Recent Productivity Developments in Canada and the United States: Productivity Growth Deceleration versus Acceleration

Since 2000, productivity growth in Canada and the United States have followed markedly different paths. In the second article, Andrew Sharpe of the Centre for the Study of Living Standards finds that the remarkable productivity growth experienced in the United States in the past two years is most likely evidence of a post- 2000 productivity growth acceleration, similar to the post-1995 acceleration. The source of this second acceleration appears to be the rapid pace of technological change, fostered by pressures on firms to cut costs, organizational changes that allow the productivity-enhancing potential of ICTs to be realized, and the cheapening of the price of capital goods relative to labour. In contrast, productivity growth in Canada decelerated after 2000. The source of the difference with the U.S. performance has been the labour market, with employment declining in the United States but showing strong increases in Canada. Sharpe states that Canada’s poor productivity growth since 2000 has largely been a cyclical phenomenon, and that Canadian productivity growth should rebound as the economy recovers.