I. The Context for the Productivity Debate in Canada
In order to engage in productive and meaningful debate on what policies would be
most effective in raising productivity levels in Canada, it is necessary to have at least a
rudimentary understanding of the productivity issue. This part of the paper provides
context for the productivity policy debate by briefly discussing definitions of productivity
measures and concepts; the relationship between productivity, material living standards,
and well-being; productivity measurement problems; the main drivers of productivity
growth, and Canada’s recent productivity performance.
A. Basic Productivity Definitions and Concepts
This paper focuses on policies to improve productivity performance, not technical
productivity issues. Nevertheless, it is important that the reader have a basic
understanding of the concept of productivity.2 Productivity of course is the ratio of output
to an input or inputs. A partial productivity measure is when output (either value added or
gross output) is divided by a single input. The best known partial productivity measure,
and the focus of this paper, is the ratio of output to labour input or labour productivity.
Other partial productivity measures are capital productivity, energy productivity (or
intensity), and materials productivity. A total factor or multifactor productivity measure
(TFP or MFP) is the ratio of output to two or more inputs which are combined into a
composite input index. TFP measures are most often based on capital and labour as
inputs, but also include energy, materials and services (KLEMS estimates).
From the point of view of the advance of living standards and warranted real
wage growth, labour productivity is key. This is because real income can be only
increased in the long run if more real output is produced. In contrast, total factor
productivity is more a measure of the efficiency in which inputs are used. While an
important topic, it is much less related to real income growth than labour productivity.
TFP growth will not be discussed in this paper. All references to productivity in the paper
hence refer to labour productivity.3
2
For more extensive discussions of productivity concepts and issues, see Sharpe (1998), Rao and Sharpe
(2002), Sharpe (2002), as well as articles published in the International Productivity Monitor
(www.csls.ca/ipm).
3 The two productivity measures can give different signals. for example, on july 15, 2005, statistics
Canada released estimates showing that multifactor productivity growth in Canada since 2000 was twice
the rate of the 1990s. This development reflects the fall in the rate of growth of capital input, which is
actually positive from the point of view of multifactor productivity. Yet Statistics Canada had earlier
reported that labour productivity growth since 2000 was much worse than in the 1990s. The media ignored
the report on multifactor productivity. This was fortunate as reporting improved multifactor productivity
would have confused the public as to whether Canada is experiencing a productivity problem, which I
believe it is.