Executive summary
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The Canadian broadcasting and telecommunications industry experienced strong output growth after the mid-1980s. From 1984 to 2008, real gross output of this sector increased at an annual rate of 5.5%. The industry also had among the most rapid labour and multifactor productivity (MFP) growth rates during that period.
This paper examines two aspects of productivity growth in Canada’s broadcasting and telecommunications industry. The first is the extent to which aggregate MFP growth in the sector came from scale economies as opposed to technical progress. The second is the extent to which aggregate labour productivity growth and MFP growth came from within-firm growth, and from the effect of reallocation due to firm entry and exit and within incumbents—the dynamic forces associated with competitive change.
Based on data from Statistics Canada’s T2-LEAP longitudinal database, the analysis uncovers evidence of increasing returns to scale in broadcasting and telecommunications since 1984. Technical progress contributed between 1.3 and 1.4 percentage points to overall growth in aggregate MFP in the 1984-to-1998 and 2000-to-2008 periods, but scale economies were also important, accounting for about 0.5 percentage points, or 30% to 40%, of overall MFP growth in those two periods.
Growth within continuing firms was the most important factor in aggregate labour productivity growth and MFP growth. Firm entry and exit made an important contribution to aggregate labour productivity growth before 2000, but not thereafter. During the 1984-to-1998 period, when entrants had much higher labour productivity levels than did exits, firm entry and exit accounted for 1.2 percentage points, or about a quarter, of aggregate labour productivity growth. During the 2000-to-2008 period, firm entry and exit contributed 0.2 percentage points.
Annual aggregate MFP growth rose from 1.4% in the 1984-to-1998 period to 1.9% in the 2000-to-2008 period. The increase after 2000 was attributable to technical progress within firms, capacity utilization, between-firm reallocation, and net entry, each of which made a small but positive contribution.
Despite the increase in annual aggregate MFP growth after 2000, aggregate labour productivity growth slowed, mainly because of a decrease in the contribution of capital deepening, especially from firm entry and exit.
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