December 2023

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CENTRE FOR
THE STUDY OF
LIVING
STANDARDSA Detailed Analysis of Canada’s Post-2000
Productivity Performance and Pandemic-Era
Productivity Slowdown

Chris Haun
CSLS Research Report 2023-11
December 2023

1

A Detailed Analysis of Canada’s Post-2000
Productivity Performance and Pandemic-Era
Productivity Slowdown
Abstract
Labour productivity growth in Canada has diminished considerably relative to the pre2000 period, dropping from 1.74% per year in the 1973-2000 period to an average of 0.86% peryear for the past two decades. Work by many productivity researchers, including those at theCentre, evinces a second step-wise reduction in the annual growth rate of labour productivity
following the year 2000, resembling the substantial slowdown observed in the 1970s. This reportserves to both contextualize Canada’s productivity performance and to identify the sources of theslowdown, leveraging recent Statistics Canada and OECD data to provide stylized facts on the
post-2000 productivity slowdown in the country. Through comparisons with the United Statesand other peer countries in the OECD, we characterize Canada’s productivity performance as
relatively poor but hardly exceptional. We also identify a substantial differences in the size of theCanada-U.S. productivity gap depending on the aggregate chosen. Moreover, by utilizing the
CSLS’s own decomposition framework as well as Statistics Canada growth accounting
estimates, we find that a) the post-2000 slowdown has been driven primarily by trends in withinsector productivity and b) the slowdown reflects broad deterioration in all three primary sourcesof growth. Ultimately, given the persistent challenges facing the Canadian economy likeenduring supply chain constraints and fading investment (particularly in ICT) we frame the pathback to 1% annual productivity growth as a narrow one.

2

A Detailed Analysis of Canada’s Post-2000
Productivity Performance and Pandemic-Era
Productivity Slowdown
Table of Contents
Abstract ......................................................................................................................................... 1
Executive Summary .................................................................................................................... 3
Introduction ..................................................................................................................................... 9
The Global Productivity Slowdown: Contextualizing Canada’s Productivity Performance ........ 13
Comparisons with Other OECD Economies ............................................................................. 13
The U.S.-Canada Productivity Gap ........................................................................................... 24
The Relative Labour Productivity Gap.................................................................................. 29
Pandemic-Era Developments ................................................................................................ 34
Dualling Narratives: The Total Economy Gap versus the Business Sector Gap .................. 36
Decomposing Labour Productivity Growth by Sector.................................................................. 39
2000-2022.................................................................................................................................. 45
2000-2008 and 2008-2019 ........................................................................................................ 48
2008-2019 and 2019-2022 ........................................................................................................ 53
Decomposing Labour Productivity Growth by Province.............................................................. 58
Sources of Labour Productivity Growth: A Growth Accounting Perspective .............................. 66
1961-1981.................................................................................................................................. 71
1981-2000.................................................................................................................................. 71
2000-2019.................................................................................................................................. 72
Sources of Growth in the Post-2000 Period: 2000-2008 and 2008-2019 ................................. 74
Future Outlook .......................................................................................................................... 76
Conclusion ................................................................................................................................. 78
References ..................................................................................................................................... 82
Appendix A: Detailed Data Tables for CSLS Decomposition of Labour Productivity Growth byIndustry ......................................................................................................................................... 85
Appendix B: Charts and Detailed Data Tables for CSLS Decomposition of Labour Productivity
Growth by Province ...................................................................................................................... 89

3

A Detailed Analysis of Canada’s Post-2000
Productivity Performance and Pandemic-Era
Productivity Slowdown
Executive Summary
Labour productivity growth in Canada has diminished considerably relative to the pre2000 period, dropping from 1.74% per year in the 1973-2000 period to an average of 0.86% peryear for the past two decades. Work by many productivity researchers, including those at theCentre, evinces a second step-wise reduction in the annual growth rate of labour productivity
following the year 2000, resembling the substantial slowdown observed in the 1970s (Sharpe &Tsang, 2018).
This so-called productivity slowdown seems to be global and broadly-based, though theeffects have been sharpest in developed economies (CEPR, 2021; Dieppe, 2020). Admittedly, theabsolute decrease observed in Canadian labour productivity growth in recent years has been
relatively mild compared to some other developed economies, but only because productivity
growth in the country was quite sluggish to begin with (Sharpe & Tsang, 2018).
This report serves to both contextualize Canada’s productivity performance and to
identify the sources of the slowdown, leveraging recent Statistics Canada and OECD data toprovide stylized facts on the post-2000 productivity slowdown in the country. We frame
Canada’s performance as relatively poor but not exceptional. Indeed, we posit that productivity
developments in Canada are comparable to those of a number of peer countries, including theUnited Kingdom, France, Spain, Norway, and the Netherlands.
We recognize substantial disparities in productivity growth trajectory between the UnitedStates and Canada. However, the size of this disparity is sensitive to the aggregate chosen, withthe total economy gap paling in comparison to the business sector gap. Furthermore, wecharacterize the United States as something of an outlier among Western industrialized
economies and caution against the use of the United States as the sole point of comparison in
productivity discourse.
Using the CSLS decomposition framework, we distinguish between within-sector effects
re-allocation effects on labour productivity. We find that productivity growth in the post-2000
period in primarily driven by within-sector productivity growth, with generally small effects
associated with the re-allocation of labour across industries. The industries with the largest
contributions to productivity growth over the period were the finance and insurance sector, thewholesale trade sector, the manufacturing sector, the retail trade sector, and the agriculture,
forestry, fishing, and hunting sector.
We also adapt the CSLS decomposition formula to identify provincial contributions to
productivity growth and to distinguish between within-province productivity growth and4productivity growth attributable to the re-allocation of labour between provinces. We find that
re-allocation effects in this context are generally minute and that productivity growth
overwhelmingly reflects within-province trends.
Finally, through a growth accounting framework, we find that Canada’s slowing labour
productivity since the mid 20th century reflects broad-based deteriorations in the growth oflabour quality, multifactor productivity (MFP), and capital intensity – in particular, ICT capitalintensity. The latter two components are particularly impactful.
International ComparisonsThough much discourse paints Canada’s slowing productivity growth as alarming andextraordinary, comparisons with other peer countries in the OECD underscore that Canada’s
situation is far from unique. Key findings include:•

The growth rate in labour productivity, defined as real output per hour, for the total
Canadian economy averaged 0.85% annually between 2000 and 2022, placing it 28th outof 38 countries.

•

Economies with slower average rates of total economy labour productivity growth from2000 to 2022 include the United Kingdom at 0.72% per year, France at 0.63% per year,
Norway at 0.61% per year, and the Netherlands at 0.59% per year,•

Among G7 countries, only the United States did appreciably better than Canada in termsof trend total economy productivity growth from 2000 to 2022.

•

Between the 1973-2000 period and the 2000-2022 period, the average annual rate of total
economy productivity growth in Canada fell 0.48 points, from 1.33% per year to 0.85%
per year.

•

Compared to other OECD economies, Canada’s slowdown in productivity growth was
not particularly severe. In the 1973-2000 period, Canada ranked 31 out of 37 in terms of
total economy trend productivity growth rate. In the 2000-2022 period, Canada ranked 28
out of 38, reflecting the fact that most other countries experienced larger slowdowns.

• In 2022, Canada’s total economy labour productivity stood at $53.3 per hour USD (using
2015 PPPs), putting it in 18th place among the 38 OECD countries and on par with theOECD average of $53.4 per hour.
Comparisons with the United States suggest a less optimistic narrative, though it should be
noted that the U.S. is an outlier among peer countries in terms of its robust productivity
performance. We find that:5•

The post-2000 slowdown was present only in the Canadian case, with the U.S. businesssector continuing to grow at the pre-2000 pace. From the 1973-2000 period to the 20002022 period, Canadian trend productivity halved (1.74% to 0.86%). Meanwhile, trend
productivity growth in the United States rose 0.02 points relative to the 1973-2000 period(1.81% to 1.83%).

•

The size of the Canada-U.S. productivity gap depends heavily on the aggregate chosen(total economy vs. business sector). The business sector gap for the 2000-2022 period is
0.97 percentage points (Canada: 0.86% per year, U.S. 1.83% per year) while the total
economy gap is just 0.55 points (Canada: 0.85%, U.S.: 1.1.40%).

•

Canadian business sector labour productivity as a proportion of U.S. business sector
labour productivity reached a historic low of 69.0% in 2021: the first time in official
statistics that the measure has dropped below 70.0%.

CSLS Decomposition
The CSLS decomposition framework involves distinguishing between within-sector
effects on productivity growth and re-allocation effects on productivity growth. Within-sector
effects refer to aggregate productivity growth attributable to productivity growth within sectors.
Re-allocation effects stem from changes in the share of labour input associated with a sector. All
else equal, an increase in the share of total labour input which is employed by a sector withabove-average productivity will increase the aggregate labour productivity growth in theeconomy.
These re-allocation effects can be further decomposed into the level effect and the growtheffect. The level effect captures changes in the productivity level resulting from the movement of
inputs across sectors with different productivity levels. Conversely, the growth effect captureschanges which result from the movement of labour between sectors which experience different
degrees of productivity growth over the relevant period. Imperative to note is the fact that thiscalculation is performed using absolute changes in labour productivity, and not rates of
productivity growth.
The key findings from this exercise include:•

Aggregate labour productivity growth over the 2000-2022 period was driven almost
entirely by within-sector productivity growth.

•

The re-allocation effect was largest in 2000-2008 period, where about a quarter of
productivity growth was contributed by the re-allocation of labour towards industries
with high productivity levels, namely the mining and oil and gas extraction sector ($356

6
in output per hour in 2000, expressed in 2012 Canadian dollars). Over the period, thelabour input share in the industry rose from 1.4% to 2.1%•

The industries with the most significant contributions to productivity growth over the
2000-2022 period – a measure which reflects both the labour input share of a sector andits productivity growth trajectory – were finance and insurance (contribution of 0.19
points; growth rate of 2.23% per year), wholesale trade (0.15 points; 2.27%),
manufacturing (0.13 points; 0.79%), retail trade (0.13 points; 2.04%), and agriculture,
forestry, fishing, and hunting (0.12 points; 3.09%).

•

The industries which experienced the largest slowdown in annual productivity growth
between 2008-2019 and 2019-2022 were the arts, entertainment and recreation sector(0.52% per year in 2008-2019 to -4.86% per year in 2019-2022), the administrative
services, waste management and remedial services sector (0.58% vs. -3.87%), and theprofessional, scientific and technical services sector (0.83% vs. -3.19%).

The CSLS decomposition framework can be adjusted easily to decompose national
labour productivity growth across individual provinces and territories and to identify withinprovince and re-allocation effects. To an even greater extent than in the industrial decomposition,
re-allocation effects play a very minor role in influencing productivity growth. The only
substantial re-allocation effect observed across the 2000-2022 period was a level effect whichmaterialized between 2000 and 2008, reflecting an influx of labour to the highly productive oiland gas industry in Alberta.
Outside of this example, provincial re-allocation effects were extremely minimal,
reflecting the fact that the inter-provincial re-allocation of workers is a much less common andimportant dynamic than the re-allocation of workers between sectors. Across all periods,
Ontario, Quebec, Alberta, and British Columbia were by far the largest contributors to
productivity growth: an unsurprising result given that these are Canada’s 4 largest provinces andthe homes of key economic hubs like Vancouver, Toronto, Montreal, and the core of Canadianresource development in the Alberta oil sands.
Growth Accounting
Another instructive way of understanding labour productivity growth is through a growthaccounting framework. Official Statistics Canada growth accounting estimates allow us todistinguish between three key sources of labour productivity growth: multifactor productivity,
capital intensity and labour quality.
Multifactor productivity is the part of an increase in output which remains after
accounting for changes in capital and labour input. It is calculated as a residual and, as such, it is
not particularly helpful for understanding the on-the-ground changes driving developments in
productivity; rather, it is a measure of all that we are unable to account for, or put simply, howmuch we do not know. It is most commonly interpreted as representing the pace of underlying

7
technological progress but might also reflect economies of scale, organizational efficiencies, andmeasurement issues.
Productivity growth stemming from capital intensity reflects the increased productivity
which arises as each unit of labour becomes equipped with more capital. Capital deepeningmeans that each worker has more tools, machinery, and technology at their disposal and thisgenerally translates to a higher level of labour productivity. On a macro-level, this means thatwithin an economy there tends to be a close relationship between levels of investment, which
drive capital formation, and levels of labour productivity.
Finally, changes in the quality or composition of the labour force can also bring about
improvements in labour productivity. This is conceptualized as the process by which labour
becomes more skilled and accumulates human capital, either through education or experience.
Given that highly-skilled workers tend to be more productive than low-skill workers, acompositional shift in the type of labour employed in the economy towards highly-skilledworkers can cause aggregate productivity to increase and vice versa.
Key take-aways from our growth accounting analysis include:•

Falling labour productivity since 1961 reflected the general deterioration in all threesources of growth. From the 1961-1981 period to the 2008-2019 period, the contribution
from multifactor productivity fell from 0.97 points to 0.24 points, the contribution from
capital intensity fell from 1.33 points to 0.54 points, and the contribution from labour
quality fell from 0.53 points to 0.25 points.

•

Multifactor productivity growth fell continually from 1961 to 2008. The 2008-2019
period represented a significant rebound, with the contribution from multifactor
productivity growth increasing 0.78 points from -0.54 points in the 2000-2008 period to
0.24 points in the 2008-2019 period.

•

Capital intensity also fell from 1961 to 2019, save for a brief period of recovery between
2000 and 2008, when the contribution from capital intensity jumped from 0.87 points in
the 1981-2000 period to 1.13 points in the 2000-2008 period. However, the contribution
promptly receded to 0.54 points in the 2008-2019 period.

•

Slowing growth in capital intensity reflects slowdowns in both ICT and non-ICT capitalintensity. Investment in ICT has faded more severely. The growth rate of ICT capital
input fell from 8.17 points in the 1961-1981 period to just 2.33 points in the 2008-2019
period. In the 2008-2019 period, the contribution to productivity growth from ICT capitalintensity stood at less than half of its contribution from 1961-1981, when modern ICT
was in its infancy.

•

The contribution from labour quality fell substantially from 1961 to 2000 but flattenedout post-2000 at about 0.25 points.

8•

Pandemic disruptions and asymmetric losses in employment across industries and skill
levels produced substantia fluctuations in the sources of growth. The contribution frommultifactor productivity plummeted (0.24 points in 2008-2019 to -0.71 points in 20192021), while the contributions from capital intensity and labour quality more thandoubled (0.54 points to 1.29 points; 0.25 points to 0.52 points).

The Path Back to 1%
Taken together, these exercises suggest an uncertain future for Canadian productivity
growth. The exceptionality of the 2019-2021 period and the COVID-19 pandemic make itchallenging to forecast future movements in Canadian labour productivity growth. Labour
productivity is a long-term concept and hence, short-term fluctuations should not be afforded too
much attention in projecting future developments, let alone highly unprecedented ones like thosebrought on by the pandemic.
Still, the path back to 1% annual growth is likely to be an arduous one following theshocks and disruptions of the pandemic. This is compounded by a number of entrenchedproblems and challenges. Investment in innovation, research and development, and ICT appears
stagnant, leading to poor multifactor productivity and capital intensity growth.
Similarly, the high education level of the Canadian population makes it increasingly
difficult to further improve the quality of the labour force. Finally, the green transition, in deemphasizing the importance of the mining and oil and gas exploration sector, threatens topermanently impair Canadian productivity growth prospects. Still, there may be an upside as
well, given that this sector has also at times constrained productivity growth.
Altogether, while it remains to be seen how the Canadian economy will emerge from thepandemic era, a return to 1% seems unlikely without some sustained shock to Canada’s businessenvironment. Even in the best-case scenario where productivity growth rebounds dramatically
post-pandemic, in depressing productivity growth, the disruption caused by the pandemic has
deprived Canadians of would-be productivity gains. Capturing those lost gains would require arate of productivity growth well above 1%.
Assuming an 8-year business cycle, as occurred between 2000 and 2008, a businesssector labour productivity growth rate of 1.46% per year would be needed to achieve 1% trend
productivity growth for the full period. Assuming an 11-year business cycle, as occurred
between 2008 and 2019, a growth rate of 1.29% per year would be required: prospects which,given the challenges outlined in this report, seem increasingly

9

A Detailed Analysis of Canada’s Post-2000
Productivity Performance and Pandemic-Era
Productivity Slowdown
Introduction
Labour productivity growth in Canada has diminished considerably relative to the pre2000 period, dropping from 1.74% per year in the 1973-2000 period to an average of 0.86% peryear for the past two decades. Work by many productivity researchers, including those at theCentre, evinces a second step-wise reduction in the annual growth rate of labour productivity
following the year 2000, resembling the substantial slowdown observed in the 1970s (Sharpe &Tsang, 2018).1 This so-called productivity slowdown seems to be global and broadly-based,though the effects have been sharpest in developed economies (CEPR, 2021; Dieppe, 2020).
Admittedly, the absolute decrease observed in Canadian labour productivity growth in recent
years has been relatively mild compared to some other developed economies, but only because
productivity growth in the country was quite sluggish to begin with (Sharpe & Tsang, 2018).
Analysis on the factors underlying Canada’s recent period of weak labour productivity
growth is still early. Previous research by the Centre has pointed squarely at the manufacturingsector as the chief source of declining labour productivity post-2000, although there have beenfurther negative contributions from the construction, agriculture, retail, and agriculturalindustries (Sharpe & Tsang, 2018). With that said, this period, beginning in 2019 and concluding
in 2022 with the most recent annual data from Statistics Canada, is particularly difficult toanalyze due to the onset of the COVID-19 pandemic in 2020. It is extremely challenging to
1

The first major slowdown in productivity growth was observed in the 1970s, with 1973 as the pivotal year. In an effort to aligndata with cyclical peaks (subject to data availability constraints), this paper at times decomposes the pre-2000 period into theperiod spanning from 1961 to 1981 and the period spanning from 1981 to 2000. Readers should note that the use of such time
periods masks the magnitude of the 1970s slowdown. That is to say, the slowdown between periods would be meaningfullylarger if the periods were aligned with the turning point in 1973.

10
untangle the impact of temporary compositional changes in the economy from more enduring
pandemic effects and from longer-term pandemic-agnostic trends in labour productivity.
Nevertheless, this report aims to enhance and update understandings of Canadian productivity
developments post-2000 by analyzing Canada’s productivity performance from an internationaland historical perspective, and in particular, by applying the labour productivity decomposition
framework developed by the Centre for the Study of Living Standards and advanced in Sharpe
and Thompson (2010). This approach distinguishes between labour productivity growth
attributable to within-sector productivity developments and growth attributable to the reallocation of labour inputs across different sectors of the economy with different productivity
levels and growth trajectories. We also investigate productivity growth trends through a growthaccounting framework.
Our analysis serves to both contextualize Canada’s productivity performance and identify
the sources of the slowdown. We frame Canada’s performance as relatively poor but not
exceptional. Indeed, we posit that productivity developments in Canada are comparable to thoseof a number of peer countries, including the United Kingdom, France, Spain, Norway, and theNetherlands. With that said, we recognize substantial disparities in productivity growth trajectory
between the United States and Canada. However, the size of this disparity is sensitive to theaggregate chosen, with the total economy gap paling in comparison to the business sector gap.
Furthermore, we characterize the United States as something of an outlier among Westernindustrialized economies and caution against the use of the United States as the sole point ofcomparison in productivity discourse.
Using the CSLS decomposition framework, we distinguish between within-sector effects
re-allocation effects on labour productivity. We find that productivity growth in the post-2000

11
period in primarily driven by within-sector productivity growth, with generally small effects
associated with the re-allocation of labour across industries. The industries with the largest
contributions to productivity growth over the period were the finance and insurance sector, thewholesale trade sector, the manufacturing sector, the retail trade sector, and the agriculture,
forestry, fishing, and hunting sector. We also adapt the CSLS decomposition formula to identify
provincial contributions to productivity growth and to distinguish between within-province
productivity growth and productivity growth attributable to the re-allocation of labour between
provinces. We find that re-allocation effects in this context are generally minute and that
productivity growth overwhelmingly reflects within-province trends. As one might expect, thefour largest provinces – Ontario, Quebec, British Columbia, and Alberta – are consistently thelargest contributors to productivity growth in the post-2000 period. Notably, the pandemic-era
productivity slowdown is attributable almost entirely to falloffs in productivity contributions
from Ontario and Alberta in particular.
Finally, through a growth accounting framework, we find that Canada’s slowing labour
productivity since the mid 20th century reflects broad-based deteriorations in the growth oflabour quality, multifactor productivity (MFP), and capital intensity – in particular, ICT capitalintensity. The latter two components are particularly impactful. We also identify sudden
pandemic-era improvements in these variables, likely owing to laying off and furloughing of
employees throughout the pandemic, leading to changes in the capital-labour ratio and thecomposition of the labour force.
The first section of this report leverages recent OECD data to present a more detailed
assessment of Canada’s productivity performance relative to other economies. We first consider
a cohort of peer countries within the OECD before moving to analyze the productivity growth

12
gap between the United States and Canada. In the second section, we perform the CSLS
decomposition across sectors at the NAICS two-digit level, analyzing the within-sector and reallocation effects on productivity in the post-2000 period. In the next section, we employ an
adjusted form of the framework to decompose productivity growth on a province-by-province
basis, isolating within-province effects on productivity and effects stemming from re-allocationof labour inputs across provinces. In the fourth section, we analyze productivity growth from1961-2021 using official Statistics Canada estimates for the sources of productivity growth - i.e.,
capital intensity, labour quality, and multifactor productivity - and their contributions to growthpre- and post-2000. A final section concludes.
On balance, we characterize the outlook for productivity growth in Canada as mixed, if
not somewhat pessimistic. From an international perspective, Canada is far from the worstperforming economy among its peers. With that said, entrenched challenges like fading
investment, high levels of education, and enduring supply-side constraints mean that returning to
1% labour productivity growth per year is likely to be difficult. Moreover, structural changes likethe green transition may pose further threats to productivity growth to the extent that they deemphasize high productivity industries like mining and oil and gas extraction. Fundamentally, it
is difficult to separate out longer-term productivity trends from ephemeral pandemic effects.
Still, some indicators, like the fact that the 2008-2019 period represented historic low-points for
growth in capital intensity and labour quality suggest that Canada’s post-2019 productivity
slowdown may be more than just a momentary setback.

13

The Global Productivity Slowdown: Contextualizing Canada’s
Productivity Performance
Analysis of productivity trends generally either takes on either a historical perspective,assessing productivity trends across time within a country, or an international perspective which
focuses primarily on comparisons between countries. While a historical perspective is part andparcel to understanding how Canada’s productivity performance has progressed over time, apurely historical lens in some ways risks exaggerating the exceptionality of the Canadian case.
After all, since the year 2000, slowdowns in productivity growth have been observed within anumber of economies, particularly in Western industrialized countries. Indeed, an internationallens depicts Canada’s productivity growth trajectory as fairly average among comparable
countries, though the narrative depends greatly on the cohort of countries chosen. For thisreason, we begin our examination of Canadian productivity trends with an international overview
of the post-2000 productivity slowdown. Our discussion begins by contextualizing Canada’s
performance within the OECD. We then move to investigate the distinct productivity trends in
Canada and the United States.

Comparisons with Other OECD Economies
Though much discourse paints Canada’s slowing productivity growth as alarming andextraordinary, comparisons with other peer countries in the OECD underscore that Canada’s
situation is far from unique. Chart 1 offers the trend productivity growth rate for 38 OECDeconomies for the 2000-2022 period, as well as the total trend across all countries. Productivity
is a long-term concept, and therefore it is important to assess performance over long periods. It isalso integral to note that this Chart presents output per hour measured for the total economy, notjust the business sector.

14Chart 1: Total Economy Output per Hour Growth in OECD Countries, 2000-2022(average annual per cent change)
LatviaIrelandLithuania
Korea
TürkiyeSlovak Republic
PolandEstonia
Costa Rica
Hungary
Czech Republic
Slovenia
IcelandChile
Colombia
IsraelUnited States
SwedenAustralia
Portugal
Austria
OECD - Total
Denmark
Switzerland
New ZealandJapan
Germany
Finland
CanadaBelgium
United Kingdom
Spain
FranceNorwayNetherlands
Italy
Luxembourg
GreeceMexico-0.50%

4.36%
4.19%
3.81%
3.57%
3.22%
3.18%
3.14%
2.99%
2.45%
2.39%
2.31%
1.93%
1.91%
1.90%
1.79%
1.64%
1.40%
1.36%
1.13%
1.13%
1.11%
1.08%
1.04%
0.99%
0.96%
0.95%
0.92%
0.92%
0.85%
0.77%
0.72%
0.71%
0.63%
0.61%
0.59%
0.16%
-0.03%-0.13%-0.41%
0.50%

1.50%

2.50%

3.50%

4.50%

Source: https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR
Note: Some country series feature data breaks and estimated or provisional values instead of official statistics forsome observations. For full detail on the countries and observations affected, please see the linked database.

15
A comparison of Canada with peer countries paints the country’s performance as poor
but not unique. The OECD reports that the growth rate in labour productivity, defined as output
per hour, for the total Canadian economy averaged 0.85% annually between 2000 and 2022,
placing it 28th out of 38 countries. Economies with slower average rates of labour productivity
growth include the United Kingdom at 0.72% per year, France at 0.63% per year, Norway at
0.61% per year, and the Netherlands at 0.59% per year, among others. A number of countries
just slightly outperformed Canada, including Germany and Finland at 0.92% per year, New
Zealand at 0.96% per year, and Australia at 1.13% per year. The United States and Sweden,
meanwhile, performed significantly better than Canada, at 1.40% per year and 1.36% per year,
respectively.
Most comparable countries to Canada (i.e. Western European and Oceanic countries)
occupy a band centred around 1% annual productivity growth, ranging between 0.60% per year
and 1.40% per year. It should be recognized that the United States is somewhat of outlier in its
productivity performance; compared to countries like France, Germany, Norway, Australia, New
Zealand, and the United Kingdom, Canada’s sluggish productivity growth trajectory appears
actually quite normal. Overall, Canada occupies a middling position compared to these countries,
with an average productivity growth rate exceeding that of the UK, France, and Italy, and just 0.1
points below Japan and Germany; among G7 countries, only the US did appreciably better.
Countries with vastly higher rates of annual productivity growth above 1.5% per year
tend to differ from Canada in systematic ways, and hence, these economies do not offer relevant
comparisons. For example, Post-Soviet and Eastern Bloc countries like Lithuania, Latvia,
Estonia, Poland, Hungary, and others have developed advanced economies, but have followed avastly different timeline and trajectory for development than Western industrialized democracies.

16
Given the relative recency of the transition from planned to market economy which took place inthese countries, they continue to experience a greater potential for economic growth which isreflected in their remarkable rates of productivity growth. This distinct history and path foreconomic development naturally prompts different policy prescriptions and a much different
interpretation of productivity trends, making comparisons with Canada not particularly
instructive. A similar argument can be applied to Latin American economies like Chile andColombia.2 Ireland, a consistent leader in productivity growth, is itself an anomaly due to its
high-tech sector and the fact that many multinational firms book their profits in the country totake advantage of low tax rates (OECD, 2018; Papa, 2019).

2

Mexico is an exception with a horrendously bad productivity performance at -0.41% per year on average between 2000 and
2022.

17
Chart 2: Total Economy Output per Hour Growth in OECD Countries, 1973-2000(average annual per cent change)
Korea
PolandLatviaSlovenia
Slovak Republic
Lithuania
Chile
Hungary
IrelandFinlandJapan
NorwayTurkeyCzech Republic
FranceGermany
Belgium
Spain
United Kingdom
Denmark
Luxembourg
Iceland
Italy
Netherlands
Portugal
Austria
SwedenAustralia
GreeceUnited States
CanadaIsraelSwitzerland
New Zealand
Costa Rica
Colombia
MexicoEstonia
OECD - Total

6.53%
6.26%
5.39%
4.83%
4.76%
4.49%
4.45%
4.23%
4.06%

N/A
N/A

0.00%

3.29%
3.17%
2.97%
2.80%
2.70%
2.64%
2.50%
2.48%
2.47%
2.40%
2.35%
2.33%
2.20%
2.17%
2.01%
1.80%
1.78%
1.75%
1.58%
1.52%
1.48%
1.33%
1.27%
1.15%
1.01%
0.89%
0.68%
0.35%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Source: https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR
Note: Compound annual growth rates are calculated using shortened time periods for some countries due to a lack ofavailable data: 1975-2000 for Colombia, 1981-2000 for Israel, 1983-2000 for Greece, 1986-2000 for Chile, 19912000 for Costa Rica, Hungary, and Mexico, 1993-2000 for the Czech Republic and Poland, 1995-2000 for Austria,
Latvia, Lithuania, the Slovak Republic, and Slovenia. Data before 2000 is not available for Estonia. An average for
the OECD as a whole is not provided due to these differences in data availability. Some country series feature data
breaks and estimated or provisional values instead of official statistics for some observations. For full detail on the
countries and observations affected, please see the linked database.

18
Chart 3: Period-to-Period Change in Average Annual Labour Productivity Growth Ratefrom 1973-2000 to 2000-2022 (percentage points)
Costa Rica
Colombia
TurkeyIsraelIreland
New ZealandUnited States
Switzerland
IcelandCzech Republic
SwedenAustralia
CanadaAustria
Portugal
Lithuania
MexicoLatviaDenmark
Netherlands
Germany
Slovak Republic
GreeceUnited Kingdom
Belgium
Spain
Hungary
FranceItaly
Japan
Luxembourg
NorwayFinland
Chile
Slovenia
Korea
PolandEstonia
-4.00

1.56
1.11
0.42
0.37
0.12
-0.05
-0.08
-0.16
-0.29
-0.38
-0.39
-0.45
-0.48
-0.67
-0.67
-0.69
-0.75
-1.03
-1.30
-1.41
-1.57
-1.57
-1.65
-1.69
-1.72
-1.76
-1.85
-2.01
-2.01
-2.22
-2.36
-2.36
-2.37
-2.54
-2.89
-2.96
-3.12
N/A

-3.00

-2.00

-1.00

0.00

1.00

2.00

Source: https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR
Note: Orange highlights indicate countries for which data is not available for the entire 1973-2000 period. See thenote in Chart 2 for additional details. Data before 2000 is unavailable for Estonia. Some country series feature data
breaks and estimated or provisional values instead of official statistics for some observations. For full detail on the
countries and observations affected, please see the linked database.

19
Chart 2 provides average rates of total economy labour productivity growth for the 19732000 period, with Chart 3 displaying the period-to-period changes between the 1973-2000 period
and the 2000-2022 period. However, caution should be exercised in interpreting these estimatesas data for the full 1973-2000 period is unavailable for a number of OECD economies. Still, thefigures evince the broad-based nature of the post-2000 productivity growth slowdown. Only 37
OECD countries are represented, due to a lack of pre-2000 productivity growth data for Estonia.
32 of these countries experienced a slowdown in productivity growth between periods. The most
severe slowdown was observed in Poland, where average productivity growth dropped 3.12
points from 6.26% per year to 3.14% per year: a 50% decline in productivity growth. The mostfavourable period-to-period change in productivity growth trajectory, and one of the few
examples of improvements in productivity growth over this time period, occurred in Costa Rica
where annual productivity growth rose by 1.56 points (0.89% to 2.45%). Both of these countries
have limited data available pre-2000 however (data is only available after 1991 for Costa Rica
and after 1993 for Poland), so these changes are likely not completely representative of
productivity trends in the 1973-2000 period. Among countries for which data is available for the
1973-2022 period, Turkey experienced the largest improvement in productivity growth (a change
between periods of 0.42 points) and Korea, the country with the highest productivity growth rate
pre-2000, experienced the largest slowdown (a change of -2.96 points).
Compared to other OECD economies, Canada’s slowdown in productivity growth was
not particularly severe; between the 1973-2000 period and the 2000-2022 period, the averageannual rate of productivity growth in Canada fell 0.48 points, from 1.33% per year to 0.85% per
year. Out of the 37 OECD economies with pre-2000 data available, this represents the 13thlargest between-period change; out of the 28 countries for which data is available for the entire

20
period from 1973 to 2000, this represents the 8th largest change. Expressed differently, out of the
32 economies for which a slowdown occurred, Canada experienced 25th largest slowdown. With
that said, this relatively minor slowdown in productivity growth between periods likely reflects
the fact that Canada’s productivity growth trajectory was already relatively poor. After all, withthe exception of Mexico, all of the countries which experienced poorer rates of productivity
growth than Canada in the pre-2000 period saw less severe slowdowns, suggesting that there isindeed a relationship between pre-2000 rates of productivity growth and the magnitude of the
post-2000 slowdown. Beyond this, there was no consistent pattern in the size of the productivity
slowdown among peer countries. Countries like New Zealand (-0.05 points), Switzerland (-0.16
points), the United States (-0.20 points), Sweden (-0.39 points), and Australia (-0.45 points)
experienced smaller slowdowns, though 2 of these countries had rates of productivity growthwhich were poorer than Canada’s in the 1973-2000 period. Meanwhile, countries like theNetherlands (-1.41 points), Germany (-1.57 points), the United Kingdom (-1.69 points), France (2.01 points), and Italy (-2.01 points) among others, experienced significantly larger slowdowns.
However, it should be noted that all of these economies had higher rates of productivity growth
to begin with.
Despite experiencing a higher average annual rate of labour productivity growth than
Canada in the 1973-2000 period (1.48% in the United States vs 1.33% in Canada), the UnitedStates saw a slowdown of just 0.08 points: less than a fifth of the size of that experienced in
Canada. This between-period change represents the 7th largest change of the 37 countries withpre-2000 data available and the 2nd smallest slowdown, behind just New Zealand. Whereas theUnited States possessed the 30th highest rate of productivity growth in the 1973-2000 period, it
became the economy with the 17th highest growth rate post-2000. In other words, although the

21United States experienced a slowdown of its own, the slowdown was so insignificant relative toother OECD economies that its position within the cohort improved considerably. In contrast,
Canada had the 31st highest average annual rate of productivity growth in the 1973-2000 period
and the 28th highest rate post-2000: a more modest improvement.

22
Chart 4: Total Economy Output per Hour Levels in OECD Countries, 2022 (USD, constantprices, 2015 PPs)
Ireland
Luxembourg
NorwaySwitzerland
Denmark
Belgium
SwedenUnited States
Austria
Germany
Netherlands

132.2
96.8
84.3
76.5
75.3
74.6
74.0
74.0
71.2
68.6
68.0
65.6

FranceIceland65.1
62.8

FinlandUnited Kingdom
Australia
Italy
OECD - Total

59.6
56.1
54.6
53.4
53.3

CanadaTurkey
Spain
Japan

52.8
52.5
48.0
47.7

Slovak Republic
Slovenia
Israel47.7
47.5

Lithuania
Poland

44.6
43.9
43.4

New Zealand
Korea

43.0
43.0
42.8
42.7
40.8

Czech Republic
LatviaPortugal
Hungary
Estonia
GreeceChile
Costa Rica
MexicoColombia

40.4
33.6
27.1
22.9
18.7
14.3
0.00

20.00

40.00

60.00

80.00

100.00120.00140.00Source: https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR#
Note: Some country series feature data breaks and estimated or provisional values instead of official statistics forsome observations. For full detail on the countries and observations affected, please see the linked database.

23
Looking at recent labour productivity levels in OECD countries, meanwhile, paints
Canada’s performance as firmly average. In 2022, Canada’s total economy labour productivity
stood at $53.3 per hour USD (using 2015 PPPs), putting it in 18th place among the 38 OECD
countries and on par with the OECD average of $53.4 per hour. The United States performs wellfrom this perspective, with a total economy output per hour of $74.0: the 8th highest level amongthe 38 OECD countries. Canadian labour productivity makes up just 72% of this figure. With the
exception of Ireland, which is both the country with the highest GDP per hour and the country
with the second highest rate of annual productivity growth post-2000, the countries with thehighest levels of labour productivity do not tend to be the highest performers in terms of
productivity growth.
Luxembourg is the most obvious example of this as the economy with the second highest
productivity level among OECD economies and the third lowest rate of annual labour
productivity growth post-2000. Other countries with similar patterns of labour productivity
growth include the Netherlands, Denmark, and Belgium. Indeed, 6 of the 10 countries with thehighest levels of total economy labour productivity experience annual rates of productivity
growth which are below the OECD average. Such an observation provides some evidence for the
narrative that there are diminishing marginal returns to labour productivity growth; that as labour
productivity improves, it becomes increasingly difficult for an economy to maintain the samerate of productivity growth. Interestingly, of the 17 countries with higher levels of labour
productivity than Canada, 10 boast higher rates of labour productivity growth. This suggests that,even if we accept the hypothesis that higher productivity levels entail slower productivity
growth, Canada’s rate of productivity growth still seems somewhat low relative to its
productivity level.

24
The use of total economy output per hour – a measure which includes the government
sector and non-profit sector as well as the business sector – in the OECD figures in Charts 1 to 4
provides a few interesting insights when we compare to trends in business sector productivity.
Notably, the recorded annual productivity growth rate for Canada over the 2000-2022 period is
almost identical when using total economy output per hour rather than business sector output perhour; we find an annual average growth rate of 0.85% in the former case and 0.86% in the lattercase. With that said, there is an inherent issue of measurement as many of the products from nonbusiness sector industries (all in the case of the non-profit sector) lack prices which can beleveraged to evaluate outputs and estimate labour productivity levels. The official approach
adopted by Statistics Canada is to derive the value of a product is by estimating the costs of the
inputs, however this method gives labour productivity growth of 0, as outputs equal inputs inevery period by construction. Total economy output numbers are hence imperfect, however theyought not to be ignored, given that upwards of 20% of total economic activity is attributable tothe non-business sector in Canada (Statistics Canada, 2022). Given these measurement issues
and the downward bias they create in measuring productivity growth, it is unexpected that total
economy productivity growth in Canada is found to be almost identical to business sector
productivity growth, and in fact, slightly higher.

The U.S.-Canada Productivity Gap
Among Canada’s peer countries, the United States is perhaps the most natural point ofcomparison for assessing Canada’s productivity performance, given the close geographic,
economic, and social ties between the two countries. Chart 5 provides the growth rates ofbusiness sector and total economy labour productivity for the United States and Canada for
selected periods. Panel A shows the long-term business sector trends over the prior century

25within three periods, 1947-1973, 1973-2000, and 2000-2022, with all but the latest period being
cyclically neutral. Panel B zooms in on business sector productivity trends post-2000, providing
rates of growth for the periods spanning 2000-2008, 2008-2019, and 2019-2022. Again, the firsttwo periods are cyclically neutral while the most recent is not. Panels C and D offer rates ofgrowth for the same periods but for the total economy rather than the business sector. However,
due to lack of available data, the 1947-1973 period is omitted from Panel C.
Chart 5: Labour Productivity Growth Trends in Canada and the United States
Panel A: Business Sector Output per Hour Trends, 1947-2022
4.50%
4.00%

3.93%
3.22%

3.50%
3.00%
2.50%
2.00%

1.74%

1.83%

1.81%

1.50%

0.86%

1.00%
0.50%
0.00%
1947-1973

1973-2000
CAN

2000-2022

US

Panel B: Business Sector Output per Hour Trends, 2000-2022
3.00%
2.50%

2.50%
2.00%

1.64%
1.39%

1.50%
1.00%

0.86%

1.03%

0.50%

0.21%

0.00%
2000-2008

2008-2019
CAN

US

2019-2022

26

Panel C: Total Economy Output per Hour, 1973-2022
2.00%
1.80%
1.60%

1.48%

1.40%

1.33%

1.40%
1.20%
1.00%

0.85%

0.80%
0.60%
0.40%
0.20%
0.00%

N/A
1947-1973

1973-2000
CAN

2000-2022

US

Panel D: Total Economy Output per Hour, 2000-2022
2.50%
2.04%
2.00%

1.50%

1.00%

0.94%

0.91%

1.14%

1.01%

0.39%

0.50%

0.00%
2000-2008

2008-2019CAN

2019-2022

US

Sources: Canada business sector labour productivity data from Statistics Canada: Table 36-10-0305-01 for 19471960, Table 36-10-0208-01 for 1961-2021, Table 36-10-040-01 for 2022. United States business sector labour
productivity data from BLS Labour Productivity and Cost Measures – Major Sectors – August 3, 2023 (XLSX
sheet). Total Economy labour productivity data from OECD – Productivity and ULC – Annual, Total Economy:
https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR#.

27
Rates of business sector productivity growth in Canada have tended to lag those in the
United States throughout the last century and this phenomenon has become most severe after
2000. In this respect, the post-war period of 1947-1973 period was unique, with Canadianbusiness sector productivity growth over the period exceeding growth in the United States by
0.71 percentage points. This advantage was short-lived however. By the 1973-2000 period,
productivity growth in both countries had fallen sharply, with the Canadian business sector
figure comprising less than half what it was previously. Trend productivity growth was relatively
less affected in the United States, falling 1.41 points period-to-period compared to 2.19 points in
Canada. This brought the productivity trajectories of the two countries more-or-less in line withanother (1.74% in Canada vs. 1.81% in United States).
Moving to the 2000-2022 period, Canadian business sector productivity once again
halved, with trend productivity growth falling 0.88 points from the 1973-2000 period.
Concerningly though, this drop was not mirrored in the American figures. In fact, as Canadianproductivity growth plummeted period-to-period, trend productivity growth in the United Statesfrom 2000 to 2022 actually rose 0.02 points relative to the 1973-2000 period. Such developmentssuggest that, contrary to the post-war slump in productivity growth which affected both countries
in a roughly equal manner, the post-2000 slowdown may not be so universal and instead may
point to something unique to the Canadian business sector.
Comparing growth trends across Canada and the United States for shorter subperiods
after 2000 offers a more precise understanding of the divergence in productivity developments
across the two countries. In particular, the exercise underscores how short-term pandemic-era
disruptions offer little explanation for the longer-term asymmetry in Canada-U.S. productivity
trends. The largest discrepancy between the productivity growth rates of the two countries is28
observed in the 2000-2008 period, where productivity growth in the United States averaged an
impressive 2.50% annually while growth in Canada was dismal at 0.86% annually: a differentialof 1.64 percentage points.
This discrepancy moderated significantly over the 2008-2019 period, as Canadianproductivity growth rose 0.17 points to 1.03% and productivity growth in the United States
experienced a sharp fall of 1.11 points down to 1.39%. Altogether, this reduced trend
productivity growth in the United States to just 35% above Canadian trend productivity growth,
likely reflecting the enduring, asymmetric effects of the 2008 financial crisis and the late-period
resource boom which bolstered productivity contributions from the Canadian mining, oil and gas
extraction industry.
However, with the 2019-2022 period, any prospect of a return to parity in productivity
growth trends between the two economies grew more remote; Canadian productivity growthcratered in this period, dropping 0.82 points between periods to just 0.21% annually. And once
again, this dramatic decline was not reflected in trends observed in the United States; rather,
American trend productivity growth actually rebounded somewhat, rising 0.25 points from anaverage of 1.39% annually in the previous period to 1.64%. These divergent trends resulted in a
substantial widening of the cross-country disparity in growth trends. Trend productivity growthin the United States now exceeded that in Canada by 1.43 percentage points. This is slightly
smaller than the absolute gap observed in the 2000-2008 subperiod, however the gap in relative
terms is by far the largest between 2019 and 2022, with trend productivity growth in the UnitedStates nearly 8 times larger than that in Canada.
For comparison, Panels C and D offer rates of labour productivity for the total economy.
With the exception of the 1973-2000 period, the gap between the rates of growth in U.S. and29
Canada is smaller in every period when using total economy measures rather business sector
measures. This is particularly visible in the 2000-2008 period, where the total economy gap is
1.10 points compared to 1.64 points in the business sector, and the 2019-2022 period, where thetotal economy gap is 0.75 points compared to 1.43 points. These estimates for the 2019-2022
period should be interpreted with extreme caution however, given the extraordinary nature of theperiod and the fact that estimates for 2022 productivity growth may still be subject to revision. A
fuller discussion of the significance of total economy measures in assessing the state of Canadianlabour productivity growth follows later on in this section.

The Relative Labour Productivity Gap
Chart 6 provides an alternative view of the Canada-U.S. productivity gap by comparing
business sector productivity levels over the full 1947-2022 period. The Chart graphs Canadianlabour productivity levels (business sector output per hour) as a proportion of labour productivity
levels in the United States, with purchasing power parity (PPP) based on a 1999 benchmark
developed by Statistics Canada (2008).3 Naturally, the transformation of the gap closely tracks
the trends in productivity growth rates presented in Chart 6, painting an alarming picture of aperpetually widening gap since the mid-1980s.

3This benchmark from the Statistics Canada article “Relative Multifactor Productivity Levels in Canada and the United States: A
Sectoral Analysis" (Catalogue no. 15-206-X, no. 019, July, p.32.) calculated Canadian business sector output per labour hour in1999 as 84.2% of United States business sector output per labour hour.

30
Chart 6: Relative Labour Productivity Levels (GDP per Hour in the Business Sector in
Canada), 1947-2022 (Canada as a % of the United States)
100.0
95.0
90.0
85.0
80.0
75.0
70.0
65.0
60.0
55.0
50.0
1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

2007

2012

2017

2022

Source: Canada labour productivity data from Statistics Canada: Table 36-10-0305-01 for 1947-1960, Table 36-100208-01 for 1961-2021, Table 36-10-0480-01 for 2022. US labour productivity from BLS Labour Productivity and
Cost Measures – Major Sectors – August 3, 2023 (XLSX sheet). 1999 benchmark of Canada’s output per hour at
84.2% of US output per hour from Statistics Canada (2008) "Relative Multifactor Productivity Levels in Canada andthe United States: A Sectoral Analysis" Catalogue no. 15-206-X, no. 019, July, p.32.
Note: US-Canada purchasing power parity based on 1Statistics Canada benchmark of Canadian business sector
output per hour at 84.2% of US business sector output per hour in 1999 (Statistics Canada, 2008).

Canadian productivity levels have historically been overshadowed by productivity levelsin the United States although the degree of this discrepancy tends to vary greatly by period. At its
highest, Canadian business sector productivity approached parity with the United States, with theCanadian figure making up 93.4% of the level in the United States in 1984. Worryingly, therelative gap has never been larger than it was in 2021: the first time in official statistics that the
Canadian business sector productivity has fallen below 70% of U.S. business sector productivity.
Generally, the figure has remained between 70% and 90% of U.S. labour productivity.
The gap in productivity levels follows a striking parabolic pattern. As trend Canadianproductivity growth exceeds trend U.S. productivity growth from 1947 to the mid-1980s, the31relative gap closes steadily. The 1973-2000 period, which overall represented a sharp decline inproductivity growth compared to the 1947-1973 period really plays host to two distinct patterns
of productivity growth, demarcated by a turning point in 1984. Prior to 1984, the relative gap
shrinks in a continuation of the trend from the previous period; after 1984, the relative gap
begins to grow rapidly and it is this latter trend that dominates when we look at the 1973-2000
period in full.
Post-2000, the relative disparity in productivity levels between the economies begins towiden at a faster rate, before rebounding somewhat following the Great Recession. Canadianbusiness sector productivity made up 93.4% of U.S. business sector productivity in 1984. By
2000, this has fallen to 85.3%: a drop of about 8 percentage points over 16 years. In 2010,
Canadian business sector productivity now made up 70.1% of the U.S. figure, dropping 15.2% injust 10 years as a consequence of divergent ICT investment trends in the two economies.
Notably, from 2007 to 2019, there was no deterioration in the gap. Rather, a small rebound began
to materialize, as Canadian business sector productivity growth slightly outpaced that in the U.S.
and pandemic-related re-allocation effects boosted Canadian productivity levels relative to the
U.S. in 2020. However, economic disruption and further compositional shifts associated with thecontinuation of the pandemic quickly reversed these initial productivity gains.

32
Chart 7: Relative Labour Productivity Levels (GDP per Hour in Total Economy), 19702022 (Canada as % of the United States)
100.0
95.0
90.0
85.0
80.0
75.0
70.0
65.0
60.0
55.0
50.0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021
Total Economy

Business Sector

Source: Total economy data from OECD – Productivity and ULC, Annual Total Economy –https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR. Canada business sector labour productivity data from
Statistics Canada: Table 36-10-0305-01 for 1947-1960, Table 36-10-0208-01 for 1961-2021, Table 36-10-0480-01
for 2022. US business sector labour productivity data from BLS Labour Productivity and Cost Measures – Major
Sectors – August 3, 2023 (XLSX sheet). 1999 benchmark of Canada’s output per hour at 84.2% of US output perhour from Statistics Canada (2008) "Relative Multifactor Productivity Levels in Canada and the United States: A
Sectoral Analysis" Catalogue no. 15-206-X, no. 019, July, p.32.
Note: Total economy time-series is constructed from OECD data on U.S. and Canada total economy labour
productivity growth using constant prices and 2015 purchasing power parity. Business sector time-series isconstructed from Statistics Canada and US Bureau Labour of Statistics data. Business sector purchasing power
parity is based on the Statistics Canada benchmark of Canadian business sector output per hour at 84.2% of US
business sector output per hour in 1999 (Statistics Canada, 2008).

The narrative offered in Chart 7, which presents the relative total economy labour
productivity levels for the United States and Canada from 1970-2022, is broadly similar.
Beginning in 1970, total economy labour productivity in Canada initially rose as a proportion of
the US figure before peaking in 1978. Following this, Canadian GDP per hour worked fell
steadily relative to the United States, with the steepest declines occurring post-2000. Between
1970 and 2000, Canadian GDP per hour worked as a proportion of the US level fell 3.5

33
percentage points, from 84.7% to 81.2%; between 2000 and 2022 – a shorter time period – thesame measure fell 9.1 points to just 72.0%.
Although the measures track each other quite closely, small discrepancies are seen acrossthe period. From 1970 to 2003, the productivity gap was larger for the total economy than forjust the business sector. However, from 2004 onwards, this pattern inverted, and the productivity
gap was found to be smaller for the total economy compared to the business sector. In general,
the total economy measure of the labour productivity gap is broader and hence it is somewhat
less volatile than the business sector labour productivity gap. 4 Whereas Canadian business sector
labour productivity reached a peak of 93.4% of the US level in 1984, total economy output
reached an attenuated peak of 88.4% in 1977. A meaningful difference was also observed
between the measures during the pandemic. The business sector gap grew substantially, with
Canadian labour productivity falling from 72.1% of US labour productivity in 2019 to a low of
69.1% in 2022. The increase in the total economy gap was only half as large, with Canadianlabour productivity dropping from 73.7% of US labour productivity in 2019 to 72.0% in 2022.

4

While the discrepancy observed in the Canada-U.S. productivity gap when using total economy measures rather than businesssector measures may well represent something meaningful, readers should note the difficulty of calculating the appropriate PPPs
to enable such comparisons. Comparing total economy productivity between the two countries is simple, as expenditure PPPs forthe total economy are readily available for the two countries. However, PPPs for the business sectors of the two countries are
more complex to estimate. We use a benchmark developed by Statistics Canada in 2008: a benchmark which may be outdated.
Hence, this decision may be contributing to the apparent disparity in Canada and U.S. productivity trends when using total
economy versus business sector measures.

34
Pandemic-Era Developments
Table 1: Business Sector Output, Hours Worked and Annual Labour Productivity Growth
Rates, U.S and Canada, 2019-2022
2019

2020

2021

2022

2019-2022

117.3
107.4

109.5
92.3

115.0
103.0

119.6
108.5

-

0.62%

8.57%

-5.80%-1.54%

0.21%

121.2
112.3

117.0
103.8

126.0
109.4

128.8
113.6

-

1.88%

4.42%

2.18%

-1.60%

1.64%

Canadaoutput (2012 = 100)
hours worked (2012 = 100)
compound annual growth rate oflabour productivity
U.S
output (2012 = 100)
hours worked (2012 = 100)
compound annual growth rate oflabour productivity

Sources: Canada labour productivity data from Statistics Canada: Table 36-10-0208-01 for 2019-2021, Table 36-10-0480-01
for 2022. United States labour productivity from BLS Labour Productivity and Cost Measures – Major Sectors – August 3,
2023 (XLSX sheet).

To further contextualize the effect of the pandemic on the Canada-U.S. productivity gap,
and in particular, the asymmetrical manner in which it affected labour productivity in the two
economies, Table 1 provides the annual productivity growth rates for Canada and the U.S. foreach year in the 2019-2022 period as well as indexes of output and hours worked. While both
economies experienced a boost in aggregate productivity with the onset of the pandemic in 2020,
this leap was larger in Canada where year-over-year productivity growth was 8.60% compared tojust 4.42% in the U.S. This seems to suggest that the initial re-allocation effects seen as workers
in low-productivity industries left the workforce were stronger in Canada than the U.S, likely
owing to stricter public health measures and a more cohesive and proactive pandemic response.5

5

It is imperative to note that the re-allocation effect described here need not refer to the actual flow of workers between different
industries. Rather, “re-allocation” refers to changes in the share of total economy labour input which individual industries
account for. As such, asymmetric job losses, as occurred during the pandemic, are re-allocative to the extent that the input sharesof the affected industries fall and, conversely, the input shares of other industries rise. In contrast, widespread job losses which
affect all industries more or less the same, would have negligible or null re-allocation effects.

35
As one might expect, this lack of a strong re-allocation driven boost to productivity in the
U.S. in 2020 seems to have manifested in a softer return to normalcy compared to Canada.
Whereas Canada saw deeply negative productivity growth of 5.90% in 2021 as these workers
began to return to the workplace, U.S. productivity remained at an impressive 2.18%. As thesetrends continued to play out, both economies saw negative productivity growth of a similar
magnitude in 2022. Altogether, these asymmetric effects resulted in a backsliding of Canadianbusiness sector productivity relative to the U.S., plunging the Canadian level to 69% of the U.S.
level. Still, as stressed throughout the analysis in this report, it is extremely challenging todecouple pandemic effects from non-pandemic related developments in productivity, and hence,
readers must exercise caution in making projections for future productivity developments basedon these most recent figures.

36
Dualling Narratives: The Total Economy Gap versus the Business Sector Gap
Chart 8: Canada and U.S. Productivity Growth Gap, Business Sector vs. Total Economy,
Average Annual Growth Rates, 2000-2022
Panel A: Labour Productivity (Output per Hour)
5.00%
4.00%
3.00%
1.83%

2.00%
1.00%

1.36%
0.86%

0.97pp0.85%

0.55pp0.00%
CanadaU.S

Canada-U.S Gap-1.00%-2.00%
Business Sector

Total Economy

Panel B: Real Output
2.50%
2.00%

2.20%
1.76%

1.93%

1.87%

1.50%
1.00%
0.44%

0.50%

0.06%

0.00%
-0.50%-1.00%-1.50%-2.00%
CanadaUS
Business Sector

Total Economy

Panel C: Total Hours Worked

Canada-US Gap

37

2.00%
1.50%
1.00%

0.88%

1.01%
0.52%

0.37%

0.50%
0.00%
-0.50%-0.52%-0.49%-1.00%
CanadaUS
Business Sector

Canada-US Gap

Total Economy

Panel D: Average Hours Worked per Employed Person
2.00%
1.50%
1.00%
0.50%
0.09%

0.14%

0.00%
-0.50%-0.29%-0.27%-0.13%-0.20%-1.00%
CanadaUS
Business Sector

Canada-US Gap

Total Economy

Source: Canada business sector labour productivity data from Statistics Canada: Table 36-10-0208-01 for 20002021, Table 36-10-0480-01 for 2022. Canada hours worked and business sector output data from Statistics Canada
Table 36-10-0480-01. Canada total economy labour productivity and output data from OECD: Productivity and
ULC – Annual, Total Economy - https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR. United States businesssector labour productivity, hours worked, and output data from BLS Labour Productivity and Cost Measures –Major Sectors – August 3, 2023 (XLSX sheet). United States total economy productivity, hours worked, and output
data from OECD: Productivity and ULC – Annual, Total Economy.

38
Using total economy measures of labour productivity growth (as in Charts 1 to 4 andPanels C and D of Chart 5) rather than business sector measures causes the Canada-U.S.
productivity growth gap to attenuate significantly. Chart 8 visualizes this dynamic, providing
business sector and total economy rates of growth for labour productivity, hours worked, and real
output in Canada and the US. Whereas U.S. business sector productivity growth from 2000 to
2022 averaged 1.83% annually, U.S. total economy productivity growth over the same period
averaged only 1.40% annually: 0.43 percentage points lower or about 23% smaller. This tracks
with the logic suggested in the previous section: measurement issues mean that non-businesssector activities tend to be assessed as less productive and hence, one would expect total
economy labour productivity to trail business sector labour productivity. The fact that thisphenomenon is virtually non-existent in Canada, where the growth rate for the two levels of
aggregation is essentially the same, is puzzling. What results is a total economy productivity gap
that is much narrower relative to the business sector gap. When using business sector measuresof productivity, the gap is large at 0.97 percentage points: larger than the Canadian businesssector growth rate over the period. When using total economy measures, this gap declines to astill significant but much-reduced 0.55 percentage points6.
The differing magnitude of these gaps may reflect distinct trends in employment andoutput growth in the two countries. In Canada, annual employment growth is higher in the total
economy than in the business sector (1.01% per year vs. 0.88% per year). This would seem toprimarily reflect strong hiring in the Canadian public sector post-2000. All else equal, one would
expect this to detract from labour productivity growth in the total economy relative to the6

See CSLS (2004) for a more detailed discussion of differences in the measurement of the non-market sector between the U.S.
and Canada. It should be noted that an important part of the non-market sector for which there is real output growth is theimputed rents for owner-occupied housing, and CSLS (2004) finds that differences in growth rates between the U.S. and Canada
were able to explain some although not all of the difference in real output growth of the non-market sector prior to 2004.

39
business sector. However, real output growth is also higher in the total economy (1.87% vs.
1.76%), and as such, higher rates of employment growth in the total economy do not manifest
detrimentally on labour productivity growth. In contrast, while employment growth is similarly
stronger in the US total economy compared with the US business sector, there is nocounterbalance in the form of high real output growth. Indeed, real output growth is actually
meaningfully lower in the US total economy at 1.93% annually compared to 2.20% annually inthe business sector. What results is a lower rate of labour productivity growth in the US total
economy vis-à-vis the business sector. These conflicting patterns across the United States andCanada lead to a total economy labour productivity gap that is much reduced compared to thebusiness sector gap.
Ultimately, these two measures of labour productivity offer distinct narratives on the stateof Canadian labour productivity growth: one which suggests the situation is quite dire, while theother is decidedly more optimistic. In either case though, it is key to recognize that the American
economy is consistently a high performer comes to productivity growth. As such, trends in the
United States are not particularly representative of overall trends in peer countries. An
unyielding focus on comparison with the United States hence risks obscuring the larger pictureof what appears to be quite a broad-based slowdown in labour productivity growth.

Decomposing Labour Productivity Growth by Sector
To identify the sources of slowing productivity growth, the CSLS has developed adecomposition formula which breaks down aggregate productivity growth into within-sector
effects and re-allocation effects. The decomposition can be expressed as follows:∆𝑃 = % ℎ!" ∆𝑃! + %(𝑃!" − 𝑃" ) ∆ℎ! + %(∆𝑃! − ∆𝑃)∆ℎ!

40
Where 𝑃 is the overall business sector labour productivity level, 𝑃! is the labour
productivity level in sector i, ℎ! is the share of total economy-wide labour hours which is
employed in sector i, the subscript 0 indicates a variable in time 0 (the beginning of the period)
as opposed to time 1 (the end of the period), ∆ indicates change over the period, and ∆𝑃 is theaverage change in business sector productivity across sectors over the period.
The first term in the decomposition captures what we call within-sector effects. Withinsector effects refer to aggregate productivity growth attributable to productivity growth within
sectors. The latter two terms, meanwhile, capture two distinct re-allocation effects. Re-allocation
effects stem from changes in the share of labour input associated with a sector. All else equal, an
increase in the share of total labour input which is employed by a sector with above-average
productivity will increase the aggregate labour productivity growth in the economy. Conversely,
an increase in the labour input share of a sector with below-average productivity will reduce
aggregate labour productivity growth in the economy. These re-allocation effects can be further
decomposed into the level effect and the growth effect: the second and third term in thedecomposition equation, respectively. The level effect captures changes in the productivity level
resulting from the movement of inputs across sectors with different productivity levels.
Conversely, the growth effect captures changes which result from the movement across sectors
which experience different degrees of productivity growth over the relevant period. Imperative tonote is the fact that this calculation is performed using absolute changes in labour productivity,and not rates of productivity growth. The next section applies this decomposition framework to
the 2000-2022 period to identify what changes in Canadian labour productivity growth are due toslowdowns or losses in within-sector productivity and which changes are due to compositionalchanges in the Canadian economy.

41

Table 2: CSLS Decomposition by Province, Within-Sector and Re-allocation Effects on Canadian Business
Sector Labour Productivity Growth, 1997-2022

1997-2000

2000-2008

2008-20192019-2022

2000-2022

Within-Sector Effect

3.32

0.73

1.15

0.18

0.86

Re-allocation Level Effect

-0.34

0.52

-0.03

0.20

0.20

Re-allocation Growth Effect

-0.14

-0.25

-0.06

-0.10

-0.13

Net Re-allocation Effect

-0.48

0.27

-0.09

0.11

0.07

Summed Effects

2.84

1.00

1.06

0.29

0.93

3.16

1.00

1.05

0.23

0.92

-0.33

0.00

0.01

0.05

0.01

Observed Business Sector
Productivity CAGR
discrepancy (summed effects
minus observed rate of
growth)Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

Table 2 provides a breakdown of the within-sector and re-allocation effects on aggregate
business sector labour productivity growth for the post-2000 period alongside four subperiods.
Appendix A also provides the underlying two-digit NAICS industry-level data on labour
productivity levels and labour input for key years in the 1997-2022 period, as well as measuresof productivity growth subperiods for each of the periods of interest. 2000-2008 and 2008-2019
are cyclically neutral peak-to-peak periods; the 2019-2022 subperiod is not cyclically neutral
given that the current business cycle is incomplete. An incomplete cycle for the 1997-2000
period is also included to highlight the contrast between the pre-2000 and post-2000 period; datafor periods before 1997 cannot be disaggregated by province. Given that we are interested indecomposing not only by sector but also by province or territory, we restrict our scope to the421997-2022 timeframe. The growth rates provided in Table 2 for labour productivity in thebusiness sector demonstrate the uniquely poor productivity performance of Canada in the post2000 period. Overall, rates of annual labour productivity growth hover close to 1% over the
2000-2022 period: a decline from the 1980s and 1990s, where rates of productivity growth stuck
closer to 2%. For example, between 1981 and 1989, annual labour productivity growth averaged
1.55% per year; between 1989 and 2000, the rate of growth averaged 1.85% per year. Rates ofgrowth for the (admittedly incomplete) cycle beginning in 2019 are significantly lower, sitting
barely above 0.
Table 3 presents the contribution to business sector labour productivity growth by NAICS
two-digit industry for each of the periods in Table 2. These contributions represent the
combination of within-sector and re-allocation effects. The industry contributions and overall
productivity growth trends for each period are discussed in detail in the following subsections.
Finally, Table 4 offers the compound annual growth rate for each business sector industry ineach period post-2000.

43

Table 3: CSLS Decomposition by Industry, Contributions to Business Sector CanadianLabour Productivity Growth, 2000-2022 (percentage points)
2000-2008
2008-20192019-2022
change2000-2022
(1)
(2)
(3)
(4)=(3)-(2)(5)
Business sector industries
1.00
1.05
0.23
-0.82
0.92
(observed)
1.00
1.06
0.29
-0.77
0.93
Business sector industries (sum ofcontributions)
Agriculture, forestry, fishing andhunting

0.11

0.11

0.11

0.00

0.12

Mining and oil and gas extraction

-0.07

0.15

0.02

-0.13

0.05

Utilities

0.03

0.01

-0.01

-0.02

0.02

Construction

-0.02

0.03

-0.03

-0.06

-0.01

Manufacturing

0.15

0.12

-0.05

-0.16

0.13

Wholesale trade

0.21

0.14

0.04

-0.10

0.15

Retail trade

0.14

0.10

0.24

0.14

0.13

Transportation and warehousing

0.08

0.01

-0.07

-0.07

0.02

Information and culturalindustries

0.10

0.05

-0.04

-0.09

0.06

Finance and insurance

0.13

0.20

0.29

0.08

0.19

Real estate, rental and leasing

0.07

0.06

0.06

-0.01

0.06

Professional, scientific andtechnical services

0.02

0.06

-0.34

-0.40

-0.02

Holding Companies

0.01

0.04

-0.06

-0.10

0.01

ASWMRS

-0.02

0.03

-0.17

-0.20

-0.03

Educational services

0.00

-0.01

0.01

0.02

0.00

Health care and social assistance

0.00

-0.03

0.03

0.06

-0.01

Arts, entertainment andrecreation

-0.02

0.01

-0.01

-0.02

-0.01

Accommodation and food services

0.06

-0.04

0.18

0.21

0.03

Other Private Services

0.03

0.03

0.10

0.08

0.04

44

Table 4: Labour Productivity Growth Rate by Business Sector Industry, Compound Annual GrowthRate, 2000-2022 (percentage points)
2000-2008(1)

2008-2019(2)

2019-2022(3)

change(4) = (3) – (2)2000-2022(5)

Business sector industries

1.00

1.05

0.23

-0.82

0.92

Agriculture, forestry, fishing andhunting

1.85

3.73

4.05

0.33

3.09

Mining and oil and gas extraction

-4.57

1.52

0.54

-0.98

-0.87

Utilities

1.05

0.93

0.24

-0.68

0.88

Construction

-0.03

0.43

-0.13

-0.56

0.19

Manufacturing

1.09

0.87

-0.31

-1.18

0.79

Wholesale trade

3.23

2.05

0.51

-1.54

2.27

Retail trade

2.89

1.28

2.62

1.34

2.04

Transportation and warehousing

1.37

0.46

-1.59

-2.05

0.51

Information and cultural industries

2.74

1.00

-2.72

-3.72

1.11

Finance and insurance

1.73

2.41

2.96

0.55

2.23

Real estate, rental and leasing

0.24

0.71

2.99

2.28

0.85

Professional, scientific and technicalservices

0.31

0.83

-3.19

-4.02

0.08

Holding Companies

2.30

2.84

-24.45-27.29-1.58

ASWMRS

0.69

0.58

-3.87

-4.45

0.00

Educational services

1.24

-0.23

2.42

2.65

0.66

Health care and social assistance

0.08

-0.44

0.83

1.27

-0.08

Arts, entertainment and recreation

-1.46

0.52

-4.34

-4.86

-0.88

Accommodation and food services

0.88

0.56

-0.46

-1.02

0.54

Other private services

1.41

1.03

2.57

1.54

1.38

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

45

2000-2022
Chart 9: CSLS Labour Productivity Decomposition by Industry, Business Sector,
Compound Annual Growth Rates, 2000-2022
1.50
1.00

0.92

0.86

0.50

0.20

0.00

-0.13

-0.50
-1.00
Within-Sector Effect

Re-Allocation Level
EffectRe-Allocation Growth
EffectBusiness Sector
Productivity Growth
Rate

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

Chart 9 presents the results of the decomposition for the 2000-2022 period. Across thepost-2000 period, the bulk of business sector productivity growth – about 92% – is accounted forby within-sector productivity growth. Re-allocation effects also contribute positively to labour
productivity growth; although the growth effect is negative, it is slightly outweighed by the level
effect, which is substantial and favourable to business sector productivity growth. Whereas
within-industry productivity growth only averaged 0.86% annually for the 2000-2022 period, theaggregate growth rate was slightly higher at 0.92%, boosted 0.06 points by the net movement oflabour into sectors with above-average productivity. The growth effect was negative at -0.13
points, indicating that on average, labour tended to move towards sectors with below-average
productivity growth. Growth was driven mainly by within-sector productivity gains in five key
sectors: finance and insurance (contribution of 0.19 points; growth rate of 2.23%), wholesaletrade (0.15 points; growth rate of 2.27%), retail trade (0.13 points; 2.04%), manufacturing (0.13
points; 0.79%), and agriculture, forestry, fishing, and hunting (0.12 points; 3.09%). With the46
exception of the manufacturing sector, these were also the sectors with the highest rate of withinsector productivity growth.

47Chart 10: CSLS Decomposition by Industry, Within-Sector and Re-allocation Effects on
Canadian Business Sector Labour Productivity Growth, 2000-2008 and 2008-2019
Panel A: 2000-2008
1.50
1.00

0.73

0.50

1.00
0.52

0.00
-0.50

-0.25

-1.00
Within-Sector Effect

Re-Allocation Level Effect

Re-Allocation Growth
EffectBusiness Sector
Productivity Growth Rate

Panel B: 2008-2019
1.50

1.15

1.05

1.00
0.50
0.00
-0.50

-0.03

-0.06

Re-Allocation Level Effect

Re-Allocation Growth
Effect-1.00
Within-Sector EffectBusiness Sector
Productivity Growth Rate

Panel C: Changes Between 2000-2008 and 2008-2019 Period
1.50
1.00
0.50

0.42

0.19

0.00

0.05

-0.50

-0.56

-1.00
Within-Sector Effect

Re-Allocation Level Effect

Re-Allocation Growth
EffectSource: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

Business Sector
Productivity Growth Rate

48

2000-2008 and 2008-2019
Similar trends are reflected in the 2000-2008 period. Panel A of Chart 10 presents theresults of the CSLS labour productivity decomposition for this period. Between 2000 and 2008,
within-sector productivity growth averaged 0.73%, contributing about three-quarters of theaggregate productivity growth rate observed over the subperiod. The level effect in this case wasconsiderable, with a contribution equal to about half of the aggregate growth rate at 0.52 points;
the growth effect (-0.25 points) was smaller and negative, leading to a still positive but
attenuated net re-allocation effect of 0.27 points. Drilling down to individual sectors, the largest
contributors were wholesale trade (0.21 points; annual growth rate of 3.23%), manufacturing(0.15 points; 1.09%), retail trade (0.14 points; 2.89%), and finance and insurance (0.13 points;
1.73%). The information and cultural industries sector also experienced a high rate ofproductivity growth (2.74%), though the small size of the industry resulted in a contribution ofjust 0.10 points. Altogether, these contributions overwhelmingly reflected within-sector
productivity growth.
Productivity effects between 2008 and 2019 subperiod took on a slightly different
structure; Panel B of Chart 6 presents these effects. Over the subperiod, within-sector
productivity exceeded the aggregate rate of business sector productivity growth; business sector
productivity growth averaged 1.05% annually, while annual within-sector growth averaged
1.15%. This dynamic stems from the fact that both re-allocation effects were negative, indicating
that, on net, labour moved towards sectors with below-average productivity levels (level effect of-0.03 points) and below-average productivity growth (growth effect of -0.09 points). Still, these
re-allocation effects were small in magnitude. Six sectors in particular drove productivity growthover the subperiod, contributing about 77% of the business sector growth rate. These sectors

49
were: finance and insurance (0.20 points; growth rate of 2.41%), mining and oil and gas
exploration (0.15 points; 1.52%), wholesale trade (0.14 points; 2.05%), manufacturing (0.12
points; 0.87%), agriculture forestry, fishing, and hunting (0.11 points; 3.73%) and retail trade(0.10 points; 1.28%). Contributions from these industries almost exclusively reflected withinsector productivity growth. In general, re-allocation effects were extremely small across allindustries in this subperiod.
Changes in the composition of productivity growth effects between the two periods were
myriad. Productivity growth within sectors improved substantially, causing the within-sector
effect on business sector productivity to rise by 0.42 points period-to-period. These gains werecounterbalanced by a stark reduction in the re-allocation level effect (-0.56 points) which stunted
business sector productivity growth significantly. Re-allocation effects in the 2000-2008 period
stemmed directly from the shift of labour hours towards the mining and oil and gas extraction
sector (labour input share of 1.4% in 2000 vs. 2.1% in 2008) which boasted a labour productivity
level of $356 per hour worked at the start of the period.7 This continued in absolute terms in the
2008-2019 period, with hours worked rising from 494 million to 534 million. However, as aproportion of total business sector labour input, hours worked in mining and oil and gas
extraction actually fell from 2.08% in 2008 to 2.06% in 2019. In other words, expansion in othersectors of the economy outpaced expansion in the mining and oil and gas extraction sector,
reducing the industry’s contribution to productivity growth and turning the re-allocation effectwithin the industry slightly negative. Productivity in the sector also fell dramatically from 20002008 ($356 to $245), though this, in fact, had a moderating effect on the fall in the re-allocationlevel effect; if productivity in the industry had remained higher, then the impact on productivity
growth from the slight reduction in the sector’s labour input share would have been larger. In
7

All dollar estimates in this section on industrial decomposition are expressed in 2012 Canadian dollars.

50
other words, if within-sector productivity had not fallen, the opportunity cost, or the lost output
from not employing labour in such a high productivity sector, would have been higher.
An increase in re-allocation growth effects also contributed to the difference inproductivity growth trends across the two periods. Between 2000 and 2008, the re-allocation oflabour towards sectors with below-average productivity growth had constrained business sector
productivity growth meaningfully. Once again, this was driven by the re-allocation of labour
towards the mining and oil and gas extraction sector: an industry that, despite consistently
elevated levels of productivity, had a deeply negative productivity growth trajectory in the 20002008 period. While the increased labour share of the industry improved business sector
productivity growth on balance, there was both a positive impact, in the form of a dominating
positive level effect, and a negative impact, in the form of a smaller but still substantial andnegative growth effect. Similar to the re-allocation level effect, this growth effect moderated in
the 2008-2019 period, resulting in a small but negative net re-allocation effect. By 2008-2019,the re-allocation of labour towards the sector had slowed in absolute terms and actually reversedslightly as a proportion of total labour input share. As such, even though within-sector
productivity growth rebounded in this period for the mining, oil and gas exploration sector, theimpact on business sector productivity growth was negligible. Without much change in the shareof labour in mining, oil and gas extraction over the period, the overall growth effect moderated
compared to the previous period, rising from -0.25 points to -0.06 points.
Overall, the change in effects observed between periods reflects optimistically on thegrowth trajectory and growth potential of labour productivity in the Canadian business sector.
While within-sector productivity growth was relatively low at 0.73 percent annually during the
2000-2008 period, it jumped 0.42 points or 58% in the 2008-2019 period. If re-allocative trends

51
had remained the same between the two periods, the period-to-period jump in trend productivity
growth would have been even larger. However, there are two important caveats to thisobservation. Firstly, the re-allocation and within-sector trends cannot be entirely disentangled. In
some cases, within-sector productivity improvements are linked to a decline in the size of theworkforce of a sector and the compositional changes that arise as the least productive workers
are let go. In this way, improvements in within-sector productivity can come at the expense of reallocation effects and vice versa.
Second, by far the largest contributor to the within-sector productivity improvements
observed in this period was the mining, oil and gas exploration sector, where the within-sector
effect improved from -0.40 points in 2000-2008 to 0.16 points in 2008-2019. To the extent that a
future net-zero transition de-emphasizes the importance of this industry to the Canadian
economy and shifts resources to other sectors, it may become increasingly difficult to maintainthe 1% target for productivity growth. With that said, the industry also has the capacity todepress within-sector productivity growth massively, as it did in the 2000-2008 period as highresource prices encouraged the exploitation of lower- quality resources. Hence, the impact of amuch smaller mining, oil and gas exploration sector on productivity growth may be net neutral in
the long-run. In the near- and medium-term though, the declining labour share of such a highproductivity industry is likely to weigh heavily on business sector productivity growth.
Nevertheless, the fact that within-sector productivity growth rebounded so significantly between
periods, and that the growth rate was relatively robust prior to the pandemic ought to inspiresome confidence in the prospect of getting back to productivity growth of 1% following therecent slowdown.

52
Chart 11: CSLS Decomposition by Industry, Within-Sector and Re-allocation Effects on
Canadian Business Sector Labour Productivity Growth, 2008-2019 and 2019-2022
Panel A: 2008-2019
1.50

1.15

1.05

1.00
0.50
0.00
-0.50

-0.03

-0.06

Re-Allocation Level Effect

Re-Allocation Growth
Effect-1.00
Within-Sector EffectBusiness Sector
Productivity Growth Rate

Panel B: 2019-2022
1.50
1.00
0.50

0.18

0.23

0.20

0.00

-0.10

-0.50
-1.00
Within-Sector Effect

Re-Allocation Level Effect

Re-Allocation Growth
EffectBusiness Sector
Productivity Growth Rate

Panel C: Changes Between 2008-2019 and 2019-2022
1.50
1.00
0.50
0.00

-0.97

0.23
-0.04

-0.50
-1.00
Within-Sector Effect

Re-Allocation Level Effect

Re-Allocation Growth
EffectSource: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

-0.82
Business Sector
Productivity Growth Rate

53

2008-2019 and 2019-2022
The 2019-2022 period, as mentioned prior, saw a substantial fall in the rate of businesssector productivity growth, down from 1.05% annually in the previous period to just 0.23%
annually. Within-sector productivity was nearly stagnant over the period, with an average growthrate across the business sector of just 0.18% annually. Labour input shifted towards industries
with above-average levels of labour productivity, adding an additional 0.20 points to businesssector productivity growth, though a negative growth effect (-0.10 points) offset about half of
this increase. The most substantial industry contributions stemmed from finance and insurance(0.29 points; growth rate of 2.96%), retail trade (0.24 points; 2.62%), accommodation and foodservices (0.18 points; -0.46%), and the agriculture, forestry, hunting and fishing (0.11 points,
4.05%). The real estate, rental and leasing sector (2.99%), educational services (2.42%), and“other private services” sector (2.57%) which includes services like personal care, laundry, andfuneral services as well as automotive and non-automotive repair and maintenance, also featured
notable rates of productivity growth.
Given the short timespan for this subperiod and the extraordinary nature of the pandemic,
it is useful to discuss the individual year-over-year growth rates in addition to the period trends.
Business sector productivity growth in 2020 was 8.57%, reflecting the temporary compositionalchanges brought on by the laying-off and furloughing of employees in low-productivity sectors
during the pandemic. These gains quickly began to disappear, with annual productivity growth
turning negative as they reversed over the following years (-5.80% in 2021 and -1.54% in 2022).
Over the entire period, this amounted to an increase In labour productivity of just 0.7% in output
per hour and an annual growth rate of just 0.23%: a substantial slowdown in productivity growth54compared to the 2008-2019 period (total productivity growth of 12.2%, annual growth rate of
1.05%).
The structure of productivity effects in the 2019-2022 period represented a significant
departure from previous periods; Chart 11 presents the within-sector and re-allocation effects forthe period. Panels A also present the effects for the 2008-2019 period, while Panel C displays thechanges in effects between the two periods. Most of the fall in productivity growth between thetwo periods can be ascribed to the massive crash in within-sector productivity observed between
the two periods. Whereas within-sector productivity growth had remained within the 0.7-1.2
percentage point range in the previous two periods, growth within sectors fell to just about 0.2
points in the 2019-2022 period. This drop reflects a broad-based deterioration of productivity
growth across many industries within the Canadian business sector; in some sectors, productivity
growth simply decelerated while in many others, rates of growth turned negative as productivity
within sectors fell back. Professional, scientific and technical services was the most pronounced
example of this. Trend labour productivity growth rate in the sector fell 4.02 percentage points
between periods and the within-sector effect plunged from 0.06 points in the 2008-2019 period
to -0.25 points in the most recent period: a fall of 0.31 points or nearly a third of the total drop
observed in the within-sector effect between periods (Panel C of Chart 11). Similar trends wereobserved in the manufacturing sector (within sector effect of 0.14 in previous period to -0.04 in
2019-2022 period), the information and cultural industries sector (0.04 to -0.12), and theadministrative services, waste management and remediation sector (0.02 to -0.13) among others.
In contrast, the re-allocation level effect rebounded somewhat between the 2008-2019
period and the 2019-2022 period, from -0.03 points to 0.20 points. By far the largest contribution
originated from the accommodation and food services industry, which contributed 0.19 points.

55
Stemming from pandemic disruptions, the input share of the sector dropped substantially from
7.7% to 6.8%. As the industry that consistently has the lowest productivity level of any NAICS
two-digit business sector industry (2019 labour productivity of $22 per hour vs. business sector
average of $57), this outflow of labour over the period pushed up overall labour productivity
growth meaningfully. Positive re-allocation level contributions were also associated with theinformation and cultural industries (0.10 points), retail trade (0.07 points) and other private
services (0.05 points) sector. In the case of the information and cultural industries sector, an
increase in the sector’s labour share (2.53% to 2.91%) over the period buttressed business sector
productivity growth, reflecting the above-average productivity level of the industry at the start ofthe period ($101 vs. business sector average of $57). The latter two sectors, meanwhile, hadrelatively low levels of productivity in 2019 ($35 and $25, respectively). Hence, business sector
productivity growth was boosted as their respective labour input shares declined over the period.
Reallocation growth effects were generally small, albeit slightly more importantcompared to the previous period. Most sectors were associated with negligible growth effects.
Altogether, it is unclear what part of the productivity slowdown in this period is reflecting
pandemic disruptions and the associated ebb and flow of compositional changes, and what
degree of the slowdown is reflecting non-pandemic trends like long-term technological progress.
There was no clear pattern in the types of sectors which faced productivity losses. This group
included a wide array of industries from art, entertainment and recreation (within-sector effect of-0.04 points) to transportation and warehousing (-0.12 points) to manufacturing (-0.04 points).
Ultimately, it seems likely that these broad-based declines in within-sector productivity reflect
common disruptions caused by pandemic shocks such as public health measures and work safety

56
regulations, labour shortages, supply chain challenges, and shifts in consumer preferences, manyof which seem likely to be temporary.
Notably, sectors which experienced sustained productivity growth over the period seemto be those for which disruptions were minimal or those poised for e-commerce. The finance andinsurance (trend growth rate of 2.96%, making for a within-sector effect of 0.28 points) and retailtrade (trend growth rate of 2.62%, within-sector effect of 0.18 points) industries, for example,
have become increasingly online-focused and tech-integrated; the pandemic likely represented awatershed moment for expanding these competencies and shedding or re-allocating employees in
low-productivity positions, particularly in brick-and-mortar operations. For the retail tradeindustry, there was a fall in labour input share over the period, albeit a small one (12.19% in2019 vs. 11.74% in 2022) suggesting that some of the within-sector productivity gains here
might be compositional, generated by the laying off of low-productivity employees. However,for the finance and insurance industry, the labour input share grew slightly over the period(6.31% vs. 6.36%), suggesting that productivity improvements must reflect technological ororganizational improvements. It should be noted though that both of these sectors are consistentleaders in terms of productivity performance and within-sector effects in every period; hence, theproductivity growth here may simply represent the continuance of longer-term trends and may beunrelated to pandemic shocks. The agriculture, forestry, fishing, and hunting sector was anotherkey locus of within-sector productivity growth over the 2019-2022 period, with a within-sector
effect of 0.11 points. In this case too, the productivity performance of the sector was consistent
with its trajectory over previous periods. Moreover, in line with previous periods, growth inproductivity coincided with a decrease in input share (2.90% to 2.63%). Hence, it seems unlikelythat productivity growth in agriculture was affected by pandemic disruptions.

57
The second-largest contributor to productivity growth over the period – the real estate,rental and leasing (trend growth rate of 2.99%, within-sector effect of 0.19 points) sector – has
not been a leading sector with respect to productivity growth since prior to 2000. This lends
credence to the notion that productivity growth in this sector is attributable to pandemic
developments. It is possible that the real estate, rental, and leasing sector too benefited from a
moment of tech integration and/or re-structuring, as hours worked in the industry declined from
668 million to 610 million. Contrary to what this contraction in the size of the sector’s workforce
might suggest, the Canadian real estate market continued to boom during the pandemic, withdemand rising, particularly for single-family homes in suburban areas (Statistics Canada, 2020;
National Bank, 2021). Some productivity researchers argue that productivity advancements aremost likely in times of strong business activity and economic expansion (Smith, 2023); hence,some of these productivity gains might actually reflect real improvements in production
efficiency facilitated by pandemic-era growth in the real estate market.
It is worth discussing what it would require for productivity growth to return to theprevious trend level of 1% annually. Even if the pandemic-era slowdown were to reverse entirelyin 2023 and promptly rebound to a growth rate of 1% per year, the rate of growth over thecomplete business cycle would likely still land well below 1%. Rather, to attain the 1% target
over the current business cycle, productivity growth in the coming years would need to averagewell above 1% to compensate for the lost productivity gains associated with the pandemic.
Assuming an 8-year business cycle, as was the case with the 2000-2008 period, an annual growthrate of 1.46% would be needed over the remaining 5 years (2022-2027) to attain a period growthrate of 1%. Assuming an 11-year business cycle, as was the case with 2008-2019 business cycle,
a 1% rate of growth over the period would require an annual growth rate of 1.29%. Both of these

58
scenarios may be unrealistic for several reasons. First, these rates are well-above the average prepandemic rates of annual growth. Second, there may still be some vestiges of the pandemic’s
compositional effects which need to be unraveled, and which may continue to impact negatively
on labour productivity growth. Indeed, official estimates for labour productivity growth in Q1
and Q2 suggest that productivity growth is yet to recover; year-over-year growth from Q1 2022
to Q1 2023 sits at -1.5%, while year-over-year growth for Q2 sits at -1.7% (Statistics Canada,
2023a). Finally, productivity growth tends to follow business cycle trends and, while theprospect of a recession is still uncertain, economic activity in the Canadian economy certainly
seems to be decelerating. In sum, the pathway back to 1% seems quite narrow.

Decomposing Labour Productivity Growth by Province
In much the same way that an aggregate representation of Canadian productivity canmask remarkable heterogeneity in within-industry trends and the components driving thesetrends (within-sector vs. re-allocation effects), a national perspective can hide divergences in
productivity trends across regions. For this reason, we are also interested in decomposing post2000 developments in Canadian productivity by province. Thankfully, the framework outlined in
the sectoral decomposition section can be easily adjusted to investigate productivity growth andre-allocation trends, within and across provinces. This revised decomposition by province can be
expressed as follows:∆𝑃 = % ℎ#" ∆𝑃# + %+𝑃#" − 𝑃" , ∆ℎ# + %+∆𝑃# − ∆𝑃,∆ℎ#Where 𝑃 is the overall business sector labour productivity level, 𝑃# is the labour
productivity level in province or territory j, ℎ# is the share of total economy-wide labour hours
which is employed in province or territory j, the subscript 0 indicates a variable in time 0 (the59
beginning of the period) as opposed to time 1 (the end of the period), ∆ indicates change over theperiod, and ∆𝑃 is the average change in business sector productivity across provinces over theperiod.

Table 5: Labour Productivity Growth by Province and Territory, Compound Annual
Growth Rates, 2000-2022

2000-2008 2008-2019 2019-2022
(1)
(2)
(3)
Canada
Newfoundland and Labrador
Prince Edward Island
Nova Scotia
New Brunswick
QuebecOntario
Manitoba
Saskatchewan
Alberta
British Columbia
Yukon
Northwest Territories
Nunavutchange(4) = (3) –(2)

2000-2022
(5)

1.00

1.05

0.23

-0.82

0.92

5.02

-0.67

-2.04

-1.37

1.17

1.12

0.77

1.69

0.91

1.03

0.49

1.11

0.24

-0.87

0.76

1.11

0.57

1.30

0.73

0.87

0.95

0.99

0.65

-0.34

0.93

0.67

0.99

0.12

-0.86

0.75

1.96

1.42

-0.44

-1.86

1.36

1.51

0.89

0.63

-0.26

1.08

0.18

1.37

-0.50

-1.87

0.68

1.28

1.04

1.04

-0.01

1.13

4.80

0.02

12.33

12.31

3.35

3.16

-0.51

-2.78

-2.27

0.49

0.86

0.62

8.36

7.74

1.73

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

Table 5 provides the compound annual rates of labour productivity growth for each of
Canada’s provinces and territories for the 2000-2022 period as well as three subperiods: 20002008, 2008-2019, and 2019-2022. Across the entire 2000-2022 period, the strongest rates ofannual labour productivity growth were seen in Yukon (3.35% per year) and Nunavut (1.73%),
though these figures seem to mainly represent pandemic-era distortions. Interestingly, such an

60
effect is not observed in the Northwest Territories, which experienced the lowest annual rate ofproductivity growth over the period at just 0.49% per year. More generally though, the small sizeof the economy in the Canadian territories means that even small shocks and fluctuations are
exaggerated in productivity growth figures, and furthermore, that productivity developments inthe territories have little impact on Canadian productivity trends write large. For this reason, ouranalysis in this section focuses on the Canadian provinces. Excluding the territories, labour
productivity growth for the full 2000-2022 period was highest in Manitoba (1.36% per year),
Newfoundland and Labrador (1.17% per year), and British Columbia (1.13% per year). Alberta,
Ontario, and Nova Scotia, meanwhile, saw the lowest rates of labour productivity growth at
0.68%, 0.75%, and 0.76% per year, respectively.
While there is some variance across the subperiods in which provinces lead inproductivity growth, this pattern of high- and low- performers is fairly consistent. From 2000 to
2008, the highest rates of productivity growth were found in Newfoundland and Labrador(5.02% per year), Manitoba (1.96% per year), and Saskatchewan (1.51% per year), while thelowest rates were seen in Alberta (0.18% per year), Nova Scotia (0.49% per year), and Ontario(0.67% per year): broadly similar to the trends for the overall period with the exception of
Newfoundland and Labrador and Saskatchewan’s exceptional growth as well as Alberta’s
remarkably poor performance. However, 2008-2019 saw something of a reversal, with Alberta(1.37% per year) and Nova Scotia (1.11% per year) joining Manitoba (1.42% per year) as theprovinces with the fastest rates of productivity growth. Atlantic Canada experienced particularly
poor productivity growth over the 11-year timespan, with Newfoundland and Labrador’s
productivity growth trajectory turning negative leading to a growth rate of -0.67% per year. New

61
Brunswick and Nova Scotia too experienced some of the poorest rates of growth among theprovince at 0.57% per year and 0.77% per year, respectively.
The 2019-2022 period saw widespread slowdowns in productivity slowdowns acrossprovinces in response to myriad pandemic-related disruptions. Over the period, Prince Edward
Island (1.69% per year), New Brunswick (1.30% per year), and British Columbia (1.04% peryear) experienced the highest rates of labour productivity growth, while Alberta (-0.50%),
Manitoba (-0.44%), and Ontario (0.12%) experienced the lowest. 7 of the 10 provinces
experienced a slowdown in productivity growth between the 2008-2019 period and the 20192022 period. By far the largest reductions in productivity growth occurred in Alberta andManitoba where trend productivity growth fell 1.87 points (1.37% per year to -0.50% per year)
and 1.86 points (1.42% per year to -0.44% per year), respectively. Newfoundland and Labrador(change of -1.37 points), Nova Scotia (change of -0.87 points), and Ontario (-0.86 points) also
suffered significant slowdowns in labour productivity growth between periods. The only two
provinces to experience improvements in productivity growth were Prince Edward Island and
New Brunswick, where the trend rate of annual productivity growth rose by 0.91 points and 0.73
points, respectively.

62
Table 6: CSLS Decomposition by Province, Within-Province and Re-allocation Effects on CanadianBusiness Sector Labour Productivity Growth, 2000-2022

2000-2008

2008-20192019-2022

2000-2022

Within-Province Effect

0.88

1.03

0.24

0.86

Re-allocation Level Effect

0.12

-0.03

-0.01

0.02

Re-allocation Growth Effect

-0.01

0.00

0.00

0.00

Net Re-allocation Effect

0.11

-0.04

-0.02

0.03

Summed Effects

0.99

1.00

0.22

0.89

Observed Business Sector
Productivity CAGR
discrepancy (summed effects
minus observed rate of
growth)

1.00

1.05

0.23

0.92

-0.01

-0.05

-0.01

-0.03

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

Table 6 presents the results of the CSLS labour productivity growth decomposition acrossprovinces in Canada. Estimates are offered for the same periods as the sectoral decomposition.
Similar to what we observe when decomposing across sectors, the CSLS decomposition of
productivity growth across provinces and territories over the post-2000 period finds that growthis driven almost entirely by productivity advances within individual provinces or territories.
However, compared to the sectoral decomposition, re-allocation effects play a more minor rolein determining productivity growth here.8 For three of the periods which we consider, the effectsof labour input re-allocation between provinces on productivity growth are essentially negligible.
The 2000-2008 period is the sole exception, with a total re-allocation effect of 0.11 points,

8This is not particularly surprising. Movement of labour across provinces is much less common movement of labour between
different sectors of the economy. Moreover, the employment level (i.e. the labour input share) within provinces is generally morestable than in individual sectors. Hence, it makes sense that sectoral re-allocation is a more important dynamic than provincial reallocation.

63
representing 11% of the business sector labour productivity growth rate over the period. Still,compared to the sectoral decomposition, where re-allocation effects comprise between 8% and
37% of total productivity growth depending on the period, this contribution was relatively small.
The effect stemmed solely from the massive shift of labour input towards Alberta which
occurred over the period and which caused hours worked in the province to rise from 2.5 billion
to 3.2 billion, raising the national labour input share of the province from 11.55% to 13.52%.
The level of labour productivity in the province was the highest among all provinces (though
lower than Nunavut and the Northwest Territories) at the beginning of the period, and hence, thisshift generated a moderately-sized positive level effect. The growth effect for the province wasinsignificant at just -0.01 points. Although the province had the lowest productivity growth overthe period of all provinces and territories, the difference between Alberta’s productivity growthtrajectory and Canada’s overall growth trajectory was small; between 2000 and 2008, Alberta
labour productivity rose $1 compared to the national average of $3.90. Hence, the impact interms of a re-allocation growth effect was negligible.
Appendix Table B1 presents the productivity contributions by subperiod for each of
Canada’s 13 provinces and territories. These contributions are derived from the absolute changes
in productivity levels and the labour input shares observed for each period. As one might expect,productivity growth in the country since 2000 has been driven primarily by a handful ofprovinces, with the remaining regions making relatively minor contributions. These provinces
are Ontario, Quebec, Alberta and British Columbia, which is somewhat unsurprising given thatthese are the country’s 4 largest provinces and the loci of the key economic hubs of Vancouver,Toronto, and Montreal, and the core of Canadian resource development in the Alberta oil sands.

64
Given that the most populous provinces are shown to be the most important in terms of
productivity contributions, it is interesting to consider productivity contributions controlling forthe population or the share of labour employed in a given province or territory. Table 7 does
exactly this, presenting the difference between the absolute (i.e., non-negative) percentage
contribution to productivity growth and the population (Panel A) and labour input share (PanelB) 9) within each province. For example, in Panel A, a value of 4.2 for Alberta for the 20002022 period indicates that Alberta’s contribution to Canadian productivity growth over theperiod (15.8%) was 4.2 percentage points larger than its share of the Canadian population.
Similarly, in Panel B, a value of 2.8 indicates Alberta’s contribution to productivity growth overthe period was 2.8 percentage points higher than its share of total Canadian employment.
Figures are provided for each subperiod of interest, utilizing population and labour input
share data for the beginning of the period in all cases. While there is significant variance acrossthe periods, there are consistent trends in which provinces over-perform or under-perform
relative to their size. The western provinces – Alberta, Saskatchewan, and Manitoba, inparticular – are consistently associated with productivity contributions that are large relative tothe population share and share of Canadian labour employed. Over the entire period, the Yukon
Territories and Nunavut also offer productivity contributions which are multiple times larger
than their share of population and labour share, though the magnitude of this dynamic is, ofcourse, very small. Conversely, Ontario, despite being the largest driver of productivity growthin absolute terms, actually underperforms significantly relative to its population and labour input
share

65
Table 7: Population and Labour Share Productivity Contribution Differentials
Panel A: Population-Productivity Contribution Differential, Percentage Points
2000-2008
2008-20192019-2022
2000-2022
Canada
0.00
0.00
0.00
0.00
Newfoundland and Labrador
7.06
-0.01
16.22
0.09
Prince Edward Island
-0.02
-0.30
1.35
-0.13
Nova Scotia
-1.94
-0.19
-2.41
-1.06
New Brunswick
-0.21
-0.76
7.08
-0.30
Quebec
-4.14
-4.47
38.40
-2.70
Ontario-10.87-2.32-20.55-5.11
Manitoba
2.56
0.78
1.94
1.14
Saskatchewan
2.97
0.50
-1.14
1.34
Alberta
2.83
12.21
20.86
5.96
British Columbia
0.53
-1.89
44.20
0.38
Yukon
0.30
-0.10
4.86
0.25
Northwest Territories
0.95
0.32
3.12
-0.12
Nunavut
0.00
0.19
4.18
0.26
Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01 and Table 17-10-0009-01.
Note: Differentials are calculated using the population shares at the beginning of the period.

Table x: Labour Share-Productivity Differential, Percentage Points

Canada
Newfoundland and Labrador
Prince Edward Island
Nova Scotia
New Brunswick
QuebecOntario
Manitoba
Saskatchewan
Alberta
British Columbia
Yukon
Northwest Territories
Nunavut

2000-2008
0.00
7.60
0.03
-1.40
0.04
-2.19
-13.41
2.78
3.05
1.08
1.09
0.31
0.97
0.05

2008-2019
0.00
0.38
-0.25
0.17
-0.59
-2.45
-3.04
1.06
0.51
9.54
-1.87
-0.07
0.33
0.24

2019-2022
0.00
16.52
1.38
-2.02
7.30
39.78
-21.87
2.36
-0.98
19.63
43.79
4.88
3.14
4.19

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01 and Table 17-10-0009-01
Note: Differentials are calculated using the labour input shares at the beginning of the period.

2000-2022
0.00
0.76
-0.08
-0.26
0.32
0.34
-7.28
1.68
1.81
2.80
-0.54
0.27
-0.08
0.27

66

Sources of Labour Productivity Growth: A Growth Accounting
Perspective
Another instructive way of understanding labour productivity growth is through a growthaccounting framework. Given a standard Cobb-Douglas production function of the form
𝑌 = 𝐴𝐿$ 𝐾 %growth in labour productivity can be expressed as:𝑌𝛼𝛽∆ln 3 4 = ∆ln(𝐴) + 3
4 ∆ln (𝐾) + ()(∆ ln(𝐿) − ∆ ln(𝐻))
𝐿
𝛼+𝛽
𝛼+𝛽
The first term in this decomposition represents growth in multifactor productivity (alsosometimes referred to as total factor productivity). Multifactor productivity is the part of anincrease in output which remains after accounting for changes in capital and labour input. It is
calculated as a residual and, as such, it is not particularly helpful for understanding the on-theground changes driving developments in productivity; rather, it is a measure of all that we areunable to account for, or put simply, how much we do not know. It is most commonly interpreted
as representing the pace of underlying technological progress. Other factors which contribute tomultifactor productivity include economies of scale, changes in organizational structure,
improvements in infrastructure and institutions, as well as spillover and network effects (OECD,2023). Due to its nature as a residual, measurement errors related to factors of production also
tend to be reflected in measures of multifactor productivity.
The second term represents growth in capital intensity, or the increased productivity
which arises as each unit of labour becomes equipped with more capital. Capital deepeningmeans that each worker has more tools, machinery, and technology at their disposal and thisgenerally translates to a higher level of labour productivity. On a macro-level, this means that

67
within an economy there tends to be a close relationship between levels of investment, which
drive capital formation, and levels of labour productivity.
The final term represents changes in the quality of labour input, also called labour
composition. This is conceptualized as the process by which labour becomes more skilled andaccumulates human capital, either through education or experience. Given that highly-skilledworkers tend to be more productive than low-skill workers, a compositional shift in the type oflabour employed in the economy towards highly-skilled workers can cause aggregate
productivity to increase and vice versa. Statistics Canada estimates labour quality using data on
wages and educational attainment, with the assumption that higher wages tend to reflect higher
levels of skill and productivity. Among the three sources of growth identified in thisdecomposition framework, changes in labour quality tend to be the least substantial in terms of
their contribution to overall labour productivity trends.

68
Table 8: Sources of Canadian Business Sector Labour Productivity Growth, 1961-2021
Panel A: Absolute Contributions (percentage points)

1961-1981

1981-2000

2000-20192000-2008

2008-20192019-2021

Labour Productivity Growth

2.85

1.72

0.96

0.86

1.03

1.09

Multifactor Productivity

0.97

0.46

-0.09

-0.54

0.24

-0.71

Capital Intensity

1.33

0.87

0.79

1.13

0.54

1.29

ICT Capital Intensity

0.18

0.56

0.22

0.43

0.07

0.14

Non-ICT Capital Intensity

1.20

0.35

0.56

0.70

0.48

1.15

Labour Quality

0.53

0.38

0.26

0.28

0.25

0.52

Total Contributions

2.82

1.71

0.96

0.87

1.03

1.10

2008-20192019-2021

Panel B: Relative Contributions (%)

1961-1981 1981-2000

2000-2019 2000-2008

Labour Productivity Growth

100.0

100.0

100.0

100.0

100.0

100.0

Multifactor Productivity

34.0

26.6

-9.2

-63.3

23.7

-65.4

Capital Intensity

46.6

50.6

82.1

131.5

52.2

117.9

ICT Capital Intensity

6.2

32.4

22.4

49.5

6.8

12.6

Non-ICT Capital Intensity

42.3

20.3

58.8

81.0

46.3

105.4

Labour Quality

18.5

22.3

27.0

32.3

23.8

48.0

Total Contributions

99.1

99.5

99.9

100.5

99.7

100.6

69
Panel C: Compound Annual Growth Rates for Sources of Growth, Factor Costs, and Hours Worked

1961-1981

1981-2000

2000-20192000-2008

2008-20192019-2021

Labour Quality

0.85

0.63

0.44

0.48

0.42

0.90

Capital Input

5.68

3.73

2.89

3.96

2.12

1.04

ICT Capital Input

8.17

13.51

5.18

9.23

2.33

1.15

Non-ICT Capital Input

5.46

2.43

2.54

3.15

2.09

1.03

2.03

1.42

0.97

1.22

0.79

-2.06

Hours Worked

Panel D: Labour and Capital Share of Input Costs

1961-1981

1981-2000

2000-20192000-2008

2008-20192019-2021

Labour Share of Costs

62.0

60.5

58.9

58.7

58.8

58.5

Capital Share of Costs

38.0

39.5

41.1

41.3

41.2

41.5

ICT Capital Share

2.9

4.6

5.1

5.3

4.6

4.3

Non-ICT Capital Share

35.1

34.9

36.0

36.0

36.6

37.2

Source: CSLS calculations based on Statistics Canada Table 36-10-0208-01
Note: Contributions from growth in multifactor productivity, capital intensity, and labour quality are official Statistics Canada
estimates. Contributions from growth in ICT and non-ICT capital intensity are calculated using Statistics Canada data on hours
worked and ICT/non-ICT capital inputs and costs for each period. Labour and capital cost shares are calculated by taking thearithmetic average of the share of costs for labour and capital at the start and end of each period.

Table 8 presents official Statistics Canada growth accounting estimates for businesssector Canadian labour productivity growth from 1961 to 2021. Contributions to labour
productivity growth are provided for the three sources of growth identified above: multifactor
productivity, capital intensity, and labour quality. In the case of multifactor productivity, thecontribution simply represents the rate of growth in multifactor productivity over the given
period. In the case of the latter two sources, the contribution is calculated as the growth rate of

70
the component weighted by the share of income which accrues to the relevant factor of%

production (capital or labour) or the share of input costs associated with that factor: 8%&$9 in the$case of capital and (%&$) in the case of labour. These parameters are assumed to represent therespective contributions of capital and labour to output. All else equal, when capital is more
important within a production function, the effect of an increase in capital intensity on labour
productivity will be larger. Conversely, when labour is more important within a production
function, the effect of an increase in labour quality on labour productivity will be larger.
Panel A provides the estimated contributions to labour productivity growth in absoluteterms, while Panel B expresses contributions in relative terms, as a proportion of the total labour
productivity growth rate.9 Panel C, furthermore, provides compound annual growth rates for thevariables underlying the contributions, namely labour quality, capital input, and labour input inthe form of hours worked. Finally, Panel D offers the share of input costs associated with capitaland labour inputs, respectively. Estimates are provided for 6 periods: 1961-1981, 1981-2000,
2000-2019, 2000-2008, 2008-2019, and 2019-2021. All of these periods, with the exception of
the most recent period from 2019 to 2021, are cyclically neutral. The 2019-2021 period is not
cyclically neutral due to being incomplete. For this reason, and with the disruptions of thepandemic in mind, readers should exercise caution in interpreting estimates for this period.

9

The sources of growth decomposition performed here using official Statistics Canada data is not perfectly additive. As such, therelative contributions in Panel B, which are calculated using the contributions and the observed rates of labour productivity
growth presented for each period in Panel A, do not add to 100%. Still, the discrepancy is small.

71

1961-1981
Aggregate labour productivity growth trends for the six periods presented in Table 10 lay
bare the stepwise productivity slowdowns observed in the 1980s and then again in the post-2000
period. In the 1961-1981 period, trend labour productivity growth was 2.85 percent per year: afar cry from the 1% growth trajectory experienced in recent years. This was driven primarily byincreases in capital intensity over the period, which contributed 1.33 points, or about half ofoverall labour productivity growth. Improvements in ICT capital intensity accounted for 0.18
points of the contribution, while non-ICT capital deepening accounted for 1.20 points. Labour
productivity growth in this period reflected massive year-over-year growth in investment,
particularly in ICT where capital input grew 8.17% annually (though it should be noted that ICT
was relatively nascent with small absolute levels of investment during this period). However,investment in non-ICT capital was also strong; the growth rate of non-ICT capital input over theperiod was 5.46% per year. Multifactor productivity growth was similarly impressive,
contributing 0.97 points or a third of overall labour productivity growth. Improvements in labour
quality were less important, contributing just 0.53 points.

1981-2000
The first labour productivity slowdown is seen between the 1961-1981 period and the
1981-2000 period as trend labour productivity growth falls off substantially, dropping 1.13
points to an annual trend productivity growth rate of 1.72%.10 Growth accounting estimates do
not identify a solitary reason for this decline, as all three sources of growth offered weakercontributions in this period compared to the previous period. However, in both absolute and

10This drop-off is even steeper when centring the pre-2000 periods around 1973: the pivotal year for the 1970s productivity
slowdown. Between 1961 and 1973, trend productivity growth was 3.55% per year. During the period from 1973 to 2000,
meanwhile, trend productivity growth was 1.74% per year: a decline of 1.81 points or just over half.

72relative terms, the steepest drop-off was seen in Canadian multifactor productivity growth, whichfell 0.51 points from 0.97% annually to 0.46% annually. This fall represents a decline in thecontribution of multifactor productivity of more than half compared to the previous period. A
downturn of a similar magnitude was observed in the contribution from capital intensity, whichfell by 0.46 points or about a third between periods (1.33 points to 0.87 points). This was driven
by a large reduction in the contribution from non-ICT capital intensity which fell from 1.20
points in the previous period to just 0.35 points. The contribution from ICT capital intensity, on
the other hand, grew substantially, jumping 0.38 points between periods (0.18 points to 0.56
points).

2000-2019
Growth in ICT investment soared between periods, with the annual growth rate of ICT
capital input rising 5.34 points period to period. However, non-ICT capital input growth slowed
down, with the growth rate falling 1.97 points or just over a third. The contribution from labour
quality, meanwhile, fell only 0.15 points (0.53 points to 0.38 points). These relative changes
between periods are reflected in the relative contributions of each source of growth to overall
labour productivity growth between 1981 and 2000; as the source of growth which fell most
sharply, multifactor productivity growth accounted for only 26.6% of overall labour productivity
growth, while changes in capital intensity and labour quality become relatively more important,contributing 50.6% and 22.3% respectively.
These trends largely continued with the 2000-2019 period, which brought anotherstepwise reduction in business sector labour productivity growth. In absolute terms, this fall was
substantially smaller compared to that seen between the previous periods, with the trend growthrate falling 0.76 points between periods compared to 1.13 points in the earlier slowdown.

73
However, in this case, the weakening in productivity growth was attributable almost completely
to the deterioration of multifactor productivity growth between periods. Between the 1981-2000
period and the 2000-2019 period, the contribution from multifactor productivity growthdecreased 0.55 points, turning slightly negative. That is to say, whereas previous periods had
seen substantial annual growth in multifactor productivity, multifactor productivity growth not
only stalled but actually began slipping backwards over the 2000-2019 period; official Statistics
Canada data on multifactor productivity growth assigns an indexed value of 105.15 to
multifactor productivity in the year 2000 (the base year of the index is 2012) and an indexed
value of 103.39 for the year 2019, indicating a slight retrenchment in multifactor productivity
over the 19 year timespan.
In contrast, while the contributions from capital intensity and labour quality also fell
period-to-period, the changes were less substantial. Growth in capital intensity continued to be
the most substantial source of labour productivity growth, though the contribution declined aboutfrom 0.87 points to 0.79 points. The small decline reflected a fall in the contribution from ICT
capital intensity, which dropped from 0.56 points to 0.22 points between periods: a reduction of
0.34 points or more than half. Non-ICT capital intensity bounced back somewhat, rising 0.21
points to 0.56 points. Interestingly, the observed fall in the contribution from capital intensity
was much less dramatic than trends in ICT and non-ICT investment might have suggested.
Growth in ICT investment, in particular, crashed between periods; ICT capital input fell 8.33
points (13.51% in the 1981-2000 period to 5.18% in the 2000-2019 period). In contrast, non-ICT
capital input actually grew slightly from 2.43% to 2.54%. The contribution from improvements
in labour quality fell as well, by 0.12 points, down to 0.26 points. Still, given the collapse ofmultifactor productivity growth over the period, both capital intensity and labour quality came to74
account for a larger proportion of the trend labour productivity growth rate: 82.1% and 27.0%
respectively.

Sources of Growth in the Post-2000 Period: 2000-2008 and 2008-2019
An overview of labour productivity trends from 1961 to 2019 appears to implicate an
implosion in multifactor productivity growth as the cardinal source of Canada’s lethargic
productivity growth in recent years, though all three sources of growth weakened considerably
over this period. Drilling down to the subperiods comprising the 2000-2019 period allows us tomore carefully trace the contributions from each source of growth through the post-2000
productivity slowdown. Distinct trends in the drivers of labour productivity growth are observed
across the 2000-2008 and 2008-2019 periods, though a general downward trajectory remains.
Between 2000 and 2008, labour productivity growth reached its lowest point prepandemic at just 0.86% per cent annually, again brought about by a crash in multifactor
productivity growth. Restricting our analysis to this period makes the post-2000 productivity
slump appear even more jarring. Compared to the 1981-2000 period, multifactor productivity
growth plummeted by 1.00 point from 0.46 points to -0.54 points, indicating a moderately
negative growth trajectory over the period. Multifactor productivity in 2000 took on an indexed
value of 105.15 and had fallen to just 100.65 in 2008: a decrease of 4.5% over 8 years. In
contrast, the contribution from capital intensity bounced back after a substantial fall between the
1961-1981 and 1981-2000 period, this time jumping 0.26 points between periods. These gains
reflected improvements in both ICT capital intensity, which contributed 0.43 points (up 0.21
points from the previous period), and non-ICT capital intensity, which contributed 0.70 points(up 0.14 points period-to-period). Whereas the contribution had only accounted for about half of75
productivity growth over the 1981-2000 period, it now made up more than 100% of the overall
labour productivity growth rate. These gains occurred despite trends in capital input growth,which began to fall post-2000. Between the 1981-2000 period and the 2000-2008 period, theannual growth rate of ICT capital input fell 4.28 points from 13.51% to 9.23%. In contrast, theannual growth rate of non-ICT capital input rose 0.72 points from 2.43% to 3.15%. The
contribution from labour quality fell somewhat compared to the 1981-2000 period, dropping 0.10
points between periods. With that said, the crash in multifactor productivity growth again spelled
an increase in the relative contribution from labour quality, boosting the contribution to 32.3% of
the labour productivity growth rate.
Trends reversed somewhat abruptly with the 2008-2019 period, likely reflecting theimpact of the Great Recession. Labour productivity growth over this period was 1.03%: slower
than pre-2000 but 0.17 points higher than the prior period, with the increase entirely reflecting
period-to-period improvements in multifactor productivity growth. The contribution frommultifactor productivity growth made a sizeable recovery post-2008, rising 0.78 points andturning positive once again. Conversely, the contribution from capital intensity fell sharply,
reaching the lowest point in the six periods surveyed. From the 2000-2008 period to the 20082019 period, the absolute contribution fell 0.59 points or about half. Contributions from both ICT
and non-ICT capital intensity declined significantly, with the former dropping 0.36 points or
83% period-to-period (0.43 points to 0.07 points) and the latter dropping 0.22 points or 31%(0.70 points to 0.48 points). This tracked with the trend in ICT capital input, which fell 6.90
points or by about three quarters compared to the 2000-2008 period. Non-ICT investment growthfollowed suit, dropping 1.06 points from period to period. Finally, improvements in labour
quality were not particularly important over the 2008-2019 period; the absolute contribution

76
continued to fall, dropping 0.03 points from 0.28 to 0.25 points, while the relative contribution
decreased more significantly, from 32.3% to 23.8%.

Future Outlook
The exceptionality of the 2019-2021 period and the COVID-19 pandemic make itchallenging to forecast future movements in Canadian labour productivity growth and the threesources of growth.11 The data that exists on productivity trends in 2022 indicate that labour
productivity growth is likely to have fallen dramatically compared to 2021 (Table 2), driven bycontinually poor multifactor productivity growth and a retreat to normality in terms of the labour
composition and the capital-labour ratio. While multifactor productivity growth may havestabilized somewhat as the worst of the pandemic disruptions subsided, this was likely
overshadowed by negative contributions from capital intensity and labour quality as employment
levels returned to normal. As a post-pandemic regression-to-the-mean in many respects, 2022
appears to have been a low-point in Canadian labour productivity growth.
While labour productivity growth is certainly expected to rebound somewhat following thisanomalous period, the prospect for strong future productivity growth, or even a return to 1%
annual growth, is uncertain. All three sources of productivity growth have generally been
deteriorating in recent years in Canada. Multifactor productivity growth declined sharply fromthe 1981-2000 to the 2000-2008 period and again between 2019 and 2021. Admittedly, a small
recovery was observed between 2008 and 2019, however such a phenomenon seems increasingly
unlikely given enduring supply-chain disruptions and the renewed push for onshoring and friendshoring post-pandemic. In other words, a number of the general production inefficiencies
brought on by the pandemic may be here to stay. Contributions from capital intensity meanwhile
11

Data on sources of growth for the 2019-2021 period can be found in Table 10.

77
have fallen continually since 1961 save for a brief spike between 2008 and 2019 and a pandemicinduced resurgence. This downward trend seems to reflect a general trend of fading investment
in Canada, particularly in research and development, innovation, and ICT: a trajectory which
likely won’t be altered without a meaningful shock to Canada’s business environment.
Finally, the contribution of labour quality has been likely the most consistent of the threesources of growth in its long-run path (save for a pandemic-induced spike), slipping graduallyfrom period to period. The barrier here is perhaps the most entrenched of the three: Canada’s
population is already extremely well-educated, and as the average level of education in the
population increases, this leaves less and less room for growth. Indeed, in 2021, 57.5% ofCanadians aged 25-64 had a college or university credential: the highest among any country in
the G7 (Statistics Canada, 2022). Immigration has been an asset in previous years to the extent
that it provided another source of highly-educated labour. However, there is again an inherent
ceiling to growth here that is confronted as the Canadian population becomes increasingly welleducated. Moreover, although the situation is improving, an alarming number of immigrants
continue to face barriers applying their credentials in Canada. In 2021, 25.8% of Canadian
immigrants with foreign degrees worked in jobs demanding no more than a high school
education (Statistics Canada, 2022). This rate is twice as high compared to those born and/or
educated in Canada. Ultimately, a growth accounting perspective only reinforces the intuition
that the path back to 1% labour productivity growth per year is likely to be arduous.

78

Conclusion
This report serves as an overview of recent labour productivity developments in Canada.
It examines the sources of slowing productivity growth post-2000 and provides an account of thestructural and compositional changes which affected productivity growth through the pandemic.
A survey of international productivity data finds that Canada’s productivity slowdown is far
from exceptional and that the country’s productivity performance, though poor, is in line with anumber of other peer countries, namely the United Kingdom, France, Spain, Norway, and theNetherlands. On the other hand, comparisons with the United States, where business sector
productivity has remained stable post-2000, are not very favourable to Canada. Notably though,we find that the magnitude of the gap in labour productivity growth rates between the twocountries is heavily dependent on the aggregate chosen, with the total economy disparity being
much smaller than the business sector disparity. Moreover, we highlight the exceptional natureof the US productivity growth trajectory and advocate a broader scope of comparison indiscourse on the productivity slowdown.
Our decomposition of labour productivity growth into within-sector and re-allocation
effects based on the framework advanced in Sharpe and Tsang (2018) identifies productivity
growth within sectors as the primary driver of aggregate productivity growth post-2000. Reallocation effects were generally smaller though still significant. The re-allocation level effecttended to be positive, indicating a net movement of labour towards industries with above-averagelevels of productivity. Conversely though, the re-allocation growth effect was, on average,
negative for the 2000-2022 period, indicating a net movement of labour towards industries withbelow-average rates of productivity growth. The pandemic-era slowdown that saw productivity
growth decline form 1.05% per year in the 2008-2019 period to just 0.23% per year in the 2019-79
2022 period reflected a collapsing of within-sector productivity growth. This is likely due to the
myriad disruptions brought on by the pandemic and subsequent policy responses, but it isdifficult to untangle what degree of this slowdown reflects a) ephemeral effects of the pandemic
which will have little impact on future productivity growth, b) more enduring effects of thepandemic which may have a longer-term effect on the structure of the economy and Canada’s
productivity growth trajectory, and c) pandemic-agnostic productivity developments.
Throughout the post-2000 period, the sectors with the most substantial contributions to
productivity growth were the finance and insurance sector, the wholesale trade sector, themanufacturing sector, the retail trade sector, and the agriculture, forestry, fishing, and hunting
sector. The contribution from the mining and oil and gas extraction was highly volatile, at times
contributing massively to productivity growth, like in the 2008-2019 period, and at other times
constraining it, like in the 2000-2008 period. As an industry with extremely high levels of
productivity but an often poor or negative growth trajectory, the mining and oil and gas
extraction industry was responsible for much of the re-allocation effects observed post-2000 as
resource price fluctuations inspired employment in the sector to wax and wane.
Decompositions of labour productivity growth by province finds that, not surprisingly,
the bulk of productivity growth post-2000 is contributed by four provinces: Ontario, Quebec,
Alberta, and British Columbia. This is somewhat unsurprising given that these provinces are not
only the most populous provinces, but also the homes of Canada’s key economic hubs. In
addition, the pandemic-era slowdown is found to be linked to substantial drop-offs in thecontributions from two provinces in particular: Ontario and Alberta. This observation aligns
closely with the fact that two of the industries with the largest drop-offs were manufacturing andmining and oil and gas exploration.

80
Growth accounting estimates going back to 1961 find slowing productivity since the mid20th century is linked to the deterioration of all three sources of growth. Multifactor productivity
growth has fallen precipitously since the 1960s, with the rate of growth becoming deeply
negative in the early 2000s between 2000 and 2008 and once again during the pandemic (likely areflection of pandemic-induced production inefficiencies). Growth in capital intensity has also
fallen substantially and has continued to slow down post-2000, particularly pre-pandemic in the
2008-2019 period. This reduction in capital intensity growth reflects both a long-term stagnationin non-ICT capital intensity growth and a collapse of ICT capital intensity growth since the1980s and 1990s, which reached a nadir between 2008 and 2019. Capital intensity has, of course,
soared in the pandemic era, though this likely reflects a temporary boost to the capital-labour
ratio brought on by the laying off and furloughing of employees. Finally, the contribution fromlabour quality, too, has declined steadily since the 1960s, though the impact of this has been lesssubstantial compared to the other two sources of growth. Pandemic shocks have similarly
affected labour quality, with labour quality improving overnight as a result of the fact that job
losses tended to be concentrated in low-skill positions and industries.
Taken together, these exercises suggest an uncertain future for Canadian productivity
growth. The path back to 1% annual growth is likely to be an arduous one following the shocks
and disruptions of the pandemic. This is compounded by a number of entrenched problems andchallenges. Investment in innovation, research and development, and ICT appears stagnant,leading to poor multifactor productivity and capital intensity growth. Similarly, the higheducation level of the Canadian population makes it increasingly difficult to further improve thequality of the labour force. Finally, the green transition, in de-emphasizing the importance of themining and oil and gas exploration sector, threatens to permanently impair Canadian productivity

81
growth prospects. Still, there may be an upside as well, given that this sector has also at times
constrained productivity growth.
Altogether, while it remains to be seen how the Canadian economy will emerge from thepandemic era, a return to 1% seems unlikely without some sustained shock to Canada’s businessenvironment. Even in the best-case scenario, in depressing productivity growth, the disruption
caused by the pandemic has deprived Canadians of would-be productivity gains. Capturing thoselost gains would require a rate of productivity growth well above 1%: a prospect which, given
the challenges outlined here, seems increasingly dim.

82

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85

Appendix A: Detailed Data Tables for CSLS Decomposition ofLabour Productivity Growth by Industry
Appendix Table A1: Labour Hours Worked in Canadian Business Sector by Industry, 19972022
Panel A: Hours Worked (in millions)
1997
2000

2008

2019

2022

Business sector industries

20,146

21,58623,74925,87926,150Agriculture, forestry, fishing and hunting

1,154

1,007

820

750

689

Mining and oil and gas extraction

326

305

494

534

532

Utilities

176

179

199

199

196

Construction

1,593

1,715

2,491

2,900

3,039

Manufacturing

3,798

3,965

3,327

3,110

3,083

Wholesale trade

1,437

1,497

1,588

1,615

1,639

Retail trade

2,472

2,572

2,960

3,155

3,069

Transportation and warehousing

1,316

1,421

1,490

1,897

1,819

Information and cultural industries

428

526

558

654

762

1,264

1,337

1,518

1,633

1,664

446

457

569

668

610

1,181

1,459

1,850

2,216

2,723

Holding Companies

198

229

304

102

90

ASWMRS

891

1,103

1,440

1,537

1,625

Educational services

85

106

126

173

169

Health care and social assistance

745

822

931

1,190

1,208

Arts, entertainment and recreation

290

344

402

433

402

Accommodation and food services

1,437

1,574

1,626

1,990

1,772

911

968

1,054

1,122

1,058

Finance and insurance
Real estate, rental and leasing
Professional, scientific and technical services

Other Private Services
Source: Statistics Canada Table: 36-10-0480-01.

86
Panel B: Share of Total Hours Worked (%)
1997
2000
2008

2019

2022

100.00100.00100.00100.00100.00Agriculture, forestry, fishing and hunting

5.73

4.67

3.45

2.90

2.63

Mining and oil and gas extraction

1.62

1.41

2.08

2.06

2.03

Utilities

0.87

0.83

0.84

0.77

0.75

Construction

7.91

7.95

10.49

11.20

11.62

Manufacturing

18.85

18.37

14.01

12.02

11.79

Wholesale trade

7.13

6.94

6.69

6.24

6.27

Retail trade

12.27

11.91

12.46

12.19

11.74

Transportation and warehousing

6.53

6.58

6.28

7.33

6.95

Information and cultural industries

2.12

2.44

2.35

2.53

2.91

Finance and insurance

6.27

6.19

6.39

6.31

6.36

Real estate, rental and leasing

2.22

2.12

2.40

2.58

2.33

Professional, scientific and technicalservices

5.86

6.76

7.79

8.56

10.41

Holding Companies

0.98

1.06

1.28

0.39

0.35

ASWMRS

4.42

5.11

6.06

5.94

6.21

Educational services

0.42

0.49

0.53

0.67

0.64

Health care and social assistance

3.70

3.81

3.92

4.60

4.62

Arts, entertainment and recreation

1.44

1.59

1.69

1.67

1.54

Accommodation and food services

7.13

7.29

6.85

7.69

6.78

Other Private Services

4.52

4.48

4.44

4.33

4.05

Business sector industries

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

87

Appendix Table A2: Labour Productivity Levels in Canadian Business Sector by Industry,
1997-2022 (real output per hour worked, chained 2012 dollars)
1997
2000
2008
2019
2022
Business sector industries

42.9

47.1

51.0

57.2

57.6

Agriculture, forestry, fishing and hunting

23.5

31.0

35.9

53.7

60.5

Mining and oil and gas extraction

318.5

355.5

244.6

288.8

293.5

Utilities

174.6

169.9

184.7

204.4

205.9

Construction

46.6

47.7

47.6

49.9

49.7

Manufacturing

44.9

53.2

58.0

63.8

63.2

Wholesale trade

34.1

40.0

51.6

64.5

65.5

Retail trade

19.5

22.3

28.0

32.2

34.8

Transportation and warehousing

38.2

39.9

44.5

46.8

44.6

Information and cultural industries

64.3

72.8

90.4

100.9

92.9

Finance and insurance

51.7

55.1

63.2

82.1

89.6

Real estate, rental and leasing

107.7

121.9

124.3

134.3

146.7

Professional, scientific and technical services

44.1

48.1

49.3

54.0

49.0

Holding Companies

32.6

32.1

38.5

52.4

22.6

ASWMRS

31.9

30.2

31.9

34.0

30.2

Educational services

20.2

21.3

23.5

22.9

24.6

Health care and social assistance

47.2

45.9

46.2

44.0

45.1

Arts, entertainment and recreation

35.9

32.4

28.8

30.5

26.7

Accommodation and food services

18.5

19.2

20.6

21.9

21.6

Other Private Services

18.6

20.2

22.6

25.3

27.3

Source: Statistics Canada Table: 36-10-0480-01.

88

Appendix Table A3: Absolute Changes in Labour Productivity Level in Canada by Business Sector
Industry, 1997-2022 (real output per hour worked, chained 2012 dollars)
1997-2000

2000-2008

2008-20192019-2022

2000-2022

Business sector industries

4.2

3.9

6.2

0.4

10.5

Agriculture, forestry, fishing and hunting

7.5

4.9

17.8

6.8

29.5

Mining and oil and gas extraction

37.0-110.9

44.2

4.7

-62.0

Utilities

-4.7

14.8

19.7

1.5

36.0

Construction

1.1

-0.1

2.3

-0.2

2.0

Manufacturing

8.3

4.8

5.8

-0.6

10.0

Wholesale trade

5.9

11.6

12.9

1.0

25.5

Retail trade

2.8

5.7

4.2

2.6

12.5

Transportation and warehousing

1.7

4.6

2.3

-2.2

4.7

Information and cultural industries

8.5

17.6

10.5

-8.0

20.1

Finance and insurance

3.4

8.1

18.9

7.5

34.5

Real estate, rental and leasing

14.2

2.4

10.0

12.4

24.8

Professional, scientific and technicalservices

4.0

1.2

4.7

-5.0

0.9

Holding Companies

-0.5

6.4

13.9

-29.8

-9.5

ASWMRS

-1.7

1.7

2.1

-3.8

0.0

Educational services

1.1

2.2

-0.6

1.7

3.3

Health care and social assistance

-1.3

0.3

-2.2

1.1

-0.8

Arts, entertainment and recreation

-3.5

-3.6

1.7

-3.8

-5.7

Accommodation and food services

0.7

1.4

1.3

-0.3

2.4

Other Private Services

1.6

2.4

2.7

2.0

7.1

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

89

Appendix B: Charts and Detailed Data Tables for CSLS
Decomposition of Labour Productivity Growth by Province

Appendix Table B1: CSLS Decomposition by Province, Contributions to Business Sector CanadianLabour Productivity Growth, 2000-2022
Panel A: Absolute Contributions (percentage points)

2000-2008

2008-20192019-2022

2000-2022

Canadian Business Sector(observed)
Canadian Business Sector(sum of contributions)

1.00

1.05

0.23

0.92

0.99

1.00

0.22

0.89

Newfoundland andLabrador
Prince Edward Island

0.09

-0.02

-0.04

0.02

0.00

0.00

0.00

0.00

Nova Scotia

0.01

0.03

0.00

0.02

New Brunswick

0.02

0.01

0.02

0.02

Quebec

0.20

0.19

0.13

0.19

Ontario

0.27

0.36

0.04

0.29

Manitoba

0.06

0.04

-0.01

0.04

Saskatchewan

0.06

0.04

0.00

0.04

Alberta

0.12

0.23

-0.07

0.14

British Columbia

0.14

0.11

0.13

0.12

Yukon

0.00

0.00

0.01

0.00

Northwest Territories

0.01

0.00

-0.01

0.00

Nunavut

0.00

0.00

0.01

0.00

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.
Note: The 1997-2000 period has been omitted due to a lack of data on Nunavut and the Northwest Territories for the years 1997
and 1998.

90
Panel B: Relative Contributions (%)

2000-2008

2008-20192019-2022

2000-2022

Canadian Business Sector(sum of contributions)

100.0

100.0

100.0

100.0

Newfoundland andLabrador
Prince Edward Island

8.8

-1.5

-17.6

1.8

0.4

0.1

1.8

0.3

Nova Scotia

1.1

2.6

-0.2

2.0

New Brunswick

2.2

1.5

9.1

2.1

Quebec

19.8

18.9

61.0

21.2

Ontario

27.3

36.4

18.2

33.1

Manitoba

6.3

4.4

-5.6

4.9

Saskatchewan

6.2

3.6

2.0

4.6

Alberta

12.6

23.1

-32.5

15.8

British Columbia

13.7

11.2

57.8

13.5

Yukon

0.4

0.0

5.0

0.3

Northwest Territories

1.1

-0.5

-3.2

0.0

Nunavut

0.1

0.3

4.3

0.4

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.
Note: The 1997-2000 period has been omitted due to a lack of data on Nunavut and the Northwest Territories for the years 1997
and 1998.

91

Appendix Table B2: Labour Hours Worked in Business Sector by Province, 1997-2022
Panel A: Hours Worked (in millions)
1997

2000

2008

2019

2022

Canada20,146

21,58623,74925,87926,150

Newfoundland and Labrador

233

251

272

281

271

Prince Edward Island

78

85

87

100

102

Nova Scotia

506

538

580

568

585

New Brunswick

442

472

493

477

475

Quebec

4,402

4,745

5,060

5,490

5,464

Ontario

7,943

8,786

9,370

10,358

10,548Manitoba

755

758

786

832

834

Saskatchewan

710

688

725

763

734

Alberta

2,341

2,493

3,212

3,320

3,391

British Columbia

2,677

2,718

3,106

3,619

3,682

Yukon

20

20

18

22

20

Northwest Territories

-

24

30

25

24

Nunavut

-

9

11

23

21

Source: Statistics Canada Table: 36-10-0480-01.

92

Panel B: Share of Total Hours Worked (%)
1997
2000
2008
2019
Canada
100
100
100
100
Newfoundland and Labrador
1.16
1.16
1.14
1.09
Prince Edward Island
0.39
0.39
0.36
0.39
Nova Scotia
2.51
2.49
2.44
2.19
New Brunswick
2.20
2.19
2.08
1.84
Quebec
21.85
21.98
21.31
21.22
Ontario
39.43
40.70
39.46
40.03
Manitoba
3.75
3.51
3.31
3.22
Saskatchewan
3.52
3.19
3.05
2.95
Alberta
11.62
11.55
13.52
12.83
British Columbia
13.29
12.59
13.08
13.99
Yukon
0.10
0.09
0.08
0.09
Northwest Territories
0.11
0.13
0.10
Nunavut
0.04
0.04
0.09
Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

2022
100
1.04
0.39
2.24
1.82
20.89
40.34
3.19
2.81
12.97
14.08
0.08
0.09
0.08

Appendix Table B3: Labour Productivity Levels in Business Sector by Province, 19972022 (real output per hour worked, chained 2012 dollars)
1997
2000
2008
2019
2022
Canada
42.9
47.1
51.0
57.2
57.6
Newfoundland and Labrador
52.7
61.9
91.6
85.1
80.0
Prince Edward Island
29.8
31.0
33.9
36.9
38.8
Nova Scotia
31.3
35.1
36.5
41.2
41.5
New Brunswick
33.8
36.9
40.3
42.9
44.6
Quebec
38.5
42.2
45.5
50.7
51.7
Ontario
41.3
45.8
48.3
53.8
54.0
Manitoba
34.9
39.2
45.8
53.5
52.8
Saskatchewan
60.8
67.4
76.0
83.8
85.4
Alberta
65.2
68.8
69.8
81.1
79.9
British Columbia
37.8
41.0
45.4
50.9
52.5
Yukon
41.0
39.8
57.9
58.0
82.2
Northwest Territories
99.6
127.7
120.7
110.9
Nunavut
77.6
83.1
88.9
113.1
Source: Statistics Canada Table: 36-10-0480-01.

93

Appendix Table B4: Absolute Changes in Labour Productivity Level in Business Sector by
Province, 2000-2022 (real output per hour worked, chained 2012 dollars)
2000-2008

2008-20192019-2022

2000-2022

Canada

3.9

6.2

0.4

1.0

Newfoundland and Labrador

29.7

-6.5

-5.1

-0.7

Prince Edward Island

2.9

3.0

1.9

0.8

Nova Scotia

1.4

4.7

0.3

1.1

New Brunswick

3.4

2.6

1.7

0.6

Quebec

3.3

5.2

1.0

1.0

Ontario

2.5

5.5

0.2

1.0

Manitoba

6.6

7.7

-0.7

1.4

Saskatchewan

8.6

7.8

1.6

0.9

Alberta

1.0

11.3

-1.2

1.4

British Columbia

4.4

5.5

1.6

1.0

Yukon

18.1

0.1

24.2

0.0

Northwest Territories

28.1

-7.0

-9.8

-0.5

Nunavut
5.5
5.8
24.2
Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

0.6

94

Appendix Table A5: Labour Productivity Growth Rate of Business Sector by Province,
Compound Annual Growth Rate, 2000-2022 (percentage points)
2000-2008

2008-20192019-2022

2000-2022

Canada

1.00

1.05

0.23

0.92

Newfoundland and Labrador

5.02

-0.67

-2.04

1.17

Prince Edward Island

1.12

0.77

1.69

1.03

Nova Scotia

0.49

1.11

0.24

0.76

New Brunswick

1.11

0.57

1.30

0.87

Quebec

0.95

0.99

0.65

0.93

Ontario

0.67

0.99

0.12

0.75

Manitoba

1.96

1.42

-0.44

1.36

Saskatchewan

1.51

0.89

0.63

1.08

Alberta

0.18

1.37

-0.50

0.68

British Columbia

1.28

1.04

1.04

1.13

Yukon

4.80

0.02

12.33

3.35

Northwest Territories

3.16

-0.51

-2.78

0.49

Nunavut

0.86

0.62

8.36

1.73

Source: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

95
Appendix Chart B1: CSLS Decomposition by Province, Within-Province and Re-allocation
Effects on Canadian Business Sector Labour Productivity Growth, 2000-2008 and 20082019
Panel A: 2000-2008
1.50
1.00

1.00

0.88

0.50

0.12

0.00

-0.01

-0.50
-1.00
Within-Province Effect

Re-Allocation Level Effect

Re-Allocation Growth
EffectBusiness Sector
Productivity Growth Rate

Panel B: 2008-2019
1.50
1.00

1.05

1.03

0.50
0.00
-0.50

-0.03

0.00

Re-Allocation Level Effect

Re-Allocation Growth
Effect-1.00
Within-Province EffectBusiness Sector
Productivity Growth Rate

Panel C: Changes Between 2000-2008 and 2008-2019
1.50
1.00
0.50

0.15

0.00

0.01

0.05

Re-Allocation Growth
EffectBusiness Sector
Productivity Growth Rate

-0.15

-0.50
-1.00
Within-Province Effect

Re-Allocation Level EffectSource: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

96
Appendix Chart B2: CSLS Decomposition by Province, Within-Province and Re-allocation
Effects on Canadian Business Sector Labour Productivity Growth, 2008-2019 and 20192022
Panel A: 2008-2019
1.50
1.00

1.05

1.03

0.50
0.00
-0.50

-0.03

0.00

Re-Allocation Level Effect

Re-Allocation Growth
Effect-1.00
Within-Province EffectBusiness Sector
Productivity Growth Rate

Panel B: 2019-2022
1.50
1.00
0.50

0.24

0.23

0.00
-0.50

-0.01

0.00

Re-Allocation Level Effect

Re-Allocation Growth
Effect-1.00
Within-Province EffectBusiness Sector
Productivity Growth Rate

Panel C: Changes Between 2008-2019 and 2019-2022
1.50
1.00
0.50
0.00

0.02

0.00

Re-Allocation Level Effect

Re-Allocation Growth
Effect

-0.50
-1.00

-0.80
Within-Province EffectSource: CSLS calculations based on Statistics Canada Table: 36-10-0480-01.

-0.82
Business Sector
Productivity Growth Rate