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Productivity
Micro-economic Analysis Division
Macro views
• General discussion of productivity program
– What is productivity?
– How is it measured?
– Why is it important?
– How is it used in the growth accounting
framework?
– Challenges
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Productivity
Micro-economic Analysis Division
What is productivity?
• Productivity is a concept that measures the
efficiency with which resources (labour, capital,
other inputs) are employed to produce goods
and services (or output)
• The growth in productivity captures the extent to
which the growth in output exceeds the growth in
resources devoted to production
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Productivity
Micro-economic Analysis Division
How to measure productivity?
• Two ways to measure the efficiency of resources
• The first way is to measure the productivity of
one resource at a time, what is termed a partial
productivity measure
• For example, labour productivity, capital
productivity, energy productivity
• Of which, labour productivity is the most popular,
measured approximately by real output growth
minus growth of hours worked
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Productivity
Micro-economic Analysis Division
Why is productivity important?
“Over long periods of time, small differences in
rates of productivity growth compound, like
interest in a bank account, and can make an
enormous difference to a society's prosperity.
Nothing contributes more to reduction of poverty,
to increases in leisure, and to the country's
ability to finance education, public health,
environment and the arts.”
Alan Blinder and William Baumol. 1993. Economics:
Principles and Policy. (p.778). San Diego: Harcourt
Brace Jovanovich.
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Productivity
Micro-economic Analysis Division
Why is productivity important?
• GDP growth can be decomposed into that
coming from the application of more
resources and that coming from increases
in productivity
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Productivity
Micro-economic Analysis Division
Over the last 25 years, for every percent of Canada's
economic growth, labour productivity has contributed for
nearly half of it...
4.0
3.5
Labour productivity
Hours worked
3.0
2.5
2.0
1.5
1.8
1.4
1.4
1.5
1.0
0.5
0.0
1.4
1.5
1.5
0.9
1981 to 2004
1981 to 1988
1988 to 2000
2000 to 2004
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Productivity
Micro-economic Analysis Division
Partial productivity measures
• Advantage: Easy to understand.
• Disadvantage: Increases in productivity may be
interpreted to be coming from increases in
efficiency in the use of the resource but may
simply be arising from a substitution between
different resources (the use of more capital). And
that substitution may not have resulted in an
overall saving of resource inputs.
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Productivity
Micro-economic Analysis Division
More comprehensive measures
• Second method to measure the efficiency
of resources considers all resources
together—multifactor productivity (MFP)
• Real output growth minus a weighted
average of the growth of combined inputs
(labour and capital)
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Productivity
Micro-economic Analysis Division
What is MFP?
• Multifactor productivity is the difference
between the actual increase in output and
the increase in output that would have
been expected on the basis of existing
technology from increases in multiple
factors (both labour and capital—and
perhaps other factor inputs).
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Productivity
Micro-economic Analysis Division
Measurement of
Multifactor Productivity
• Imposition of structure (production
framework)
• Use of analytical technique or specific
assumptions about the economy to
measure parameters associated with the
structure
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Productivity
Micro-economic Analysis Division
More comprehensive measures
• Advantage: A broader and more comprehensive
measure of productivity-referred to by The
Economist as a “better’ measure
• Disadvantage: more complex to understand,
more complex to estimate—requires certain
assumptions or more complex statistical
estimation procedures to obtain the weights
used to aggregate the various inputs
• Analysis used to examine the sensitivity of MFP
estimates to alternate approaches
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Productivity
Micro-economic Analysis Division
Questions posed in the growth
accounting framework
•
•
•
•
•
What has been the history of productivity growth over
the period?
What types of capital are used in the growth process?
What types of labour are used in the growth process?
What was the relative contribution of capital, labour
and productivity growth to economic growth?
How important are the various factors that determine
the growth in labour productivity? Is capital deepening
the prime contributor to labour productivity growth?
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Productivity
Micro-economic Analysis Division
Trend in the aggregate
productivity growth
percent per year
12.0
8.0
4.0
0.0
-4.0
-8.0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
years
Output
Labour productivity
Multifactor productivity
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Productivity
Micro-economic Analysis Division
The growth accounting
framework
• Labour productivity growth is decomposed
into MFP growth, changes in capital
deepening, changes due to upgrading of
labour skills (referred to as labour
composition)
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Productivity
Micro-economic Analysis Division
Sources of Labour Productivity
Growth (Business Sector)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
1961 to 2005
1961 to 1973
1973 to 1979
Labour composition
1979 to 1988
Capital intensity
1988 to 2000
2000 to 2005
Multifactor productivity
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Productivity
Micro-economic Analysis Division
Challenges
Quality (Criteria)
– Accuracy
– Coherency
– Relevance
– Interpretability
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Productivity
Micro-economic Analysis Division
The Productivity Program
• Regular product of the National Accounts
• Builds on the integrated National Accounts and
then adds coherent estimates of labour and
capital
• Provides quality assurance through consistency
checks and development of coherent data
series.
• Provides analytical output as quality check and
to facilitate interpretability
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Productivity
Micro-economic Analysis Division
Challenges
Concept
– Analytical construct
– Externality or Residual
– Macro level approach
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Productivity
Micro-economic Analysis Division
Challenges
Measurement Issues
– Estimates of Growth in Volumes
– Business as Opposed to Non-Business
– Comprehensiveness of Input List
(Infrastructure, Non-tangible assets)
– Provision of confidence intervals to guide
users on quality
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Productivity
Micro-economic Analysis Division
Challenges
Relevance
Focus –primarily on domestic growth
Users requesting international comparisons
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Productivity
Micro-economic Analysis Division
U.S./ Canada Labour Productivity
Growth Comparison
• Trend comparisons
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Productivity
Micro-economic Analysis Division
Canada and US growth trend similar for GDP
Real GDP Trend, Business Sector (1961=100)
500
400
Canada
United States
300
200
100
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
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Productivity
Micro-economic Analysis Division
Canada and US growth trend similar for both
GDP and hours worked
Hours at Work, Business Sector (1961=100)
Canada
United States
200
150
100
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
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Productivity
Micro-economic Analysis Division
Canada and US growth trend similar for Labour
Productivity
Labour P roductivity Trend, Business Sector (1961=100)
250.0
225.0
Canada
United States
200.0
175.0
150.0
125.0
100.0
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
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Productivity
Micro-economic Analysis Division
U.S./ Canada Labour Productivity
Growth Comparison
• Level Comparisons
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Productivity
Micro-economic Analysis Division
U.S./ Canada Level Comparison
• Labour productivity
– Harmonization of labour measures
• Multifactor Productivity
– Harmonization of capital measures
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Productivity
Micro-economic Analysis Division
Canada/US relative GDP per capita, labour
productivity, and work intensity (total economy)
100
90
GDP per capita
Labour productivity
85
Work intensity
80
75
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
70
1994
U.S. = 100
95
Year
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Productivity
Micro-economic Analysis Division
U.S./ Canada Labour Productivity
Growth Comparison
• Component Comparisons
– Multifactor versus capital intensity versus skill
upgrading
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Productivity
Micro-economic Analysis Division
Post 2001 collapse
Figure 1: Relative Canada/U.S. Labour Productivity Level in the
Business Sector, 1961-2005 (1961-100)
120
100
80
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
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Productivity
Micro-economic Analysis Division
Growth rate differences
Trend in Canada-U.S. Difference in Growth of MFP, Capital Intensity and
Labour Compositon (% )
HP Filter (Lamda=100)
2
1
0
1961
-1
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
-2
-3
MFP Grow th
Capital Intensity Grow th
Labour Composition Grow th
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Productivity
Micro-economic Analysis Division
U.S./ Canada Labour Productivity
Growth Comparison
• Pre and post 2000 experience
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Productivity
Micro-economic Analysis Division
Import and Export Prices
Price Indices (2005=100)
1.10
1.05
1.00
0.95
0.90
0.85
0.80
0.75
0.70
0.65
0.60
1981
1983
1985
1987
Px
1989
1991
1993
1995
1997
1999
2001
Pm
2003
2005
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Productivity
Micro-economic Analysis Division
Terms of Trade
Terms of Trade
1.22
Exchange Rate
0.90
1.17
0.85
1.12
0.80
1.07
0.75
1.02
0.70
0.97
0.65
0.92
0.60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Terms of Trade
$US/$CDN
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Productivity
Micro-economic Analysis Division
Relative Price Changes
Durables/semi-Durables (Index
2002=100)
104
Non-Durables (Index 2002=100)
125
102
120
115
100
110
98
105
96
100
94
95
92
90
85
90
88
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Durables
Semi-Durables
Non-Durables
80
75
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Productivity
Micro-economic Analysis Division
Relative Economic Performance:
Canada vs. US
Index 1998=100
125
120
115
110
105
100
95
90
1980
1982
1984
1986
Labour Productivity
1988
1990
1992
1994
1996
Real GDP Per Capita
1998
2000
2002
2004
2006
Real NNI per capita
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Productivity
Micro-economic Analysis Division
Provincial Program:
Labour Productivity
1997-2006
%
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Canada B.C.
Alta.
Sask.
Man.
Ont.
Labour productivity growth
Que.
N.B.
N.S.
P.E.I.
N.L.
National average
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Productivity
Micro-economic Analysis Division
Nominal value of GDP per capita, 2003
60,000
54,075
50,000
40,346
40,000
35,243
33,856
36,749
38,495
35,041
32,708
28,106 30,883 29,900
30,000
20,000
10,000
0
N.L.
P.E.I.
N.S.
N.B.
Que.
Ont.
Man.
Sask.
Alta.
B.C.
Canada
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Productivity
Micro-economic Analysis Division
GDP per capita, labour productivity and labour
effort
Q u e be c
Canada=100
150
100
50
0
GDP per capit a GDP per hours
worked
1990
1997
Hours worked
per pop 15+
2003
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Productivity
Micro-economic Analysis Division
Micro views
• Firm dynamics and productivity
• Heterogeneous actors (small,
multinationals)
• Technology use and productivity
• Structural change and productivity
• Firm strategies, innovation and
productivity
• The source of externalities—urban
agglomeration
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