Three Policies to Improve Productivity Growth in Canada

36

harmonization. Such assistance could take different forms. For example, the federal
government could offer PST provinces some of the fiscal room that will be created by the
planned second 1 percentage point reduction in the GST rate. Kesselman (2006) provides
some detailed suggestions along this line. This is the ideal time for such an initiative
given the sound fiscal situation of the federal government.

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

1) Provincial productivity and interprovincial mobility in Canada

In addition to the three fundamental drivers (technological progress, investment
and human capital), the reallocation of factors of production from low productivity level
uses to high productivity level uses contributes significantly to aggregate productivity
growth. This reallocation can take place between firms, across industries, across
occupations, and across space.

There are significant differences in labour productivity levels among Canadian
provinces, reflecting differences in resource endowments, industrial structure, human
capital, and demand conditions. In 2006, current dollar GDP per worker ranged from a
high of $125,938 in Alberta to a low of $63,149 in Prince Edward Island, a difference of
2 to 1 (Summary Table 4). These productivity differences result in large wage
differences, although the wage differential is not as drastic (Chart 12).

This means that if a worker moves from a low-productivity province such as
Prince Edward Island to a high productivity province such as Alberta, and if the worker
leaves behind the average productivity of the out-province and assumes the average
productivity of the in-province, through a composition effect, the national productivity
level will be boosted. Consequently, interprovincial migration contributes to aggregate

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