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actually drive increases in aggregate employment - as long as total hours worked
increase with higher real wages (positively sloped labour supply curve).15 Individual
workers are naturally concerned about the effects of productivity on their jobs, but they
typically do not think about employment opportunities that are created by rising
aggregate productivity growth.
Given that Canadians have already achieved a high standard of living relative to
other countries, some feel that productivity gains may be less important than they once
were, particularly if they involve any significant short-term sacrifice or opportunity cost.
According to this view, higher productivity and income does not lead to greater happiness
so why bother extend effort to achieve it when there is so much else in life. It is of course
true that productivity growth does not guarantee happiness. But productivity does lead to
greater income and this income can in principle be used to raise economic well-being, at
least as measured objectively if not subjectively. Increased income arising from higher
productivity can be used by households for private consumption or by governments to
fund public services, or to provide income support for the disadvantaged. More
importantly, the resources needed to effectuate more rapid productivity growth through
better public policy need not be great.
Productivity growth is of course associated with economic growth and economic
growth is often associated with environmental degradation and climate change.
According to certain environmentalists, the consequence of raising productivity and
income is more spending, which means, for example, more and bigger cars and hence
more greenhouse gas emissions. But it is not inevitable that increased production and
consumption must harm the environment. With the appropriate tax and regulatory
regimes, any negative environmental effects from productivity and economic growth can
be minimized. Indeed, rich countries are better positioned to take the steps needed to
preserve the environment than poor countries. Productivity growth, which transforms
poor countries into rich countries, can therefore potentially be more a part of the solution
to environmental degradation than a cause of this degradation.
These myths and misconceptions about productivity can pose a serious barrier to
the development of effective policies to improve productivity. If the public feels that
productivity advance is not in its interest or not important, or does not understand what
productivity is and why it is important, government will have little incentive from a
political perspective to pursue the issue.
In addition to the myths outlined above, there is also a current reality that
contributes to making productivity a tough sell. Workers are encouraged to strive for
productivity advance on the premise that their real wages will rise in tandem with
productivity growth. This has indeed been the historical experience in Canada. But in
recent years, median wages have advanced at a pace well below that of productivity
gains. This decoupling or bifurcation of productivity and median wage growth reflects
the increased share of the non-wage components of national income such as profits in
national income, and increased inequality in labour income fuelled by very strong gains
15 I thank Chris Ragan for this point.