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The Daily. Thursday, March 29, 2001

Labour productivity, hourly compensation and unit labour cost

The quarterly estimates of productivity are meant to help those who focus on the analysis of the short-run relationship between output, employment, remuneration and hours worked. They are highly volatile, subject to revision, and should be used with caution to infer long-run trends. Labour productivity growth in the business sector was up 0.7% in the fourth quarter compared with the last quarter of 1999. The growth of productivity registered in the fourth quarter represented a slowdown relative to the three previous quarters of 2000. The revised year-over-year growth rates for the three previous quarters were 1.1% in the third, 2.1% in the second and 1.8% in the first quarter.

The slowing of productivity growth occurred in the context of lower domestic demand and hours worked. As is often the case when the growth rate in the economy begins to decline, the growth of hours worked slowed relatively less than did output over the last quarter of 2000.

Despite the slowdown in the fourth quarter, the succession of quarterly increases in the early part of the year was sufficient to produce an average annual gain of 1.4% for 2000. This is slightly lower than the 1.7% registered in 1999, but higher than the average annual increase of 1.0% seen since 1988.

During the period 1988 to 2000, the annual growth of productivity has fluctuated between -0.5% and 2.4%. The largest increase occurred in 1992, and the only decrease in 1996.

Unit labour costs increased in the last quarter of 2000

Growth in unit labour cost occurs when wage increases are growing more than labour productivity. During the fourth quarter, hourly compensation gained 3.9%; labour productivity growth increased 0.7%. Consequently, unit wage costs rose 3.1%.

Note to readers Each year, annual and quarterly series on productivity and related variables such as unit costs are revised to incorporate the most recent revisions that are made to the input-output tables. In October 2000, final revisions of gross domestic product (GDP) and labour income for 1996 and revisions of preliminary estimates for 1997, 1998 and 1999 were released. In addition, estimates of hours worked of the first three quarters of the year that are used in the productivity estimates are revised at the end of the fourth quarter, when benchmarks become available. This release of quarterly productivity estimates includes revisions of the quarterly estimates for the period of 1996 to 2000 using both of these sets of changes. In this release, "productivity" refers to labour productivity. These productivity estimates are based on the value-added concept of output. To ensure consistency with annual data, the quarterly index of productivity growth based on real value added is benchmarked to the annual estimates that are derived from a Fisher chained index up to the most current year for which the Input-output tables are available (currently 1997). After 1997, it is constructed from a Laspeyres volume index based to 1992. More precisely, it is based on the growth of the industry real GDP index at factor cost for the business sector, from which the GDP arising from owner-occupied dwellings is subtracted. The quarterly estimates provided here are limited to the overall business sector. This aggregate excludes all non-business production activities as well as the rents of owner-occupied dwellings. Corresponding exclusions are also made to labour compensation and hours worked to make output and labour input data consistent with one another. Definitions Labour productivity, or real GDP per hour worked, is the ratio of output to labour input (hours worked). Economic performance as measured by labour productivity must be interpreted carefully. This indicator reflects changes in the other factors of production such as capital, in addition to growth in productive efficiency. Labour compensation for all jobs includes all payments in cash or in kind made by domestic producers to persons at work as remuneration for work. This includes the salaries and supplementary labour income of paid workers, plus an imputed labour income for self-employed workers. Unit labour cost is the labour cost per unit of output. It is calculated as the ratio of labour compensation to real GDP. It is also the equivalent of the ratio between labour compensation per hour worked and labour productivity.

This quarterly increase follows relatively constant increases, which fluctuated between 2.0% and 2.5% during the three previous quarters of 2000. These results for 2000 contrast with those of 1999 when unit labour cost growth remained close to zero for the three last quarters of 2000. On an annual basis, unit labour costs increased by 2.5% in 2000, compared with 0.3% in 1999. However, the unit labour cost increases in 2000 were about the same as those seen in 1997 and 1998.

Available on CANSIM: matrix 9484.

These series are available from the first quarter of 1987 up to the third quarter of 2000. These data are normally published 10 weeks after the end of the reference quarter.

For more information on concepts and definitions, a technical note is available on request. For more information, contact John Baldwin (613-951-8588; baldjoh@statcan.gc.ca) or Jean-Pierre Maynard, (613-951-3654; maynard@statcan.gc.ca); fax: 613-951-5403; Micro-economic Analysis Division.

Business sector: Labour productivity and related variables