Three Policies to Improve Productivity Growth in Canada

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The causes of the fall-off in labour productivity growth in Canada after 2000 are
still poorly understood. Possible explanations include measurement problems; weak
productivity growth in resources industries exploiting poorer quality resources such as
the oil sands; weak ICT investment; a failure to exploit advanced technologies; and weak
wage growth leading to a slower rate of substitution of capital for labour (Rao, Sharpe
and Smith, 2005).

This inability of productivity analysts to provide a definitive account of the
reasons for our poor productivity growth makes the development of policies to reverse
this situation more difficult. If we knew what was wrong, we could take action to rectify
the problem. But we do know that technological change and investment are fundamental
drivers of productivity growth. Thus policies that focus in these two areas can be
expected to have a positive impact on productivity growth.

This brief overview of Canada’s labour productivity performance from an
historical and international perspective speaks for itself.¹³ Canada’s productivity growth
rate is sub-par and we are falling further and further behind other OECD countries.
Reviving productivity growth is indeed the biggest and most important economic
challenge facing this country. Improved public policy aimed at fostering productivity can
contribute to this revival.

¹³ Space limitations prevent a more detailed analysis of Canada’s productivity developments, including
discussion of capital and total factor productivity trends, productivity trends by industry and productivity
trends by province. See the CSLS productivity data base (www.csls.ca/data) for total economy estimates of
labour, capital, and total factor productivity estimates by province for the 1987-2006 period and estimates
for Canada of labour, capital, and total factor productivity by major industry for the 1987-2006 period

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