The growth in the Canadian Gross Domestic Product (GDP) per capita has been virtually unchanged compared to the United States since 2000. However, decomposing Canada’s GDP into its labour productivity and labour utilization components tells another story. Canada’s GDP, while comparable to the United States between 2000-2008, was achieved through an increase in Canada’s labour utilization (hours worked per capita) rather than an increase in its labour productivity. In fact, during this period, labour productivity decreased. Essentially, Canadians had to work more to achieve the same standard of living as our American counter-parts. Since increases in labour productivity is the most effective way to improve a countries standard of living, understanding why it dropped in Canada so significantly is important.

Labour productivity is determined by a number of factors, they are capital intensity per worker, a higher proportion of skilled workers or changes in Multifactor Productivity (MFP) sources such as, technology, innovation, reorganization, scale, and capacity utilization.

During this period, the chief contributor to the decrease in Canada’s labour productivity growth is slower Multifactor Productivity (MFP) growth. Since 2000, Canada has fallen considerably behind in MFP growth. It is interesting to note that during this period, the other determinants of labour productivity, such as changes in capital intensity and labour composition were similar. As such, the slowdown in labour productivity is overwhelmingly attributable to those factors that make up multifactor growth, that being; technology, innovation, reorganization, scale, and capacity utilization.

The post-2000 decline in manufacturing output growth is a main factor behind the decline in labour and multifactor productivity growth. For the post-2000 period, many exports experienced a decline in export intensity; partly as a result of the strong growth in the Canadian dollar and deterioration in productivity performance. An interesting finding during this period was the decline in export intensity and subsequent exists from export markets were associated with lower levels of plant productivity performance.