Canada fails to capitalise

Though Canadian companies have been investing in new machinery and equipment, they have failed to realise all the productivity benefits, a new study from Statistics Canada suggests.

The gap in labour productivity -- or real gross domestic product per hour worked -- between the United States and Canada has been steadily widening since the 1960s, and grown significantly since 1980, said the agency's report on long-term productivity growth in the two countries.

From 1961 to 2006, labour productivity in Canada and the U.S. increased at virtually the same annual average rate -- 2.1% in Canada and 2.3% in the U.S. -- over the 45-year period.

However, significant differences appear when the data is broken down into shorter time periods, and when the factors behind the improvements in productivity are examined.

"The drop off after 1980 is very striking," said Glen Hodgson, chief economist at the Conference Board of Canada.

Between 1961 and 1980, labour productivity in Canada improved 2.9%, while in the U.S. it grew 2.5%. But from 1980 to 2006, Canada improved 1.5%, while the U.S. grew 2.2%, the Statistics Canada data showed.

The reasons behind the growth rates were also different, the agency noted.

"In Canada, investment in capital was the most important factor in the growth of labour productivity," the report said. "In the United States, however, the main factor was improvement in production efficiency."

By contrast, in the U.S., the improvements in productivity are largely due to "multifactor productivity (MFP)," generally associated with technological or organizational change or economies of scale.