Canada–United States levels

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The debate about Canada's productivity gap often revolves around its contribution to a gross domestic product (GDP) per capita gap. GDP per capita differences between Canada and the United States can be examined using the following identity:

GDP / POP = (GDP / HRS )*( HRS / EMP)*( EMP / POP ) . (3)

This identity decomposes relative GDP per capita (GDPCAP) into the product of relative labour productivity (GDP / HRS), relative effort (the hours worked per job [or per employee]), and the relative per capita employment rate (the ratio of the number of employees [or jobs] to the total population). The equation can be rewritten in the following manner:

GDPCAP = PROD *EFFORT *EMPRATE . (4)

The amount available for consumption per person in a country (GDPCAP) will be higher when productivity (PROD) is higher, when employees work longer hours (what is referred to here as EFFORT), and when a larger proportion of the population is employed (EMPRATE). The variables EFFORT and EMPRATE can also be grouped together in a variable that captures the number of hours worked per capita.

Over the period from 1994 to 2005, the level of GDP per capita in Canada averaged only 83.2% of GDP per capita in the United States (Figure 4). In other words, the output gap in favour of the United States was 16.8% in terms of GDP per capita. But the gap between Canada and the United States in labour productivity was much less—at only 7.8% of the U.S. productivity level. This means that the average difference in labour productivity over this period accounted for 45% of the total percentage-point difference in the GDP per capita of the two countries. That is, if work intensity was the same in the two countries, more than half of the difference in GDP per capita would disappear. Over this period, hours worked per capita in Canada were only 90.3% of the hours worked per capita in the United States.

Figure 4
Canada–United States relative gross domestic product per capita, labour productivity, and work intensity, for the total economy

When this variable is decomposed into the three components mentioned above, substantial differences between Canada and the United States can be found in each of the two former areas. Over the period from 1994 to 2005, hours worked per job in Canada was only 95.1% of hours worked per job in the United States. Jobs per potential member of the labour force (population older than 15) in Canada averaged 92.4% of the U.S. job rate. The relative Canada–United States labour force ratios—the number of individuals who are older than 15 divided by the total population—averaged 102.8% over the entire period. This reflects the fact that the population is older on average in Canada than in the United States. This ratio has continuously increased over time, moving from 101.9% in 1994 to 104.0% in 2005.