Labour Productivity Trends

Labour productivity measures the efficiency of workers in producing goods and services. It is an important indicator of economic performance for a variety of reasons. Labour productivity is closely linked to businesses’ costs of production (unit labour cost), international competitiveness, the output gap, and inflationary pressures in the economy. Over longer time horizons labour productivity is also tied to wages and the average standard of living.

For most industries and the aggregate, the level of labour productivity tends to grow positively over time. However, it can also fluctuate over shorter horizons for a variety of reasons. These reasons include changes in total/multi- factor productivity, capital utilization rates, and the capital-labour ratio. Canada’s aggregate measure of labour productivity is also influenced by the allocation of economic activity across regions and industries.

Canada’s economy is highly integrated with global markets, and subsequently international factors can play a prominent role in the performance of industries in Canada. International factors are frequently industry-specific, it can be useful to examine the performance of specific industries across geographic locations over time.

Since measures of real value added are constructed from Fisher chain indexes they are not additive, implying that summing real value added across industries does not yield Canada’s real value added. Subsequently, it is often more informative to compare the growth rate of labour productivity across industries over time. The growth rate is computed as the log difference of the level of labour productivity multiplied by 100. This is depicted in the following figure.

The above figure depicts the levels of real value added, total hours worked, and labour productivity by geographic region over time and across industries. Real value added is measured in chained 2012 thousands of dollars. Total hours worked refers to the number of hours worked in all jobs (in thousands), including overtime, travel time, and training. Labour productivity, defined as the ratio of real value added and total hours worked, is measured in chained 2012 dollars per hour. The dropdown menu located in the upper right corner can be used to examine real value added, total hours worked, and labour productivity across a subset of industries that comprise Canada’s output.

The figure provides a comprehensive view of the distribution of economic activity and hours worked by industry across geographic areas through time. Notably at the all industries aggregation, Ontario, Quebec, British Columbia, and Alberta account for the majority of Canadian activity.  Note: Real value added and labour productivity measures are constructed using chain-weighting. Consequently, the sum of real value added across geographic areas will not necessarily equal the reported value for Canada.

The above figure plots the growth rates of real value added, total hours worked, and labour productivity by geographic area and industry. The data frequency is annual and subsequently the growth rates are annualized percentage changes. The dropdown menus can be used to select different geographic areas and industries. Additionally, there is a sliding bar that can be used to adjust the start year and end year of the figure.

The figure emphasizes the dynamics of value added growth, hours worked growth, and labour productivity growth for each geographic area and industry. Specifically, the figure provides insight into the comovement, lead-lag relationships, and volatilities of the variables.

The above figure depicts total compensation per hour, labour productivity, and unit labour cost by geographic region over time and across industries. The dropdown menu can be used to select a particular industry. Unit labour cost, often expressed as the ratio of total compensation and real value added, has an equivalent representation given by the ratio of total compensation per hour and labour productivity, which we use here. Unit labour cost are nominal and measured in dollars per unit of real output. Total compensation per hour is measured in dollars.

Measures of total compensation per hour provide insight into the average earning potential of labour market participants, which can be compared to labour market participants in the same industry in a different geographic area. Conversely, unit labour cost is often associated with businesses’ costs of production, which can likewise be compared across different geographic areas.

The above figure reports the growth rates of total compensation per hour, labour productivity, and unit labour cost by geographic region and industry. The data frequency is annual and subsequently the growth rates are annualized percentage changes. The dropdown menus can be used to select different geographic areas and industries. Additionally, there is a sliding bar that can be used to adjust the start year and end year of the figure.

Over longer time horizons, labour productivity increases are often associated with corresponding increases in worker earnings. At the same time, increases in worker pay can raise unit labour cost (absent equal increases in productivity). The figure provides insight into the behaviour of these variables over time across geographic areas and industries.