Sunday, 2 August 2009

Canada vs USA - the reasons?

According to recent information, Canada’s lower productivity accounts for the largest component of the income gap between the United States and Canada.

Canada has invested less in machinery and equipment per worker since the 1980s, resulting in less capital intensity (less capital per worker). Canada’s research and development (R&D) as a proportion of GDP is lower than that of the United States and other OECD countries. Usage of information and communications technology (ICT) is also less extensive than the United States.

While Canada ranks favourably against the United States in primary and secondary educational attainment, Canadians fall behind their American counterparts in the attainment of university or advanced degrees and in opportunities for on-the-job training or continuous education.

Finally, industrial organization also plays a part. According to the Conference Board of Canada, Canadian manufacturers are more heavily concentrated in lower productivity growth industries. Smaller enterprises (SME) are generally less productive than larger ones, and SMEs are a greater share of Canadian manufacturing and employment.

So, when you see national productivity figures, you have to do quite a bit of 'unpicking' to understand them.

1 comment:

wolfgang said...

16 April 2009, in his NYT blog, Paul Krugman pointed out that the common wisdom of productivity gaps between US and other economies (in this case: Europe, but you can extend the argument to the US-Canada comparison as well) might partly be 'explained' by poor measurement of financial business' output which is - because of its relative weight - much more important for the US than most other economies' productivity. Whatever one thinks about this position, it reminds us that measurement issues should stay (or perhaps better: be put again) on the productivity research agenda.

And here is the Krugman statement:
"Reconsidering a miracle [title].
In preparation for some recent teaching, I went back to something that was a hot topic not long ago, and will be again if and when the crisis ends: the apparent lag of European productivity since 1995. One recent, seemingly authoritative study is van Ark et al [The Productivity Gap between Europe and the United States: Trends and Causes, 2008]; and I noticed something that gave me pause.
In their paper, van Ark etc. identify the service sector as the main source of America’s pullaway - which is the standard argument. Within services, roughly half they attribute to distribution - roughly speaking, the Wal-Mart effect. OK.
But the other half is a surge in US productivity in financial and business services, not matched in Europe. And all I can say is, whoa!
First of all, how do we even measure output of financial services? If I read this BEA paper [Brent R. Moulton: Measurement of Banking Services in the U.S. National Income and Product Accounts: Recent Changes and Outstanding Issues, May 2000]correctly, we more or less use “checks cashed” - or, more broadly, the number of transactions undertaken. This may be the best we can do, but it’s a pretty weak measure of actual work done by the financial system. And given recent events, are we even sure that the expansion of the financial system was doing anything productive at all?
In short, how much of the apparent US productivity miracle, a miracle not shared by Europe, was a statistical illusion created by our bloated finance industry? Dean Baker has argued for some time that, properly measured, the productivity gap between America and Europe never happened. I’m becoming more sympathetic to his point of view."

Wolfgang Schröter
RKW German Productivity and Innovation Centre,
President EANPC