Three Policies to Improve Productivity Growth in Canada

Table of Contents

Abstract ............................................................................................................................... 2

Résumé................................................................................................................................ 2

Executive Summary ............................................................................................................ 4

Introduction......................................................................................................................... 8

I. The Context for the Productivity Debate in Canada ....................................................... 9

A. Basic Productivity Definitions and Concepts ............................................................ 9

B. Contribution of Productivity to Economic Growth, Living Standards, and Well-
being.............................................................................................................................. 10

1) Productivity and Economic Growth ..................................................................... 10

2) Productivity and GDP per capita .......................................................................... 12

3) Productivity and Economic Well-being ............................................................... 14

C. Productivity Measurement Problems ....................................................................... 14

D. Productivity Drivers................................................................................................. 15

E. Productivity Trends .................................................................................................. 17

II. Why Productivity is a Tough Sell ................................................................................ 23

A. Productivity myths and misconceptions .................................................................. 23

B. “There is More to Life Than Productivity” .............................................................. 25

III. Policies to Improve Productivity in Canada ............................................................... 27

A. General Principles for Productivity Policy .............................................................. 27

B. Policy One: More Rapid Diffusion and Adoption of Best Practice Technologies .. 28

1) Moving Toward the Frontier and Closing the Technology Gap .......................... 28

2) R&D Is Important, But There is More to Innovation than R&D.......................... 29

C. Policy Two: Removal of the Provincial Sales Tax on Purchases of Machinery and

Equipment ..................................................................................................................... 32

D. Policy Three: Promotion of the Geographical Migration of Workers ..................... 36

1) Provincial productivity and interprovincial mobility in Canada .......................... 36

2) Productivity gains from geographical mobility .................................................... 38

3) Policies to Foster Internal Migration in Canada ................................................... 42

IV. Conclusion .................................................................................................................. 44

V. Bibliography ................................................................................................................ 45

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