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Friday, March 12, 2004

Labour productivity, hourly compensation and unit labour cost

2003 and fourth quarter 2003 

After posting strong growth of 0.8% in the first quarter of 2003, business productivity deteriorated with a decline in the second, almost no increase in the third and then a further 0.3% decline in the fourth quarter. As a result, annual labour productivity growth for 2003 was only 0.1%, the smallest annual increase since the 0.2% drop in 1996.

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In the United States, quarterly productivity growth slowed in the fourth quarter to 0.5%, down significantly from the 2.1% observed in the third quarter.

Despite this slowdown, American businesses recorded strong productivity growth of 4.5% for 2003 overall, similar to the 4.9% posted in 2002. An increase of this magnitude has not been seen since 1950.


Note to readers

This release contains a brief analysis of detailed data on productivity growth and other related variables. A comprehensive analysis, including additional charts and tables, is now available in HTML or PDF format in the publication Canadian Economic Accounts Quarterly Review (13-010-XIE, free). Definitions of some concepts can be found in the note to readers of that publication.

This electronic publication presents an analysis on labour productivity not only to the business sector as a whole but also in detail, reflecting 15 industries of the business sector (including the goods sector and the services sector). Quarterly measures of labour productivity by industry appeared for the first time last December. The statistical series for these industries start as of the first quarter of 1997.

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.

With this release, revisions have been made back to the first quarter of 2003 to incorporate a methodological change to the measure of hours worked in the business sector and the new seasonal factors for 2003. However, the hourly compensation series have been revised back to the first quarter of 1998. 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.


This is now the third year that the growth in American business productivity has surpassed that of Canadian businesses. The gap in annual productivity growth in favour of the United States has gradually grown since 2001, when it was 1.1 percentage points. By 2002, the gap had risen to 3.0 percentage points. In 2003, it was 4.4 percentage points. However, it is important to note that these annual productivity differences are based on preliminary data, which are subject to revision. Since 1998, these gaps have generally shrunk following revisions to the preliminary data.

Comparable increase in production, but a very different performance by labour markets in Canada and the United States

In the fourth quarter, production in Canadian and American businesses grew at the same rate of 0.9%; however, Canada posted a faster rate of growth in hours worked than the United States, as has consistently been the case since the first quarter of 2001.

Canadian businesses more than doubled their production in the fourth quarter compared with the rate of 0.4% observed in the third quarter. The recovery of exports, which had declined over the four previous quarters, was largely behind the strong production growth in Canada.

American business production returned to a more normal growth rate in the fourth quarter of 2003 after a 2.5% leap in the third quarter. The latter was marked by the strongest quarterly increase since the first quarter of 1984. The deceleration in the US economy resulted from a slower increase in consumer expenditures and an acceleration in imports.

Hours worked in Canadian businesses increased 1.1% in the fourth quarter, more than double the rate measured in the previous quarter. In comparison, hours worked in US businesses in the fourth quarter had the same rate of increase as in the third quarter, reaching only 0.4%.

The gap in productivity growth between Canada and the United States for the fourth quarter was essentially attributable to different labour market performances in light of identical production growth in the two countries.

Annual productivity growth in Canada significantly down in 2003

In 2003, annual productivity growth rose barely 0.1% in Canada. Taking into account this weak increase, the average increase for the past three years came to 0.7%. This is only one quarter of the 2.8% average annual rate recorded from 1997 to 2000. Canada's economic growth was strong during this period, partly the result of the intensification of the use of information and communications technologies.

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The period of rapid productivity growth in the late 1990s was followed by a slowdown in 2001, a slight recovery in 2002 and stagnation in 2003. In 2001 and 2002, Canadian businesses felt the impact of the burst of the high-tech bubble and the September 11 attacks in the United States. In 2003, economic activity was disrupted by an extraordinary conjunction of one-time events, including the SARS and mad cow scares, the electrical outage in Ontario, forest fires in British Columbia and Hurricane Juan in the Maritimes. Moreover, the Canadian dollar appreciated rapidly against the American dollar, forcing exporting companies to adjust their operations.

In 2003, the Canadian situation contrasted sharply to that of the United States in terms of the performance of the economy and of the labour market. US productivity in 2003 came from a simultaneous increase in production and a decrease in hours worked.

Canadian production increased by just 1.5% in 2003, significantly lower than the 3.7% growth rate recorded in the United States. This was the strongest growth measured in the United States since 2000, before the so-called dot-com decline. It was also the best production performance observed in the United States, compared with Canada, since 1999.

The improved productivity performance in the United Sates in 2003 was partly attributable to the reduction in hours worked. In 2003, hours worked in Canada increased at a rate of 1.5%, compared with the 0.8% decline in the United States.

Stronger Canadian dollar in 2003 serves to widen gap in labour costs in favour of the United States

On an annual basis, the rise in hourly compensation in Canadian businesses was only 1.2% in 2003, continuing the downward trend started in 2001. US business saw hourly compensation rise by 3.3% in 2003, after a 2.2% increase in 2002.

The annual growth in unit labour costs in Canada has slowed over the last two years. The rate was 1.0% in 2003 and 0.9% in 2002, much slower than the 3.2% growth recorded in 2001. In the United States, unit labour costs declined by 1.1% in 2003.

Measured in American dollars, unit labour costs in Canada grew considerably in 2003, while those in the United States declined. Between 2002 and 2003, with the value of the Canadian dollar increasing by close to 10.8% compared with that of the American dollar, the gap in unit costs between the two countries continued to widen significantly in favour of the United States. Unit labour costs in Canada, measured in American dollars, leapt by 13.3% in 2003, while the United States posted a 1.1% decline.

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Recent revisions in productivity figures in the United States had no impact on the Canada-US gap

In February 2004, the United States released its annual revisions of labour productivity estimates, incorporating recent revisions of the US National Accounts by the Bureau of Economic Analysis. The US data has also been revised back to 1999 to incorporate the adjustments in annual benchmarks on hours worked.

From 1987 to 2002, average annual productivity growth was not affected by these revisions; therefore, the average gap in annual productivity growth in favour of the United States remained identical to that released before the revision.

Comparison of annual labour productivity growth in the business sector before and after revision
  Canada United States
    before revision after revision
  annual % change
1987 to 2002 1.5 2.1 2.1
1995 to 2000 2.2 2.6 2.6
1996 to 2002 2.3 2.9 2.9
1999 3.3 2.5 2.9
2000 3.8 3.1 2.9
2001 1.0 2.0 2.2
2002 1.9 5.3 4.9
Source:US data are from the Bureau of Labor Statistics, Productivity and Costs, Fourth quarter 2003, published in NEWS, March 4.

However, in recent years, revisions increased labour productivity in the United States for 1999 and 2001, and reduced it for 2000 and 2002. The magnitude of the revisions varied between 0.2% and 0.6%. Nonetheless, the revisions to US data did not result in any changes to the mid-term average, since average annual productivity growth from 1996 to 2002 remained at 2.9%, a higher rate than the 2.3% registered in Canada over the same period.

Available on CANSIM: tables 383-0008 and 383-0012.

Definitions, data sources and methods: survey number 5042.

A more comprehensive analysis, including additional charts and tables, is now available in the Canadian Economic Accounts Quarterly Review (13-010-XIE, free). From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

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
  Fourth quarter 2001 First quarter 2002 Second quarter 2002 Third quarter 2002 Fourth quarter 2002 First quarter 2003 Second quarter 2003 Third quarter 2003 Fourth quarter 2003
  % change from previous quarter, seasonally adjusted
Canada                  
Labour productivity 1.1 0.7 0.3 -0.3 -0.5 0.8 -0.4 0.1 -0.3
Real GDP 1.1 1.7 1.0 0.6 0.3 0.8 -0.6 0.4 0.9
Hours worked -0.1 1.1 0.6 0.8 0.9 0.0 -0.3 0.4 1.1
Hourly compensation 0.8 1.0 0.1 0.3 0.6 0.6 0.2 -0.2 -0.3
Unit labour cost -0.4 0.3 -0.2 0.6 1.2 -0.3 0.5 -0.2 -0.1
Exchange rate1 2.2 0.9 -2.5 0.6 0.4 -3.8 -7.4 -1.3 -4.7
Unit labour cost in US$ -2.5 -0.6 2.4 0.0 0.8 3.7 8.5 1.1 4.8
United States                  
Labour productivity 1.9 2.0 0.3 1.2 0.6 0.8 1.7 2.1 0.5
Real GDP 0.5 1.4 0.4 1.0 0.3 0.5 1.0 2.5 0.9
Hours worked -1.3 -0.7 0.0 -0.2 -0.1 -0.3 -0.8 0.4 0.4
Hourly compensation 1.0 0.2 0.6 0.4 0.5 1.2 1.3 0.7 0.4
Unit labour cost -0.8 -1.8 0.2 -0.9 0.0 0.3 -0.4 -1.4 -0.1
  1999 2000 2001 2002 2003 First quarter  2003 Second quarter  2003 Third quarter  2003 Fourth quarter  2003
  % change from the previous year % change from same quarter of previous year, seasonally adjusted
Canada                  
Labour productivity 3.3 3.8 1.0 1.9 0.1 0.3 -0.4 0.0 0.3
Real GDP 6.9 6.3 1.3 3.4 1.5 2.7 1.1 1.0 1.5
Hours worked 3.6 2.2 0.4 1.4 1.5 2.4 1.4 1.0 1.2
Hourly compensation 2.9 6.0 4.2 2.9 1.2 1.6 1.7 1.2 0.2
Unit labour cost -0.2 2.0 3.2 0.9 1.0 1.3 2.0 1.2 -0.1
Exchange rate 0.1 0.0 4.3 1.4 -10.8 -5.3 -10.0 -11.7 -16.2
Unit labour cost in US$ -0.4 2.1 -1.0 -0.4 13.3 7.0 13.3 14.6 19.2
United States                  
Labour productivity 2.9 2.9 2.2 4.9 4.5 3.0 4.4 5.3 5.3
Real GDP 5.1 3.9 0.1 2.3 3.7 2.3 3.0 4.4 5.0
Hours worked 2.1 1.0 -2.1 -2.5 -0.8 -0.6 -1.3 -0.8 -0.3
Hourly compensation 4.8 7.0 4.1 2.2 3.3 2.6 3.4 3.7 3.6
Unit labour cost 1.8 4.0 1.8 -2.5 -1.1 -0.3 -1.0 -1.5 -1.6
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, Fourth quarter 2003 published in NEWS, March 4.



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Date Modified: 2004-03-12 Important Notices