LABOUR PRODUCTIVITY GROWTH IN CANADA
Labour productivity growth in Canada has lagged behind that of the United States for decades. This is a critical public policy issue because productivity impacts living standards. In the long run, labour productivity growth is essential because living standards only rise with real income growth, which depends on using a set of inputs more efficiently.
The labour productivity problem is made even more pressing by increasing global competition due to the development of emerging economies and Canada's demographic shift that will reduce the employment rate.
Labour productivity measures the value of output produced per hour worked while labour productivity growth represents an increase in the value of output using a given set of inputs. Canadian labour productivity grew by an average of 1.4 % between 1980 and 2011 compared to 2.2% in the United States. This difference helps explain the gap in per capita GDP between the two countries which grew from $2,600 in 1981 to $8,700 in 2008 (Drummond & Bentley 2010).
Labour productivity can be broken down into three components: human capital, physical capital,…show more content… Government can invest in research and development but the majority of investment must come from the private sector. The lack of investment by Canadian businesses is well documented in recent business and economic literature. Studies have shown that Canada invests a smaller percentage of GDP into machinery and equipment , ICT, and research and development than many of its peer OECD countries (Conference Board of Canada 2013; Deloitte 2013). Leading Canadian economist Don Drummond asks why Canadian companies did not invest in the 2000s when the Canadian dollar was high. He said they "missed an opportunity to ramp up their productivity to better withstand global competition"