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18

The Potential Contribution of Aboriginal Canadians to Labour
Force, Employment, Productivity and Output Growth in Canada,
2001-2017¹

I. Introduction

A. Motivation

Canada faces two major economic challenges: reviving our lackluster rate of labour
productivity growth and dealing with slower labour force growth arising from the retirement of
the baby boom generation. The closing of the education gap between Aboriginal peoples and the
overall Canadian population can contribute significantly to meeting these challenges.

Productivity growth is important as it is the most important driver of increases in our
standard of living (Sharpe, 2007b). The higher the productivity growth, the greater are the
potential for real income gains. A failure of Canada‘s productivity growth to keep pace with that
of other countries will see a relative decline in our standard of living.

Two stylized facts stand out from labour productivity development in the Canadian and
US business sectors up to 2006. First, output per hour growth in Canada, at 1.0 per cent since
2000, has been around one third the pace experienced in the second half of the 1990s. Second,
since the year 2000, productivity growth in Canada has been one third the rate experienced in the
United States (Panel A). Post-2000 trends have thus lead to a large increase in the Canada-US
labour productivity gap, and have contributed to a significant loss of competitiveness for
Canadian industry.

A key driver of productivity growth is human capital. Increasing the average educational
attainment of Aboriginal peoples, especially youth, would therefore boost aggregate productivity
growth in this country.

Economic growth, or real output growth, is determined by productivity growth and labour
force growth. Slower labour force growth therefore reduces potential output growth, with
important implications for society. Indeed, as David Dodge (2007), Governor of the Bank of
Canada, recently noted in a speech:

—The projected decline in the growth of trend labour input has real consequences for the
conduct of monetary policy. Declining growth in trend labour input implies lower growth
of potential output. And if the trend rate of productivity growth remains unchanged, this
means that inflationary pressures can begin to build at a lower rate of economic growth.”

¹ The authors would like to thank Bonnie Gunn, Christopher Ross and Martha Sevigny for their contributions to this
report. The report was commissioned by the Education Branch of Indian and Northern Affairs Canada. We would
like to thank Kathleen Keenan, Director General of the Education Branch at Indian and Northern Affairs Canada, for
the support for this project. We would also like to thank Bert Waslander from Informetrica Ltd., Maximilian Baylor
from Finance Canada and Dan Beavon, Director of the Research and Analysis Directorate at Indian and Northern
Affairs Canada, for useful comments and suggestions on an earlier draft of the report.

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