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Macro views. General discussion of productivity program What is productivity? How is it measured? Why is it important? How is it used in the growth accounting framework? Challenges. What is productivity?. - PowerPoint PPT Presentation
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2
ProductivityMicro-economic Analysis Division
Macro views
• General discussion of productivity program– What is productivity?– How is it measured?– Why is it important?– How is it used in the growth accounting
framework?– Challenges
3
ProductivityMicro-economic Analysis Division
What is productivity?
• Productivity is a concept that measures the efficiency with which resources (labour, capital, other inputs) are employed to produce goods and services (or output)
• The growth in productivity captures the extent to which the growth in output exceeds the growth in resources devoted to production
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ProductivityMicro-economic Analysis Division
How to measure productivity?
• Two ways to measure the efficiency of resources• The first way is to measure the productivity of
one resource at a time, what is termed a partial productivity measure
• For example, labour productivity, capital productivity, energy productivity
• Of which, labour productivity is the most popular, measured approximately by real output growth minus growth of hours worked
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ProductivityMicro-economic Analysis Division
Why is productivity important?
“Over long periods of time, small differences in rates of productivity growth compound, like interest in a bank account, and can make an enormous difference to a society's prosperity. Nothing contributes more to reduction of poverty, to increases in leisure, and to the country's ability to finance education, public health, environment and the arts.”
Alan Blinder and William Baumol. 1993. Economics: Principles and Policy. (p.778). San Diego: Harcourt Brace Jovanovich.
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ProductivityMicro-economic Analysis Division
Why is productivity important?
• GDP growth can be decomposed into that coming from the application of more resources and that coming from increases in productivity
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ProductivityMicro-economic Analysis Division
Over the last 25 years, for every percent of Canada's economic growth, labour productivity has contributed for
nearly half of it...
1.4 1.5 1.50.9
1.51.8
1.4
1.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1981 to 2004 1981 to 1988 1988 to 2000 2000 to 2004
Labour productivity Hours worked
8
ProductivityMicro-economic Analysis Division
Partial productivity measures
• Advantage: Easy to understand.• Disadvantage: Increases in productivity may be
interpreted to be coming from increases in efficiency in the use of the resource but may simply be arising from a substitution between different resources (the use of more capital). And that substitution may not have resulted in an overall saving of resource inputs.
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ProductivityMicro-economic Analysis Division
More comprehensive measures
• Second method to measure the efficiency of resources considers all resources together—multifactor productivity (MFP)
• Real output growth minus a weighted average of the growth of combined inputs (labour and capital)
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ProductivityMicro-economic Analysis Division
What is MFP?
• Multifactor productivity is the difference between the actual increase in output and the increase in output that would have been expected on the basis of existing technology from increases in multiple factors (both labour and capital—and perhaps other factor inputs).
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ProductivityMicro-economic Analysis Division
Measurement ofMultifactor Productivity
• Imposition of structure (production framework)
• Use of analytical technique or specific assumptions about the economy to measure parameters associated with the structure
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ProductivityMicro-economic Analysis Division
More comprehensive measures
• Advantage: A broader and more comprehensive measure of productivity-referred to by The Economist as a “better’ measure
• Disadvantage: more complex to understand, more complex to estimate—requires certain assumptions or more complex statistical estimation procedures to obtain the weights used to aggregate the various inputs
• Analysis used to examine the sensitivity of MFP estimates to alternate approaches
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ProductivityMicro-economic Analysis Division
Questions posed in the growth accounting framework
• What has been the history of productivity growth over the period?
• What types of capital are used in the growth process?• What types of labour are used in the growth process?• What was the relative contribution of capital, labour
and productivity growth to economic growth? • How important are the various factors that determine
the growth in labour productivity? Is capital deepening the prime contributor to labour productivity growth?
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ProductivityMicro-economic Analysis Division
Trend in the aggregate productivity growth
-8.0
-4.0
0.0
4.0
8.0
12.0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
years
percent per year
Output Labour productivity Multifactor productivity
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ProductivityMicro-economic Analysis Division
The growth accounting framework
• Labour productivity growth is decomposed into MFP growth, changes in capital deepening, changes due to upgrading of labour skills (referred to as labour composition)
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ProductivityMicro-economic Analysis Division
Sources of Labour Productivity Growth (Business Sector)
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1961 to 2005 1961 to 1973 1973 to 1979 1979 to 1988 1988 to 2000 2000 to 2005
Labour composition Capital intensity Multifactor productivity
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ProductivityMicro-economic Analysis Division
Challenges
Quality (Criteria)– Accuracy– Coherency– Relevance– Interpretability
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ProductivityMicro-economic Analysis Division
The Productivity Program
• Regular product of the National Accounts• Builds on the integrated National Accounts and
then adds coherent estimates of labour and capital
• Provides quality assurance through consistency checks and development of coherent data series.
• Provides analytical output as quality check and to facilitate interpretability
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ProductivityMicro-economic Analysis Division
Challenges
Concept– Analytical construct– Externality or Residual– Macro level approach
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ProductivityMicro-economic Analysis Division
Challenges
Measurement Issues– Estimates of Growth in Volumes– Business as Opposed to Non-Business– Comprehensiveness of Input List
(Infrastructure, Non-tangible assets)– Provision of confidence intervals to guide
users on quality
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ProductivityMicro-economic Analysis Division
Challenges
Relevance
Focus –primarily on domestic growth
Users requesting international comparisons
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ProductivityMicro-economic Analysis Division
U.S./ Canada Labour Productivity Growth Comparison
• Trend comparisons
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ProductivityMicro-economic Analysis Division
Canada and US growth trend similar for GDP
Real GDP Trend, Business Sector (1961=100)
100
200
300
400
500
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001
CanadaUnited States
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ProductivityMicro-economic Analysis Division
Canada and US growth trend similar for both GDP and hours worked
Hours at Work, Business Sector (1961=100)
100
150
200
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001
CanadaUnited States
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ProductivityMicro-economic Analysis Division
Canada and US growth trend similar for Labour Productivity
Labour Productivity Trend, Business Sector (1961=100)
100.0
125.0
150.0
175.0
200.0
225.0
250.0
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
Canada United States
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ProductivityMicro-economic Analysis Division
U.S./ Canada Labour Productivity Growth Comparison
• Level Comparisons
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ProductivityMicro-economic Analysis Division
U.S./ Canada Level Comparison
• Labour productivity– Harmonization of labour measures
• Multifactor Productivity– Harmonization of capital measures
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ProductivityMicro-economic Analysis Division
Canada/US relative GDP per capita, labour productivity, and work intensity (total economy)
70
75
80
85
90
95
100
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Year
U.S
. =
100
GDP per capita
Labour productivity
Work intensity
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ProductivityMicro-economic Analysis Division
U.S./ Canada Labour Productivity Growth Comparison
• Component Comparisons– Multifactor versus capital intensity versus skill
upgrading
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ProductivityMicro-economic Analysis Division
Post 2001 collapseFigure 1: Relative Canada/U.S. Labour Productivity Level in the
Business Sector, 1961-2005 (1961-100)
80
100
120
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
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ProductivityMicro-economic Analysis Division
Growth rate differences Trend in Canada-U.S. Difference in Growth of MFP, Capital Intensity and
Labour Compositon (% )
-3
-2
-1
0
1
2
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
HP
Filte
r (La
mda
=100
)
MFP Grow th Capital Intensity Grow th Labour Composition Grow th
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ProductivityMicro-economic Analysis Division
U.S./ Canada Labour Productivity Growth Comparison
• Pre and post 2000 experience
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ProductivityMicro-economic Analysis Division
Import and Export Prices
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005Px Pm
Price Indices (2005=100)
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ProductivityMicro-economic Analysis Division
Terms of Trade
0.92
0.97
1.02
1.07
1.12
1.17
1.22
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
0.60
0.65
0.70
0.75
0.80
0.85
0.90
Terms of Trade $US/$CDN
Exchange RateTerms of Trade
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ProductivityMicro-economic Analysis Division
Relative Price Changes
88
90
92
94
96
98
100
102
104
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
75
80
85
90
95
100
105
110
115
120
125
Durables Semi-Durables Non-Durables
Durables/semi-Durables (Index 2002=100)
Non-Durables (Index 2002=100)
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ProductivityMicro-economic Analysis Division
Relative Economic Performance: Canada vs. US
90
95
100
105
110
115
120
125
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Labour Productivity Real GDP Per Capita Real NNI per capita
Index 1998=100
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ProductivityMicro-economic Analysis Division
Provincial Program: Labour Productivity
1997-2006
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Canada B.C. Alta. Sask. Man. Ont. Que. N.B. N.S. P.E.I. N.L.
%
Labour productivity growth National average
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ProductivityMicro-economic Analysis Division
Nominal value of GDP per capita, 2003
30,883 29,90033,856
40,346
32,708
54,075
38,495
28,106
36,749
35,04135,243
0
10,000
20,000
30,000
40,000
50,000
60,000
N.L. P.E.I. N.S. N.B. Que. Ont. Man. Sask. Alta. B.C. Canada
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ProductivityMicro-economic Analysis Division
GDP per capita, labour productivity and labour effort
Q uebec
0
50
100
150
GDP per capita GDP per hoursworked
Hours workedper pop 15+
Can
ad
a=
10
0
1990 1997 2003
40
ProductivityMicro-economic Analysis Division
Micro views• Firm dynamics and productivity• Heterogeneous actors (small, multinationals)• Technology use and productivity• Structural change and productivity• Firm strategies, innovation and productivity • The source of externalities—urban
agglomeration