What is this metric and why is it important?
Productivity measures the efficiency with which inputs (e.g., labour, capital, resources) are used to generate valuable outputs and so offers an indirect indicator of innovation performance. Here we report how much value the economy generates—i.e., GDP—divided by hours worked. Economies with higher productivity are often (though not always) those that adopt new and better ways to use inputs to generate valuable outputs, or find that their outputs are obtaining higher prices in global markets.
How is Canada doing?
- Canada has an average productivity rate of $52.15 an hour, slightly below the OECD average of $54.44.
- Canada’s productivity growth rate has been 1.27% annually between 1970 and 2018, compared to an OECD average of 2.37%.
- Between 2008 and 2018, the United States outperformed Canada by a substantial 0.58 percentage points on productivity growth. While seemingly small, that difference in growth has allowed the United States to widen its productivity advantage over Canada from $5.06 in 1970 to $18.62 by 2018.
There are three primary methods for measuring GDP: the production approach, the expenditure approach, and the income approach. All three focus on measuring value added in a country. For example, if we wanted to determine the contribution of newly built houses to GDP, but found that the wood to build the houses was imported, we would exclude the value of the exported wood to find just the value added in and by the country that built the houses. We use the most common method, the expenditure approach, which combines consumption, investment, government spending, and net exports.
We account for cost of living by adjusting according to a country’s purchasing power parity. We adjust for inflation by picking a base year of 2015 and reporting our numbers in US dollars of that year.
Productivity measures the efficiency in converting inputs (e.g., people, technology, processes) into useful outputs, and so offers an indirect indicator of innovation performance. While innovation is not the only driver of labour productivity growth, the link between productivity and innovation is central.
This is a very simple measure of productivity that focuses on only one very broad notion of output and one very narrow notion of inputs. For example, it assumes every hour worked to be equal “effort” and does not consider other types of input, such as capital.