by Province, 1997-2007
Average Annual Rate of Growth
5
4.2
4
3
2
1
0.4
0.3
0.2
0
-0.5
-1
-0.5
-0.6
-0.6
-1.0
-2
-1.9
-3
-3.4
-4
Nfld.
Que.
N.S.
Ont.
B.C.
Source: CSLS calculations based on unpublished Statistics Canada data.
10
Man.
Canada
Sask.
N.B.
P.E.I.
Alta.
Multifactor Productivity Growth by Province, 1997-2007
Average Annual Rate of Growth
5
4.1
4
3
2
1.1
1
0.9
0.8
0.6
0.5
0.4
0.4
0.1
0
-0.2
-1
-1.6
-2
Nfld.
N.S.
Que.
Ont.
Source: CSLS calculations based on unpublished Statistics Canada data.
11
Man.
B.C.
Canada
N.B.
Sask.
P.E.I.
Alta.
Labour Productivity Growth by Industry in Canada, 1997-2007
Average Annual Rate of Growth
12
Capital Productivity Growth by Industry in Canada, 1997-2007
Average Annual Rate of Growth
Agriculture, forestry, fishing and hunting
2.0
Manufacturing
1.6
Construction
1.4
Information and Cultural Industries
0.5
Utilities
0.0
Wholesale Trade
-0.2
Accommodation and Food Services
-0.4
Market Sector
-0.6
Other Services
-0.8
FIRE*
-0.9
Retail Trade
-1.0
Transportation and Warehousing
-1.9
ASWMRS**
-2.8
Arts, Entertainment and Recreation
-4.5
Mining and Oil and Gas Extraction
-5.7
Professional, Scientific and Technical Services
-6.7
-8
-7
-6
-5
Source: CSLS calculations based on unpublished Statistics Canada data.
* FIRE: Finance, Insurance, Real Estate and Renting and Leasing
**ASWMRS: Administrative and Support, Waste Management and Remediation Services
13
-4
-3
-2
-1
0
1
2
3
Multifactor Productivity Growth by Industry in Canada, 1997-2007
Average Annual Rate of Growth
Agriculture, forestry, fishing and hunting
2.5
Wholesale Trade
2.2
Retail Trade
2.1
Manufacturing
1.8
Construction
1.6
Information and Cultural Industries
1.5
Other Services
1.2
Accommodation and Food Services
0.6
Market Sector
0.4
FIRE*
0.0
Utilities
-0.3
ASWMRS**
-0.4
Transportation and Warehousing
-0.5
Professional, Scientific and Technical Services
-0.7
Arts, Entertainment and Recreation
-2.0
Mining and Oil and Gas Extraction
-4.8
-6
-5
Source: CSLS calculations based on unpublished Statistics Canada data.
* FIRE: Finance, Insurance, Real Estate and Renting and Leasing
**ASWMRS: Administrative and Support, Waste Management and Remediation Services
14
-4
-3
-2
-1
0
1
2
3
A Comparison of Sectoral Contribution in 1973-2000 and 2000-2007 period Divided into
Within-Sector and Reallocation Effects
15
Investment
Weaknesses
 Low share of machinery and equipment investment in GDP
 Low share of ICT investment in GDP
 Long-term decline in public investment as a share of GDP
Policy Reponses
 Introduction of the HST in Ontario and British Columbia to reduce the
marginal effective tax rte (METR) on investment
 Reduction in the statutory federal corporate tax rate
 Special incentives for ICT investment
 Increased infrastructure spending
16
Business Investment per Worker
Canada as a per cent of the US (Average 1985 – 2005)
17
ICT Investment per Employed Person – 2002
18
The Canada -United States ICT Investment Gap by Indicator (Canada/US)
19
The Canada-US ICT Gap, Canada as a proportion of the United States, 2008
20
Innovation
Weaknesses
 Very weak technical progress, as implied by the poor performance of total
factor productivity growth
 Low business sector R&D intensity
 Weak linkages between university research and business innovation
Policy Responses
 Generous tax incentives for business R&D
 Increased government support for higher education R&D
 Exhortation for better university-business technological partnerships
21
Business R&D Intensity – Business Expenditure on R&D as a Percentage of GDP
22
Trend Components of R&D Intensity in Canada
23
Government Funding of Business R&D
Per cent of GDP
24
Human Capital
Strengths
Highest proportion of the population with a post-second education among OECD countries
 High PISA scores for high school students
 World class research universities

Weaknesses





Relatively low proportion of the population with graduate degrees
Low completion rate for apprenticeship programs
Underutilization of the human capital of recent immigrants
Low levels of human capital of Aboriginal Canadians
Poor literacy skills for a significant proportion of the workforce
Policy Responses
Better recognition of foreign credentials
 Greater emphasis on high school completion with an increase in the age of compulsory schooling to
18 in Ontario and New Brunswick

25
Macro-economic Framework Policies
 Stable inflation through inflation targeting
 Low debt/GDP and deficit/GDP ratios by international
standards
 Improved fiscal position in the medium term due to recovery
and spending cuts
26
Micro-economic Framework Policies
 Market-oriented approach to framework policies as evidenced by




27
privatization of Crown corporations, deregulation of certain sectors
(e.g., telecommunications) and apparent easing of foreign ownership
restrictions
Canada already one of the most market-oriented economies in the world
Still some interprovincial barriers to trade (e.g. provincial procurement
policies) and labour mobility (recognition of professional credentials)
Still foreign ownership rules in certain sectors
Marketing boards with controls on domestic production and imports are
the most important barrier to international trade
Index of Barriers to Entrepreneurship - 2003
28
Market Regulation, Canada, 1975 and 2003
29
Policy Priorities for Improved
Productivity Growth in Canada
 Greater assistance for technology transfer and adoption of best practice






30
techniques by small and medium-sized firms
Rebalancing of government assistance to business R&D from tax
incentives to direct support, and to technology transfer programs
Gradual winding down of marketing boards with production quotas
through buy-outs
Greater emphasis on graduate education
Objective of virtually universal high school completion by moving the
compulsory schooling age to 18
Increased emphasis on upgrading the skills of Aboriginal Canadians
More effective policies to improve the utilization of the human capital of
immigrants