Factors in the growth of labour productivity in the provinces

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1997 to 2010

Investment in physical capital was the most important factor in the growth of labour productivity in almost every province during the 14-year period from 1997 to 2010.

Capital intensity, that is, investment in plant, machinery and equipment, was found to be a more important factor in most provinces than gains in the other two key determinants (human capital and multifactor productivity). Multifactor productivity refers to increases resulting from technological innovation and organizational changes in firms.

Gains in capital intensity were highest in Alberta and Saskatchewan between 1997 and 2010. This was due to investments in resource-related activities in these two economies.

Labour productivity growth in the business sector by province, 1997 to 2010

 Labour productivity growth in the business sector by province, 1997 to 2010

Chart description: Labour productivity growth in the business sector by province, 1997 to 2010

On the other hand, increases in multifactor productivity were responsible for the rapid growth in labour productivity in Newfoundland and Labrador during this period.

Note to readers

This is the first release of an analysis that breaks down the growth in labour productivity in the business sector into the three key determinants for each province.

This analysis uses a new experimental multifactor productivity database constructed at the provincial level. It was created using a methodology similar to the one used to construct multifactor productivity estimates at the national level. Information at the national level was released in The Daily on January 11, 2012, and on July 22, 2011.

This release covers the period from 1997 to 2010, the same period for which there are data in the new multifactor productivity database at the provincial level.

The three determinants of growth in labour productivity are the following:

Capital intensity, or changes in the amount of capital per hour worked;

Investment in human capital, or the amount of investment in the workforce leading to more highly educated or more skilled workers; and

Multifactor productivity: All factors other than investment in physical and human capital. These factors in general include technological change, organizational innovation, and economies of scale.

Labour productivity is a measure of real gross domestic product per hour worked. The growth in labour productivity is one of the factors influencing long-term economic growth and living standards.

Between 1997 and 2010, labour productivity in Canada's business sector increased at an annual average rate of 1.3%. The largest growth occurred in Newfoundland and Labrador (+3.9%), while Alberta had the slowest growth (+0.6%).

Factors in labour productivity growth

Investment in physical capital was the most important factor for the growth in labour productivity in the business sector in every province except Newfoundland and Labrador between 1997 and 2010.

This was especially the case in two western provinces, Alberta and Saskatchewan. Capital intensity increased at an annual average rate of 2.7% in Saskatchewan and 2.6% in Alberta during this period.

However, in Alberta, labour productivity increased by 0.6% during this period, less than half the national average of 1.3%, despite the increase in capital intensity. This occurred because multifactor productivity declined at an annual average pace of 2.2% in Alberta. The decrease in multifactor productivity reflects the shift towards extraction of non-conventional resources, such as the oil sands, which have lower levels of productivity than conventional oil production.

In Newfoundland and Labrador, the rapid growth in labour productivity during this period reflected growth in multifactor productivity, which increased at an annual average pace of 2.9%. This occurred because of the shift towards activities in oil production with relatively high productivity.

Investment in human capital, which leads to a more skilled and educated workforce, made a significant contribution to the growth in labour productivity in every province except British Columbia.

In British Columbia, the shift in labour composition toward more skilled workers had half the contribution to growth in labour productivity found in other provinces.

Contribution of services sector an important factor

The services-producing sector accounted for most of the growth in labour productivity in every province between 1997 and 2010 except Newfoundland and Labrador and Quebec.

In these two provinces, the goods sector was the more important source of labour productivity, reflecting the mining and oil and gas extraction sector in Newfoundland and Labrador and manufacturing in Quebec.

Between 1997 and 2010, the contribution of the services sector to aggregate labour productivity growth ranged from a high of 1.4% per year on average in New Brunswick to a low of 0.6% a year in Quebec.

The contribution of the goods sector to aggregate labour productivity growth varied much more among provinces. It was highest in Newfoundland and Labrador, at 4.5% per year on average, and lowest in Alberta, where it declined by 0.8% a year.

Available without charge in CANSIM: table 383-0026.

Definitions, data sources and methods: survey number 1402.

A description of the method used to derive productivity measures can be found in the "User Guide for Statistics Canada's Annual Multifactor Productivity Program," as part of The Canadian Productivity Review (15-206-X2007014, free) series, available from the Analysts and researchers module of our website.

For more information, or to enquire about the concepts, methods, or data quality of this release, contact Wulong Gu (613-951-0754), Economic Analysis Division.