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Copyright ® 2004 Global Insight, Inc.
Canada’s Key EconomicPolicy Challenges
Dale Orr
Canadian Macroeconomic Services
Global Insight
2Copyright ® 2004 Global Insight, Inc.
Outline
1. Our Standard of Living: How Are We Doing?
2. What Determines Our Standard of Living?
3. Policy Options for Improving Our Standard of Living
4. Canada’s Productivity Performance
(cont’d)
3Copyright ® 2004 Global Insight, Inc.
Outline (cont’d)
5. Canada’s Labor Market Performance
6. Potential GDP Gain By Moving Productivity in Lagging Provinces Up
7. Potential GDP Gain By Moving Labor Market Performance in Lagging Provinces Up
8. Conclusions
4Copyright ® 2004 Global Insight, Inc.
Canada: Standard of Living
25
30
35
40
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Actual At 2% grow th
Canada's Real GDP Per Capita(Thousands of C$)
5Copyright ® 2004 Global Insight, Inc.
Canada vs. G7: Standard of Living
0.0%
0.5%
1.0%
1.5%2.0%
2.5%
3.0%C
anad
a
U.K
.
U.S
.
Fra
nce
Italy
Ger
man
y
Japa
n
Standard of Living G7: Average 1997-2004(Percent)
6Copyright ® 2004 Global Insight, Inc.
Canada: Unemployment Rate
6.5
7.5
8.5
9.5
10.5
11.5
12.5
1990
1992
1994
1996
1998
2000
2002
2004
2006
Unemployment Rate (Percent)
7Copyright ® 2004 Global Insight, Inc.
Canada and U.S. Standards of Living
80
82
84
86
88
1990
1992
1994
1996
1998
2000
2002
2004
2006
Canada / U.S. Standard of Living(Ratio)
8Copyright ® 2004 Global Insight, Inc.
Canada Labor Productivity
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2000 2001 2002 2003 2004
Canada Labor Productivity(Percentual change, GDP/Hours Worked)
9Copyright ® 2004 Global Insight, Inc.
Determinants of the Standard of Living
Pop
LF
LF
Emp
Emp
HrsWk
HrsWk
GDP
Pop
GDP
Standard of Living
Labor Productivity
Labor Market Performance=
10
Copyright ® 2004 Global Insight, Inc.
Policy Options for Productivity
Policies to Improve Productivity:
To Improve Business Investment
To Improve Incentives to Work and Invest
To Improve the Quality of the Labor Force
11
Copyright ® 2004 Global Insight, Inc.
Policy Options for Labor Markets
Policies to Improve Labor Market Performance:
To Improve Incentives to Work
To Improve the Quality of the Labor Force
To Reduce Unemployment
To Increase Labor Force Participation
12
Copyright ® 2004 Global Insight, Inc.
Framework for Policy Response
Move Productivity of Lagging Provinces up to Canadian Average
Move Labor Market Performance (labor force participation, unemployment rate, work intensity) of Lagging Provinces up to Canadian Average
13
Copyright ® 2004 Global Insight, Inc.
Productivity by Province
18
27
36
45
BC AB SK MB ON QC NB NS PE NL CND
Labor Productivity, 2004(GDP/Hours Worked)
14
Copyright ® 2004 Global Insight, Inc.
Labor Force Participation by Province
0.44
0.46
0.48
0.50
0.52
0.54
0.56
0.58
BC AB SK MB ON QC NB NS PE NL CND
Labor Force Participation, 2004(Ratio, LF/Pop)
15
Copyright ® 2004 Global Insight, Inc.
Unemployment by Province
0
4
8
12
16
BC AB SK MB ON QC NB NS PE NL CND
Unemployment Rate, 2004(Percent)
16
Copyright ® 2004 Global Insight, Inc.
Work Intensity by Province
1,500
1,600
1,700
1,800
1,900
2,000
BC AB SK MB ON QC NB NS PE NL CND
Work Intensity, 2004(Hours Worked / Employee)
17
Copyright ® 2004 Global Insight, Inc.
Potential GDP from Moving Productivity Up to Standard
0
2
4
6
8
10
12
BC SK MB QC NB NS PE
GDP Gains from Raising Productivity(Billions)
18
Copyright ® 2004 Global Insight, Inc.
Potential GDP from Moving Labor Market Performance Up to Standard
0
4
8
12
16
20
BC MB QC NB NS NL
GDP Gains from Raising Labor Market Performance(Billions)
19
Copyright ® 2004 Global Insight, Inc.
Conclusions: Provincial Perspective
Most Important to Provincial GDP/person, (% gain)
Productivity: PEI (50%), NS (22%), NB (19%), MB (16%)
Labor Mkt. Performance: NL (20%), QC (8%), NS (6%), NB and BC (both 5%)
20
Copyright ® 2004 Global Insight, Inc.
Conclusions: Canada Perspective
Most Important to Canada's GDP, (B$ gain)
Productivity: QC (10 B$), NS and MB (both 6 B$) Total Gain to Canadian Economy (31 B$) or 2.7%
Labor Market Performance: QC (19 B$), BC (8 B$) Total Gain to Canadian Economy (33 B$) or 2.9%
21
Copyright ® 2004 Global Insight, Inc.
Policy Recommendations
Continue planned policies to improve productivity (and labor market performance)
Improve labor market performance by:
Reductions in P.I.T.
Move E.I. closer to insurance principles
Increase incentives, programs, subsidies for geographic mobility
Copyright ® 2004 Global Insight, Inc.
Thank You
Dale Orr
Global Insight (Canada) Ltd.
