Measuring the Canada-U.S. Productivity Gap: Industry Dimensions

A key objective of economic policy in Canada is to reduce the productivity gap with the United States. The development of appropriate policies to attain this goal requires a thorough understanding of the nature of the gap, including its industry dimensions. Unfortunately, statistical agencies do not currently produce estimates of Canada-U.S. productivity gaps by industry. To fill this data lacuna, Someshwar Rao, Jianmin Tang, and Weimin Wang of Industry Canada in the first article present benchmark estimates of the Canada-U.S. labour productivity and total factor productvity gap for 29 industries for 1999 and extend the industry estimates back to 1997 and forward to 2001. They report that in 2001 output per hour in the business sector in Canada was 82 per cent and total factor productivity was 87 per cent of the U.S. level. Lower capital intensity was responsible for about 30 per cent of the business sector labour productivity gap. Three of four major sectors in Canada had a labour productivity level below its U.S. counterpart – manufacturing (80 per cent), the service sector (81 per cent), and primary industries (87 per cent) – while the level of labour producivity in the construction industry was well above that in the United States (129 per cent). Within manufacturing, the largest productivity gaps were found in electronic and electrical products, fabricated metal, and machinery and computers. Within the service sector, finance, insurance and real estate and information and cultural industries had particularly large productivity gaps. In contrast, labour productivity levels in a number of Canadian natural resource industries exceeded U.S. levels.