Study: The changing cyclical behaviour of labour productivity

As the economy slumped in 2008 and 2009, labour productivity in Canada fell slightly as the combined reductions in employment and the average workweek did not match the drop in output. This marks a departure from recent recessions in Canada and the United States, when labour productivity increased during recessions.

This release compares the behaviour of labour productivity during the recent downturn to the previous three cycles in Canada and to the United States. It finds that since 1981, labour inputs had fallen by as much or more than output during recessions in both Canada and the United States. Employers initially reacted to a downturn by shortening the workweek, but then resorted to job cuts if the recession was prolonged.

The time between the onset of lower output and job losses has shortened over time, to the point that early in 2008 employment fell before output receded in the United States. In Canada, employers did not reduce labour inputs as fast as output in 2008/2009. As a result, labour productivity in Canada declined for over a year during a recession for the first time in over three decades.

The relationship between output and employment during cyclical downturns has changed over the decades (output and employment are used as a proxy of labour productivity before 1981, when quarterly productivity data begin). From the 1950s through to 1980, employment in Canada did not decline as fast as output, if it fell at all.

Since the fourth quarter of 2007, labour productivity in Canada fell 1.2% through the third quarter of 2009, despite firms having almost two years to adjust to lower demand. Over the same period, labour productivity rose 4.9% in the United States. This gap represents the extension of a trend that has persisted since the 2001 recession ended. Higher productivity growth in the United States first materialized in the 2001 recession. This gap continued at 2% during the recovery in 2002, and has persisted at about 2% a year since.

In the United States, there is a clear trend towards productivity rising during recessions, with not even a momentary decline in the last downturn. In Canada, productivity by the end of most recessions was higher than at the beginning, with the exception of the 2008/2009 downturn (which may not be over on either side of the border, despite the recent gains in output and employment).

Severe recessions provoked a range of responses in business sector productivity. In some instances, like Canada in 1981/1982 and the United States in 2008/2009, firms cut jobs rapidly and raised productivity. In others, such as the United States in 1981/1982 and Canada in 2008/2009, the loss of jobs was more muted and productivity declined.

Available on CANSIM: tables 380-0037, 380-0057 and 380-0058.

Definitions, data sources and methods: survey numbers, including related surveys, 1301, 3701 and 5042.

The study, "The changing cyclical behaviour of labour productivity," is included in the January 2010 Internet edition of the Canadian Economic Observer, Vol. 23, no. 1 (11-010-X, free), available from the Key resource module of our website, under Publications.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Chief Economic Analyst.