Recent Productivity Development in the United States and Canada: Implications for the Canada-U.S. Productivity and Income Gap

The economic slowdown of 2001 reduced productivity growth in both the United States and Canada. This development has raised the question of the sustainability or permanency of the pace of productivity growth experienced during the 1995-2000 period in the United States and the likelihood of robust U.S. productivity growth spreading to Canada. In this article, Andrew Sharpe from the Centre for the Study of Living Standards compares productivity trends in the United States and Canada in 2001 to those during earlier postwar downturns and recessions. He finds that aggregate labour productivity growth held up better in 2001 in both countries than it did on average in the past, a development which may suggest an upward shift in trend productivity growth. Productivity growth in 2001 in the United States was faster than in Canada, as it was during the second half of the 1990s. This resulted in a further widening of the Canada-U.S. productivity gap and, since productivity is the key driver of income trends, in the income gap as well. If U.S. productivity growth continues at the pace experienced during the second half of the 1990s, as appears likely, Canada will need a major acceleration in productivity growth to prevent further deterioration in our relative productivity and income positions.