Three Policies to Improve Productivity Growth in Canada



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in labour compensation for those, such as CEOs, in the top income brackets. If average
workers benefit little from productivity growth, why should they care about productivity
gains? If productivity is to resonate as an issue of importance with the overall population,
productivity gains must be equitably distributed. Productivity growth with equity must be
clarion call to build broad-based support for a productivity agenda.

In an ideal world, government should strive to educate the public about the
importance of productivity, to convince the public to see productivity as an opportunity
and not a threat. But this is a long-term project. In the short-to-medium term, government
can still do much to improve productivity by highlighting policies to foster innovation,
investment, and human capital. These drivers of productivity have much better press than
productivity itself and actions to address problems or weaknesses in these areas will be
perceived more positively by the public.

B. “There is More to Life Than Productivity”

The bottom line for Canadians should be better quality of life, measured in both
objective and subjective terms. The economic dimensions of quality of life are but one
aspect of our overall well-being. We should not pursue productivity and wealth creation
objectives to the detriment of other aspects of our existence, especially since we are
already a very rich country.16 Fortunately, there appears to be no irreconcilable tradeoffs
between the pursuit of higher productivity and hence a higher material standard of living,
and the pursuit of other aspects of well-being, such as environmental quality.

Heath (2002) provides a critique of productivity as a social priority, pointing out
that the existence of certain types of goods in scarce supply, such as positional and status
goods (e.g. houses in desirable locations), means that no amount of productivity growth
can make them available for the general population. Many of his criticisms are valid.
Indeed, one must closely assess the relative benefits of allocating scarce resources to
programs and policies designed to enhance productivity compared to programs and
policies to achieve other societal goals. Programs and policies to boost productivity may
not have the highest return for society.

But many measures that can be taken to foster productivity are related to changes
in policy regimes and the government costs associated with such policies are minimal. It
is from this perspective that productivity should be a social priority. Any free lunches that
can be obtained through more intelligent public policy should be sought.

As shown earlier in the paper, economic growth and living standards, defined as
GDP per capita, are largely driven by productivity growth. To be sure, increases in the
employment rate reflecting lower unemployment and higher labour force participation
can contribute to growth in living standards, as can improvements in the terms of trade.
But increases in these sources of living standards growth are not sustainable. This means

16 Graves and Jenkins (2002) find through public opinion surveys on attitudes to productivity that
Canadians wish to balance productivity/living standard objectives with quality of life objectives.



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