Why Are Americans More Productive Than Canadians?

The objective of this paper is to document the evolution of the Canada-U.S. labour productivity gap and to offer an explanation of why Americans have been and continue to be, on average, more productive than Canadians. This focus on relative productivity levels is in contrast to the typical focus on the gap between productivity growth rates in Canada and the United States. The paper finds that Canada’s level of output per person employed was 81.0 per cent of the U.S. level in 2002. This was the lowest relative level since the late 1960s. The general conclusions on the size of the output per hour gap are that output per hour has always been below that in the United States, the productivity gap has increased in the 1990s, particularly since 1994, and the current gap is between 11 and 19 percentage points depending on the source of hours data used. Five main reasons are advanced for this, namely: the lower capital intensity of economic activity in Canada; an innovation gap in Canada relative to the United States; Canada’s relatively underdeveloped high-tech sector; less developed human capital in Canada in terms of proportionately fewer university graduates and scientists and engineers in research and development; and more limited economies of scale and scope in Canada.