B.C. has mostly caught up with Canada on productivity levels

A previous blog looked at Canada’s recent economic performance compared to peer countries. Canada ranks toward the back of the pack on a key measure of progress in average living standings, growth in real GDP per person, and on its main long-term driver, growth in labour productivity (i.e. real GDP per hour worked).[1] Labour productivity is a function of capital intensity, skill intensity and how labour and capital are put to their best possible use.

Western Canada outpaces other regions on productivity growth

Notwithstanding Canada’s lacklustre economic performance, the good news is that B.C. has improved productivity at a faster pace than the national average (Figure 1). Since the end of the last business cycle in 2007, B.C. has achieved the second fastest labour productivity growth rate among the provinces. This is likely due to the province operating at or above its full capacity during the much of the period when the economy was booming due to activities tied to mortgage debt and real estate. More generally, the Western Canadian provinces have improved productivity at a faster rate than the national average, while Central and Eastern provinces were all slower.

Figure 1

B.C.'s productivity growth since 2007 is second highest among the provinces

Labour productivity (real GDP per hour worked), compound annual growth rate, 2007-2018

Source: Statistics Canada.

B.C.’s productivity levels are now around the Canadian average

B.C.’s faster productivity growth rate in recent years means that its productivity levels are now on par with Canada (Figure 2). B.C. and Canadian workers produce about $59 worth of output per hour worked, on average. B.C. ranks 4th among the provinces on this measure, behind Saskatchewan, Alberta and Newfoundland and Labrador. B.C. ranks ahead of Ontario, Quebec and the other provinces.

Figure 2

B.C. has caught up with national average productivity levels

Labour productivity (real GDP per hour worked), 2012 chained dollars

Source: Statistics Canada.

B.C. still lags Canada on business sector productivity

Figure 3 shows labour productivity levels across industries as at 2018. While B.C. matches Canada on productivity across the total economy, it has slightly lower levels of productivity in the business sector. The business sector is defined as the total economy less government services and non-profit institutions serving households. B.C. workers generate the most output per hour worked in mining and oil and gas extraction, utilities and real estate, rental and leasing. Industries generating the least output per hour worked are educational services, accommodation and food services, and arts, entertainment and recreation.

Figure 3

B.C.'s productivity now matches the Canadian average, although business sector trails slightly

Labour productivity (real GDP per hour worked), 2018

Source: Statistics Canada.

Conclusion

The good news is that B.C. has improved its labour productivity for the total economy at a significantly faster pace than Canada since 2007. However, Canadian workers on average produce about 23-26% less output per hour than their counterparts in the United States, Germany and France [see here]. So, whilst B.C.’s productivity level is now on par with Canada, it is still well below many other advanced countries. Furthermore, productivity in B.C.’s business sector remains slightly below the Canadian average. The analysis underscores the need for structural policy reforms to invigorate productivity growth in Canada and in B.C.

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[1] Gross domestic product (GDP) is equivalent to “gross value added” – the dollar value of output produced minus the cost of inputs and raw materials – plus taxes on products minus subsidies on products. Labour productivity (real GDP per hour worked) is therefore roughly equivalent to gross value added per hour of labour input.