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Thursday, June 12, 2003

Labour productivity, hourly compensation and unit labour cost

First quarter 2003

In spite of a slight strengthening in economic activities, business sector productivity fell a slight 0.2% in the first quarter compared with the fourth quarter of 2002. This was the third consecutive decline after six quarters in which labour productivity either increased or remained stable. This represents the longest series of declines since the recession in the early 1990s.

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Since the third quarter of 2002, the growth in hours worked in the business sector has outpaced the output growth, causing these three consecutive quarterly declines in productivity. Hours worked have maintained a steady increase since the second quarter of 2002. Over the same period, output growth slowed, but then increased slightly in the first quarter of 2003.


Note to readers

With this release, the detailed data on productivity and other related variables are revised going back to the first quarter of 1999. The revised productivity estimates incorporate the 1999-to-2002 revisions to the National Economic and Financial Accounts that were released May 30. An article outlining these revisions can be found in the electronic document Canadian Economic Accounts Quarterly Review (13-010-XIE, free).

The quarterly productivity estimates provide a preliminary indication of recent productivity trends in the Canadian economy. These data are produced on the basis of preliminary gross domestic product (GDP) estimates, which are eventually revised when additional and more precise information on the National Accounts becomes available. This revision cycle lasts four years. The revisions that are published today therefore go back to 1999.

In this release, the use of the term 'productivity' refers to labour productivity. Calculations of the productivity growth rate and its related variables are based on index numbers rounded to one decimal place.

Labour productivity is the ratio of output to labour input (hours worked). Quarterly estimates of productivity are derived from a Fisher chained index of the GDP, or of the value added, in the business sector. Economic performance as measured by labour productivity must be interpreted carefully, since these estimates reflect changes in other factors of production in addition to the growth in productive efficiency.

Labour compensation includes all payments in cash or in kind made by domestic producers to persons as remuneration for work. This includes salaries and supplementary labour income of paid workers, plus an imputed labour income of 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 value added. It is also the equivalent of the ratio of labour compensation per hour worked to labour productivity. The unit labour cost will increase when hourly compensation rises faster than labour productivity.


Similar growth in output but a divergence in productivity performance in Canada and the United States

In the first quarter, production grew at the same rate in Canadian and American businesses. This 0.5% quarterly increase put an end to the gradual deceleration that started in the first quarter of 2002 in Canada and the third quarter of 2002 in the United States. Consumer spending and residential capital investments were largely responsible for the production growth in the two countries.

The performance of the Canadian job market, however, has been much better than the sluggish American job market over the last two years. Hours worked in Canada increased 0.6%, the sixth consecutive quarterly increase. This rate was about equal to the average seen over the past year (+0.7%).

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In contrast, hours worked in American businesses declined 0.6% in the first quarter, after increasing slightly (+0.4%) in the fourth quarter of 2002. Apart from this fourth-quarter increase, hours worked have declined in the United States since the second quarter of 2001.

As a result of falling output growth but continued growth in the hours worked, Canada's growth in productivity remained anemic in the first quarter. Meanwhile, in the United States, productivity growth was up 0.6%, primarily because of a decrease in hours worked. The difference between Canadian and American productivity growth rates for the first quarter is attributable to differences in labour market performance, since the production growth rate was identical in both countries.

Unit labour cost increases dramatically in Canada because of the appreciation of the exchange rate

From one year to the next, the first-quarter growth in hourly remuneration in the business sector has continued to increase moderately in Canada and the United States. While growth of hourly compensation slowed slightly in Canada in the first quarter, it continued at the same pace as in the previous quarter in the United States.

The year-over-year increase in unit labour costs picked up in the last two quarters; before that, it had been decelerating gradually since the third quarter of 2001. In the United States, the unit labour costs increased in the first quarter of 2003, interrupting a series of five consecutive declines.

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When expressed in US dollars, Canadian unit labour costs increased much more dramatically in the first quarter. As a consequence of the 5.3% increase in the value of the Canadian dollar in the first quarter compared with the first quarter of 2002, US businesses saw their unit costs decline relative to their Canadian competitors in the first quarter. Measured in American dollars, unit labour costs rose dramatically by 7.8% in Canada, compared with only 0.9% in the United States in the first quarter on an annual basis.

With the exception of 2002, recent revisions in Canada havereduced the Canada-US productivity gap

The data published today have incorporated the revisions of gross domestic product in Canada for the last four years. Additional revisions to US data will be published in September. In the last four years, the United States have revised their preliminary productivity estimates downward substantially, while Canada has revised its estimates upward (see the September 13, 2002 issue of The Daily).

Once again this year, Canadian data were generally revised upward. The 1999-2002 revisions have had the effect of increasing Canada's productivity growth rate for 2000 and 2001 and reducing it for 2002; the growth rate for 1999 was not affected.

Comparison of annual labour productivity growth in the business sector before and after revision
  Canada United States
  Before revision After revision  
  annual % change
1987-2001 1.4 1.5 1.8
1995-2000 1.8 2.0 2.7
1996-2001 2.0 2.3 2.3
1999 2.9 2.9 2.6
2000 2.1 3.1 3.0
2001 0.8 1.2 1.1
2002 2.2 1.8 4.8
Source:US data are fron the Bureau of labor Statistics, Productivity and Costs - First quarter 2003, published in NEWS, June 4.

In 2000, the productivity growth rate in Canada was revised upward, increasing from 2.1% to 3.1%. This revision leaves Canada's productivity growth slightly higher than the growth rate in the United States (3.0%) for the same year. The Canadian rate was also revised upward in 2001, resulting in a reduction in the gap from -0.3 percentage points in favour of the United States to +0.1 percentage points in favour of Canada..

In contrast, productivity growth in Canada for 2002 has been revised down from 2.2% to 1.8%, increasing the gap with US businesses from 2.6 to 3.0 percentage points. While these revised data suggest that Canada has trailed the United States in productivity and unit labour cost performance in 2002, this result should be treated with caution because of the nature of the revisions that have been occurring.

During the second part of the 1990s, the two countries experienced strong economic growth, partly because of the information and communications technology revolution. The impact of Canadian revisions over this period is therefore of interest.

The impact of the revisions depends on the time period under study. The average annual growth rate from 1996 to 2001 in Canada has been revised up from 2.0% to 2.3% and is now the same as the rate in the United States. However, from 1995 to 2000, Canada's revisions move the annual average productivity growth rate up from 1.8% to 2.0% compared with 2.7% in the United States. Finally, over the entire period from 1987 to 2001, the average annual gap in favour of the United States remains, but is revised down from 0.4 to 0.3 percentage points. Estimates of recent short-run changes are more volatile than estimates of changes over a longer time horizon. A more comprehensive examination of long-term differences in Canada-US productivity rates will be released in early July.

Available on CANSIM: table 383-0008.

Definitions, data sources and methods: survey number 1402.

A technical note on quarterly estimates of labour productivity is available on request. To order a copy, send an e-mail message to productivity.measures@statcan.gc.ca.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Jean-Pierre Maynard (613-951-3654; Fax: 613-951-3292; maynard@statcan.gc.ca), Micro-Economic Analysis Division.

Business sector: Labour productivity and related variables for Canada and the United States
  First quarter 2001 Second quarter 2001 Third quarter 2001 Fourth quarter 2001 First quarter 2002 Second quarter 2002 Third quarter 2002 Fourth quarter 2002 First quarter 2003
  % change from previous quarter, seasonally adjusted
Canada                  
Labour Productivity 0.3 1.0 0.0 0.9 0.7 0.5 -0.2 -0.5 -0.2
Real GDP 0.3 -0.2 -0.6 1.1 1.7 1.0 0.6 0.3 0.5
Hours worked 0.0 -1.1 -0.5 0.1 1.0 0.5 0.6 0.9 0.6
Hourly compensation 1.2 1.3 0.8 0.6 0.9 0.3 0.4 0.6 0.3
Unit labour cost 0.9 0.3 0.9 -0.4 0.2 -0.2 0.6 1.2 0.5
Exchange rate1 0.1 0.9 0.3 2.2 0.9 -2.5 0.6 0.4 -3.8
Unit labour cost in US$ 0.7 -0.6 0.5 -2.5 -0.7 2.4 0.0 0.8 4.4
United States                  
Labour Productivity -0.3 -0.1 0.4 1.9 2.0 0.5 1.4 0.1 0.6
Real GDP -0.2 -0.7 -0.2 0.9 1.4 0.1 1.3 0.4 0.5
Hours worked 0.1 -0.7 -0.7 -0.9 -0.6 -0.3 -0.2 0.4 -0.2
Hourly compensation 0.7 0.1 0.2 0.4 0.7 1.1 0.5 0.9 1.0
Unit labour cost 1.1 0.2 -0.3 -1.5 -1.2 0.6 -0.9 0.8 0.3
  First quarter  2001 Second quarter  2001 Third quarter  2001 Fourth quarter  2001 First quarter  2002 Second quarter  2002 Third quarter  2002 Fourth quarter  2002 First quarter  2003
  % change from same quarter of previous year, seasonally adjusted
Canada                  
Labour Productivity 0.6 1.3 0.7 2.2 2.7 2.2 2.0 0.5 -0.4
Real GDP 3.1 1.8 -0.2 0.7 2.1 3.2 4.4 3.6 2.4
Hours worked 2.4 0.5 -0.9 -1.5 -0.5 1.1 2.3 3.1 2.7
Hourly compensation 3.5 4.2 4.1 4.0 3.6 2.6 2.2 2.2 1.7
Unit labour cost 2.9 2.9 3.3 1.6 0.9 0.5 0.2 1.8 2.1
Unit labour cost in US$ -2.1 -1.1 -1.0 -1.9 -3.3 -0.4 -0.9 2.5 7.8
United States                  
Labour Productivity 1.9 0.2 0.5 1.9 4.3 4.8 5.9 4.0 2.6
Real GDP 1.4 -0.7 -1.0 -0.3 1.4 2.3 3.8 3.4 2.4
Hours worked -0.5 -0.9 -1.5 -2.2 -2.8 -2.5 -1.9 -0.6 -0.2
Hourly compensation 4.5 3.9 2.0 1.5 1.4 2.4 2.7 3.3 3.5
Unit labour cost 2.6 3.6 1.5 -0.4 -2.8 -2.3 -3.0 -0.7 0.9
1The exchange rate corresponds to the US dollar value expressed in canadian dollars.
Source:US data are from Bureau of Labor Statistics, Productivity and costs - First quarter 2003 published in NEWS, June 4.



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Date Modified: 2003-06-12 Important Notices