A learned controversy has raised some hope that Canada’s productivity-growth history is not as bad as had been thought, which serves to make the various efforts to improve the country’s productivity seem better than merely futile.
Erwin Diewert, an economist at the University of British Columbia, and Emily Yu, of the Department of Foreign Affairs, argue in a paper in the International Productivity Monitor this week that Canada’s multifactor productivity has been understated, because (they believe) capital inputs have been overstated – productivity being a proportion of a set of inputs to the value of the resulting output. They conclude that Canadian productivity growth from 1961 to 2011 has not been stellar but “reasonably satisfactory” – an average of 1.03 per cent a year, rather than a meagre 0.28 per cent.
Wulong Gu of Statistics Canada is defending the agency’s reporting, saying (among other things) that its numbers are stated according to the methods used by the Bureau of Labor Statistics in the United States. That is a valid point, because Canadians have great interest in comparing this country’s economic performance with that of the U.S.
Multifactor productivity is an elaborate construct, but a very important one, because it is a serious attempt to measure efficiency – especially, to get at technological change – as distinct from the basic inputs of labour and capital.
On the face of it, Canada’s MFP index has actually declined since 1977, from 97.6 to 94.8. There is little doubt (in this notably courteous debate, in which Alice Nakamura, Michael Harper and Lu Zhang also took part) that the years 1981-1989 and 2000-2008 were indeed periods of inefficiency in the Canadian economy. But it is not easy to believe that Canada has regressed technologically. The country needs to work to increase its productivity, but the case is not desperate.
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