The Daily, Friday, August 24, 2001. Interprovincial productivity differences

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Interprovincial productivity differences

Alberta led Canada business sector productivity performance in 1996-97, with an average gross domestic product (GDP) per job of $66,000. This was $10,000 higher than Ontario, which ranked second. These results, based on a new provincial productivity database, are part of a Statistics Canada's study on differences in interprovincial labour productivity published in the August issue of the Canadian economic observer.

Saskatchewan was right behind Ontario at $54,000, the study found, followed by Quebec ($52,000) and British Columbia ($51,000). Manitoba ($44,000) and Atlantic Canada ($42,000) had the lowest GDP per job; their average productivity was only two-thirds that of Alberta.

Note to readers

This release is based on a study that compares labour productivity levels across provinces, and investigates the extent to which these are due to differences in industrial composition. Many factors account for the differences in productivity across provinces. This study focusses on the most important of these differences in the industrial composition of production activity across the country. Other determining factors are cyclical differences and barriers to labour and capital mobility.

The study makes use of a new database on provincial productivity based on 243 industries of the Canadian business sector for 1996 and 1997 averaged. The Atlantic provinces were treated as a group for the sake of confidentiality protection.

In this release, labour productivity is defined as gross domestic product in current prices per job. Labour productivity differences reflect a range of factors - from differences in capital intensity to differences in efficiency.

Nine sectors were considered in the study: agriculture, fishing and trapping; natural resources (logging, forestry, mining and oil and gas); core manufacturing (electronic products, machinery, pharmaceuticals, chemical products and refined petroleum); secondary manufacturing (primary metals, transportation, rubber, plastic, fabricated metals, and non-metallic minerals); other manufacturing (tobacco, paper, beverages, textiles, printing, wood, other textiles, furniture, clothing, and leather); construction; and the high-wage (wholesale, storage, utilities, finance and pipelines), medium-wage (transportation, business services, and communication) and low-wage (accommodation and food, retail and other services) service sectors.

Core manufacturing represents highly dynamic industries that produce innovations or technologies for self-use or use in other sectors. The secondary manufacturing sector is less innovative in that it both uses technologies produced by other sectors and produces innovations for use in other sectors. The "other manufacturing" sector essentially absorbs technologies and innovations produced by the core and secondary manufacturing sectors. Average earnings, or wages, salaries and supplementary labour income, divided by employment, are used to classify service industries into high-, medium- and low-wage sectors.

Labour productivity differences reflect not only variations in the efficiency of labour but also dissimilarities in the availability of capital per job - a result of capital accumulation.

Provincial GDP per job differs substantially across industries. In the Atlantic provinces, the high-wage services sector is the most productive, followed closely by the natural resources sector. In Quebec, the high-wage services sector is ranked second right after the secondary manufacturing sector. From Ontario going west, the natural resources sector is the most productive, followed generally by the high-wage services sector. The productivity gap between the two most productive sectors is about $4,000 in the Atlantic provinces and Quebec but ranges from $20,000 in Ontario to $275,000 in Saskatchewan.

While sectoral productivity performance varies significantly across provinces, Alberta occupies a pre-eminent position in the most innovative sectors such as high-wage services and manufacturing. Alberta and Ontario lead the high-wage services sector with a value of GDP per job close to $100,000, compared with $87,000 in Quebec, which ranks second. Alberta is also the most productive in the core manufacturing sector ($113,000), followed by Quebec and Ontario (about $80,000). Alberta ranks third in the secondary manufacturing sector, behind Ontario in first place and Quebec in second. With $360,000 of GDP per job, Saskatchewan is the most productive in the natural resources sector followed by Alberta, producing $290,000. Much of this performance is, however, the result of the high capital intensity of this sector.

The importance of industry mix

Productivity differences in the entire business sector between provinces reflect both differences in industrial composition and differences in productive efficiency across sectors. Provinces that have a substantial part of their work force in low-productivity sectors will trail those tending to have their workers in high-productivity sectors as a result of industry mix. To the extent that labour and capital are mobile across provinces, virtually all differences could be expected to reflect compositional effects.

Productive efficiency differences at the industry level were more important than the industry mix in explaining inter-provincial differences for all provinces except British Columbia and Saskatchewan. Alberta was the only province that had both a favourable industry mix and higher productive efficiency than Ontario. Saskatchewan's slightly higher productive efficiency compared with Ontario was more than offset by an unfavourable mix. Atlantic Canada and Manitoba had a large productive efficiency gap with Ontario.

After controlling for differences in industrial structures, Alberta's leading position in productivity relative to Ontario was unchanged in the high-wage services sector and the core manufacturing sector, and even improved in the natural resources sector, where it showed the highest provincial gap.

After accounting for industry mix, productivity in Quebec is lower than in Ontario in most sectors, especially in high-wage services. Since no other sector shows advantages sufficient to offset this, overall productivity in Quebec is lower than Ontario by $3,300. British Columbia's situation is similar, although the overall productivity gap is about half that of Quebec ($1,800); this is mainly a result of its better performance in the services sector. The Atlantic provinces show the highest productivity gap of roughly $10,000, largely because they lag behind in high-wage services and secondary manufacturing.

Provincial employment data for 1996 and 1997, consistent with input-output tables, are now available on request. Please contact productivity.measures@statcan.gc.ca.

For more information, or to enquire about the concepts, methods or data quality of this release contact John R. Baldwin (613-951-8588; baldjoh@statcan.gc.ca) or Tarek M. Harchaoui (613-951-9856; fax: 613-951-5403; harctar@statcan.gc.ca), Micro-Economic Analysis Division.