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April  2003, Vol. 126, No.4

Differences in productivity growth: Canadian-U.S. business sectors, 1987�00

Umar Faruqui, Wulong Gu, Mustapha Kaci, Mireille Laroche and Jean-Pierre Maynard

The productivity performance of the Canadian business sector relative to its U.S. counterpart has been the subject of numerous recent studies.¹ However, previous work has focussed mainly on the manufacturing sector to explain the Canada朥.S. gap, without really exploring the role played by other industry groups. Furthermore, previous studies have tended to concentrate on Canada朥.S. industry-level productivity performance in the early 1990s.²

In this study, we use an industry-level decomposition to better assess the role played by various industries in the Canada朥.S. gap in productivity growth in the business sector.³ Our methodology takes into account the fact that both industry-level productivity performance and the industrial composition of the economy affect aggregate productivity growth.⁴ Ideally, our analysis should cover the period from 1985 onwards.⁵ Because of data constraints, however, the study looks at Canadian and U.S. productivity growth from 1987 to 2000 only.⁶ Furthermore, our analysis pays special attention to the subperiod 1996 to 2000 for two reasons. First, by the late 1990s, productivity growth had picked up in both the Canadian and the U.S. business sectors, but it remained lower in Canada. Emphasis on this period brings to light the industries most responsible for the remaining difference. Second, our study examines industry-level productivity growth for Canada and the United States for the post-1996 period using comparable data. Therefore, we seek to highlight these new data in the study.

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Footnotes
1 See for example, S. Rao and S. Nadeau, "The role of Industrial Structure in Canada抯 Productivity Performance" in Productivity Issues in Canada, May 2002, pp.137�4, and L. Eldridge, and M. Sherwood, "A perspective on the U.S.-Canada Manufacturing Productivity Gap," Monthly Labor Review, February 2001, pp. 31�, among others.

2 The reason is that data for these most recent years are always preliminary and subject to revisions. For the last 2 years, the United States has revised its GDP downward by more than 1 percentage point.

3 Our study does not look at the productivity level gap between the two countries. Instead our focus is solely on the Canada-U.S. productivity growth gap.

4 This implies that a low productivity growth within an industry can contribute significantly to aggregate productivity growth if the industry is relatively large. Similarly, a high productivity growth for a given industry combined with a small relative importance of that industry within the business sector might lead to a small contribution.

5 The major break in Canada-U.S. productivity performance over the last 30 years seems to have occurred around 1985. (Please see chart 1.)

6 Canadian input-output tables (on which our output data are based) switched their commodity classification in 1987. We are working on getting Canadian data back to 1981 on a comparable post-1987 basis, and will be updating our results when they are available.

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