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The 2.4 percentage point slowdown in labour productivity growth between these periods
more than accounted for the decline in income per capita growth.8
Demographic developments will mean that in the future productivity gains will be
more important as a source of advances in living standards than they were in the 1973-
2006 period. Over the 2006-2026 period, the rapid growth of the population aged 65 and
over will cause the employment-population ratio to fall, putting downward pressure on
growth in material living standards. With no expected increase in average weekly hours,
productivity will be responsible for 143 per cent of future living standards growth.
3) Productivity and Economic Well-being
In addition to its positive effect on living standards, productivity growth has a
salutary effect on the broader concepts of economic and social well-being. Osberg and
Sharpe (2001 and 2002) develop a measure of economic well-being that includes
consumption flows, stocks of wealth, equality, and economic security. Sharpe (2002)
shows that through various mechanisms, productivity growth can lead to improvements
in all these dimensions of economic well-being.9
C. Productivity Measurement Problems
The estimation of productivity growth is fraught with measurement problems and
it is de rigueur in papers on productivity issues to make reference to this reality. Because
of these measurement problems, there can be significant margin of error associated with
productivity growth estimates and these estimates can be subject to large revisions. While
these issues are not of direct relevance to policies to improve productivity growth, the
reader should be aware of them.
The most serious measurement problem in productivity statistics is the lack of
direct measures of output for most of the public sector. Inputs such as employment are
often used as a proxy for output in these cases, so measures of labour productivity growth
are by definition zero. To the degree that there in fact have been productivity gains in the
public sector, the output and productivity performance of this sector, and hence of the
total economy, will have been underestimated by the official statistics.
The second most important measurement issue facing those who compile
productivity statistics is whether the quality changes of existing goods and the
introduction of new goods are adequately captured by price indexes. These indexes are of
course crucial to deflate nominal output to obtain estimates of real output and hence
productivity. To the degree that price indexes have not been adequately capturing quality
improvement, real output and hence real productivity growth will have been
underestimated.
8 The negative impact of the much slower productivity growth on GDP per capita was partly offset by the
increased employment rate.
9 Also see the volume edited by Sharpe, St-Hilaire and Banting (2002) for papers on the two-way
relationship between productivity and social variables.