from trends in the growth of productivity. as an example, let us look at the simplest yardstick of living standards - output per capita. clearly, this is closely related to the output produced per worker - which is the most common measure of productivity. but it also depends on the number of people employed relative to the total population. through the 1960s, 1970s and 1980s, output per capita in canada increased more rapidly than productivity. but over the past 10 years, it has fallen behind the growth in productivity. canada ’ s lacklustre standard - of - living performance in the 1990s, which we have heard so much about, has less to do with slower productivity growth than with the fact that the proportion of the population that is actually employed has not been increasing. this is in contrast to the rising trend of the previous three decades, when an increasing number of women and baby boomers were entering the labour market. during the 1990s, trends in employment rates in canada also diverged significantly from those in the united states, contributing to an increased gap in living standards between the two countries. this weak employment growth in canada partly reflects the extensive and difficult restructuring that our private and public sectors had to undergo in a relatively short time compared with the united states, where the process started earlier and was spread over a longer time period. if we measure our standard of living in terms of how much of the national income goes to each and every canadian, then we are not just talking about the volume of goods and services we produce. we are also talking about the world prices we receive for what we sell abroad relative to the prices we pay for imports - that is, our terms of trade. during the 1970s, world prices for the primary commodities that canada exports soared relative to prices in general. and they remained high through to the early 1980s. since then, however, commodity prices have typically been on a downward trend. and, of course, they fell sharply in the wake of the asian crisis in 1997 - 98, before partly recovering in 1999. we have to take this into account when we examine what happened to our standard of living in the 1990s compared with earlier decades. we also need to look at what has happened to personal income after taxes. from the mid - 1970s to the early 1990s, tax revenues did not cover government spending and we were getting deeper and deeper into debt. in other words, we were living beyond our means. during the 1990s, taxes rose and government transfers and other expenditures were cut back relative to

pegged to the u. s. dollar. it is true that in a period of high, and potentially rising, inflation, a depreciating currency adds to the confusion about what is happening to relative prices and contributes to an attitude that any cost increases can be passed on. thus, businesses may not be as concerned about improving productivity as a cost - cutting measure. but that is not the case in canada today - inflation is low and stable, and the bank is committed to keeping it that way. businesses know that they will generally not be able to pass on cost increases, and so they focus on cost control. the argument that a depreciated currency tends to discourage productivity improvements also ignores today ’ s powerful global competitive forces and the strong drive of businesses to increase their market share and their profits as well as raise the prices of their stock. in my judgment, our floating exchange rate works well. it absorbs the impact of, and facilitates the adjustment to, extraordinary shocks that hit our economy from time to time, such as the sharp drop in primary commodity prices in 1997 - 98. as part of that adjustment, the low canadian dollar has encouraged businesses outside the primary industries to expand their presence in foreign markets. but they can maintain those gains only if they continue to work hard to increase productivity and to ensure that they stay competitive as our currency regains strength. concluding thoughts to conclude, it is almost impossible to overemphasize the importance of rising productivity as the fundamental long - term factor contributing to healthy economic performance and prosperity. over time, gains in productivity are the basis for growing incomes and rising standards of living. compared with the strong performance of the 1950s and 1960s, canada ’ s productivity record since the early 1970s has been rather disappointing. even though the level of our productivity has been rising, we have not made any headway in bringing it closer to that of the united states. recent developments in canada, however, offer some promise of improvement. productivity growth has picked up in the past couple of years in response to the cyclical recovery and the structural changes in our economy. and investment in machinery, equipment, and technology has increased sharply in the past three years, much the same way as it did in the united states some years earlier. but there is no room for complacency. increases in productivity do not just happen. these days, good productivity performance seems to be related to changing technology - an openness to adopting it and a flexibility in adapting to