Study: Role of productivity in the output gap between Canada and the United States

Canada's economic output per person is lower than that in the United States but it is not primarily because Canadians are less productive, according to a new study.

The report "The output gap between Canada and the United States: The role of productivity, 1994 to 2002," published today in the Canadian Economic Observer, examines reasons behind the fact that Canada has a lower gross domestic product (GDP) per capita than the United States.

Between 1994 and 2002, Canadian GDP per capita averaged only 83% that of GDP per capita in the United States.

The study found that this gap in output comes primarily from lower levels of labour input, that is, Canadians work fewer hours per job, and are less likely to have a job.

Labour input into the production of goods and services that is provided by a country's population can be broken into two main components: hours worked per job, and jobs per capita. There were substantial differences between Canada and the United States in each area.

The study found that between 1994 and 2002, hours worked per job in Canada averaged only 95% of hours worked per job in the United States. The number of jobs per capita in Canada was only 94% that in the United States during the same period.

Together, these two factors (lower hours worked and lower rates of job provision) resulted in Canada's hours worked per capita being only 88% that of the United States.

Gap in relative productivity levels in two nations

The study also investigated the role of productivity in the output gap. It found that there was a gap in the relative productivity levels in the two countries. On average, Canadian labour productivity was 94% that of labour productivity in the United States.

But most of the difference between the two nations in GDP per capita originated from differences in the labour input, that is, differences in hours worked per job and jobs per capita in the population.

The study found that the difference in labour productivity accounted for one-third of the total percentage-point difference in the GDP per capita of the two countries.

Thus, if effort had been the same in the two countries, some 66% of the difference in GDP per capita between them would disappear.

Gap in GDP per capita has narrowed

Between 1994 and 2002, the output gap between Canada and the United States declined. In 1994, the level of GDP per capita in Canada was 82% of GDP per capita in the United States. By 2002, this proportion had risen to 86%.

During the same period, labour productivity in Canada remained much the same, at about 94% of American productivity.

The increase in the ratio of Canada's GDP per capita to that of the United States during the eight-year period was due mainly to gains in Canada's employment rate.

Jobs per capita in Canada were 93% of those in the United States in 1994. But by 2002, this proportion had increased to 98%.

New focus on levels of productivity

This is the first time that Statistics Canada has examined the levels of productivity in Canada as opposed to the United States. The productivity program of Statistics Canada generally focuses on the rate of growth of productivity. The analytical focus on growth rates rather than on levels at Statistics Canada occurs because fewer problems arise when comparing growth rates across countries than when comparing levels.

An accompanying paper will be released on January 20 titled "A comparison of Canadian and US productivity levels: An exploration of measurement issues" in the Economic Analysis series. The paper will address some of the problems that need to be resolved to compare levels of productivity and differences in work intensity between Canada and the United States.

The paper derives measures of GDP and labour inputs that are comparable. It also investigates the nature of a price index that must be constructed to reconcile estimates of Canadian and US GDP per hour worked that are calculated in Canadian and US dollars respectively.

The analytical paper of the series Insights on the Canadian Economy and "The output gap between Canada and the United States: The role of productivity, 1994 to 2002" (11-624-MIE2005009, free) is now available online. From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

More studies on productivity can be found at Update on economic analysis on our Web site (11-623-XIE, free).

For more information or to enquire about the concepts, methods or data quality of this release, contact John Baldwin (613-951-8588), or Jean-Pierre Maynard (613-951-3654), Micro-economic Analysis Division.