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Labour productivity, hourly compensation and unit labour costSecond quarter 2003
In spite of many obstacles to economic growth, labour productivity increased slightly by 0.1% in the second quarter relatively to the first quarter of 2003. This marginal improvement continued the lethargic pace of labour productivity growth that was experienced in the past four quarters.
During the three preceding quarters, the growth in hours worked has been greater than or equal to output growth, resulting in declining or stagnating productivity growth. In the second quarter of 2003, labour productivity increased slightly as a result of a decline in output combined with a slightly more pronounced decline in hours worked. Businesses have reacted in the most recent quarter to the decline in the demand for goods and services by decreasing employment. Both output and hours worked in the second quarter of 2003 declined for the first time since the third quarter of 2001, when the September 11 terrorist attack took place in the United States. The magnitude of the decline in output and hours worked was similar in the two time periods. On a quarter-to-quarter basis, output in the business sector declined by 0.5% in the second quarter. This output decline was accompanied by a sluggish labour market. The number of jobs declined by 0.3%, decreasing for the first time since the third quarter of 2001. Moreover, on average, there have been fewer hours per person worked (-0.4%) during the second quarter. This has also contributed to the drop in the volume of total hours worked. Hours worked declined by 0.6% in the second quarter after increasing 0.6% in the first quarter. Unit labour cost risesOn a quarter-to-quarter basis, the unit labour cost (an indicator that measures changes in hourly compensation relative to labour productivity) increased at the rate of 0.6% in the second quarter. This quarterly increase is higher than the increase of 0.1% in the first quarter and comparable to the pace of growth observed in the three previous quarters. The growth rate in hourly compensation was 0.8% in the second quarter of 2003, which represents an increase over the 2.0% reported in the first quarter. On an annual basis, the hourly compensation paid to business-sector employees increased in the second quarter at a faster pace than the first quarter; growing from 1.5% to 1.9%. This increase was exacerbated by a decline of 0.6% in labour productivity. As a result, the unit labour cost showed an annual rate of 2.5% in the second quarter. This was higher than the rate of 1.7% posted in the first quarter. First quarterly decline to the output in Canada contributed to increase the productivity gap in favour of the United StatesEconomic output in the business sector declined by 0.5% during the second quarter of 2003 as the impact of SARS, mad cow disease and the stronger Canadian dollar rippled through the economy. At the same time, the number of hours worked in the business sector fell by 0.6%. Both declines halted a string of six straight quarterly gains in output and employment. Economic output in the business sector south of the border increased 1.0% during the second quarter, in the wake of higher consumer spending and the return of growth in business investment.
However, the number of hours worked in the U.S. business sector declined 0.7%, which was virtually the same drop as in Canada. Except for a slight increase of 0.1% during the last three months of 2002, the number of hours worked in the United States has been declining steadily since the second quarter of 2001. As a result of greater output growth, productivity growth in the United States between April and June surpassed that of Canada’s business sector for the fourth straight quarter. In fact, growth in labour productivity south of the border has outpaced gains in Canada since the second quarter of 2002. American businesses increased their productivity by 1.8% compared with the first quarter, substantially faster than Canada’s gain of 0.1%. On an annual rate, the productivity in Canada fell for a second consecutive quarter.On a year-over-year basis, real GDP increased less rapidly in Canada than in the United States during the second quarter for the first time since the fourth quarter of 1998. Since the fourth quarter of 2002, output growth in Canada has experienced a gradual deceleration from one year to the next, whereas output has followed a seesaw pattern in the United States.
Canadian businesses increased their output by an annual rate of 1.0% in the second quarter, continuing a deceleration in growth rates that commenced in the fourth quarter of 2002. In comparison, GDP growth in American businesses rebounded by 3.2% in the second quarter. This was higher than the 2.2% in the first quarter but comparable to the rate in the fourth quarter of 2002 (+3.4%). While hours worked continued to increase in Canada on an annual rate in the second quarter, the American businesses continued to adjust their work force downward. From one year to the next, Canadian hours worked in the second quarter increased for a fifth consecutive quarter. The annual increase was 1.5%, lower than the 2.7% observed in the first quarter. By contrast, the hours worked in American businesses decreased at an annual rate of 1.1% in the second quarter. This constitutes the eleventh consecutive quarterly reduction for the United States.
The lower annual growth in Canadian production, combined with the higher growth of Canadian employment increased the productivity gap between the two countries. In the second quarter, the United States reported strong productivity growth on an annual basis while productivity in Canada fell.
On an annual basis, Canadian businesses experienced a decrease in their productivity of 0.6% in the second quarter. This is a more pronounced decline than the 0.2% observed in the first quarter. On the American side, productivity increased strongly in the second quarter by 4.3%, the largest increase in three quarters. From one year to the next, Canada has fallen behind the United States in terms of productivity growth since the third quarter of 2001. Larger advantage for American businesses in labour costs, because of the strong appreciation of the exchange rateOn a year-over-year basis, hourly compensation in the business sector during the second quarter continued to grow less in Canada than in the United States. Compared to the first quarter, hourly compensation growth accelerated in Canada while it remained similar in the United States. After decelerating gradually since the third quarter of 2001, unit labour costs increased at a faster pace during the last two quarters. On an annual basis, the unit labour costs of Canadian businesses continued to grow in the second quarter of 2003. In contrast, unit labour costs in American businesses started declining again in the second quarter, after increasing slightly in the first quarter. Apart from this first-quarter increase, unit labour costs have declined in the United States since the fourth quarter of 2001.
American businesses enjoyed an even larger advantage when the unit labour cost estimate is adjusted for the change in the exchange rate. As a consequence of the abrupt increase (+10.0%) in the value of the Canadian dollar during the second quarter compared with the same quarter of 2002, the gap in unit labour costs between the two countries, which favours the United States, widened. Measured in American dollars, unit labour costs in Canada rose a dramatic 14.0% from the second quarter of 2002, compared with a decline of 1.1% in the United States on an annual basis. Recent revisions of hours worked in the United States resulted in widening of the gap in productivity growth in the U.S.’s favour for 2001 and 2002Data in this release incorporate revisions of number of hours worked in the United States back to 1947. Additional U.S. revisions of gross domestic product, which are usually published in September, have been postponed until next December. Revisions of gross domestic product in Canada for the last four years were released in the June 12, 2003 issue of The Daily. Comparison of annual labour productivity growth in the business sector before and after revision
Over the 1987 to 2002 period, the revisions in the U.S. data on hours worked (no corresponding revisions were made in Canada) have had the effect of increasing U.S. labour productivity growth, especially from 2001 onward. It is important to note that over the last four years, the United States has revised their preliminary labour productivity estimates downward substantially following output revisions, while Canada has revised its estimates upward (http://www.statcan.gc.ca/concepts/15-204/productiv-eng.pdf). In 2001, U.S. productivity growth increased from 1.1% before revision to 2.0% after revision, which is now almost twice the growth of 1.2% observed in Canada for the same year. For 2002 as a whole, productivity growth in the United States has been revised upward from 4.8% to 5.3%. During 2001 and 2002, the growth in real output in Canada was stronger than it was in the United States. At the same time, however, the labour force in Canada’s business sector grew much faster than it did in the U.S. The net effect was a slower increase in business sector labour productivity in Canada. For the period 1996-2001, the average annual growth in U.S. productivity was revised upward, from 2.3 % to 2.5%, providing a rate now slightly higher than that of Canada. Finally, over the entire period from 1987 to 2001, the gap in the average annual productivity growth rate, which was already in favour of the United States, has increased from 0.3 to 0.4 percentage points as a result of the recent U.S. revisions. Labour productivity, hourly compensation and unit labour cost - Statistical tables
Business sector: Labour productivity and related variables for Canada and the United States, seasonally adjusted
Business sector: Some related variables for labour markets, seasonally adjusted
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