Eh Sayers Episode 20 - Why Economists Are Sounding the Alarm on Productivity
Release date: August 14, 2024
Catalogue number: 45200003
ISSN: 2816-2250
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Canada's workforce is among the most educated in the world. But when it comes to worker productivity, we've seen a real slump over the past few years. The quarterly data published by StatCan in June 2024 confirms Canadian workers are continuing to underperform compared to our neighbours to the south. This comes as no surprise to this episode's guest, Guy Gellatly, Chief Economic Advisor at StatCan. The latest quarterly numbers are a continuation of an ongoing decline in Canada's productivity that economists have been tracking for years.
But what factors influence worker productivity? And why does it matter if Canadians are less productive? As a matter of fact, what even is productivity? In this episode, we asked Guy to help us understand how we got to this point and why it matters for Canadians.
Host
Max Zimmerman
Guest
Guy Gellatly
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Eh Sayers Episode 20 - Why Economists Are Sounding the Alarm on Productivity - Transcript
Transcript
Max: Welcome to A Sayers, a podcast from Statistics Canada, where we meet the people behind the data and explore the stories behind the numbers. I'm your host, Max Zimmerman, filling in for Tegan Bridge.
If you've been following economic news this year, chances are you've heard Canada has a productivity problem.
Many outlets are even labelling it a full blown emergency. In early June, StatCan released the first quarterly numbers for labour productivity in 2024. They're down 0. 3%, which is part of a weaker trend we've been witnessing the past few years. That doesn't sound good, but why is this happening, and how will it actually affect our lives?
We know how inflation impacts us day to day. Higher inflation means higher prices for us consumers at the pump, the grocery store, and so on. Easy enough, but what about productivity? I get that if the average Canadian worker is less productive, it's bad for the economy, but what does bad for the economy mean for the average Canadian?
I sat down with Guy Galatly, chief economic advisor at StatCan to dig deeper.
Welcome back to the program. Thank you for joining us.
Guy: Well, thank you, Max. It's a pleasure to be here.
Max: So, first off, can we ask you, what is productivity?
Guy: Well, Max, you can think of this basically as fundamentally, it's a measure of efficiency.
It's the efficiency with which capital and labor are combined to produce goods and services. So, often when you read about productivity statistics, Um, it's, it's labor productivity that they're discussing. So it's gross domestic product per hour worked. So you can think of this as the volume of a, of output or the volume of economic activity per hour.
And it's changes in those volumes per hour that generate a lot of the headline numbers that we read about, uh, in the business pages.
Max: So what does the latest data suggest about Canada's productivity?
Guy: Well, early June, we had the first quarter productivity numbers for 2024 come out and they were part of a continuation of a weaker trend in labor productivity that we've seen really, as we've emerged from the pandemic.
So some context matters here, Max, right at the onset of the pandemic, when those lockdown measures were in effect. Um, there was a sharp rise in, in labor productivity. And then as, as activity gradually returned and things reopened, you saw a downward shift in those productivity numbers. And that's pretty much continued, uh, for the last, uh, uh, three, three and a half years.
So we've seen declines in 12 of the last 15 quarters. And right now in early 2024, productivity is slightly under where it was right before the start of the pandemic.
Max: And is that something that's unique to Canada or were other countries also affected similarly by the pandemic?
Guy: Yeah, it was a fairly sharp, uh, um, change through the pandemic in Canada, the U.S. for example, and most of our productivity statistics are compared to the U. S. Uh, it wasn't quite as severe in terms of those disruptions through the pandemic. There's been many, uh, many a researcher who is focused on Canada U. S. productivity differences, uh, that have emerged over the last, uh, two decades.
There's been a sort of a sharp divergence in our trends, where the U. S. has had much higher labor productivity growth than we've had. And, uh, and that's, there's been much, much, uh, ink spilled on, you know, why, why that's occurring.
Max: Why? Why is it that, uh, I don't know. Canada, the U. S. has, uh, or stayed stable or increase in Canada has taken this sort of
Guy: Well, it's a good question.
I don't think there's one simple silver bullet. We do know that a lot of the slower productivity growth that we've seen really over the better part of the last decade has been due to lower business investment. So, uh, that actually is a kind of a key driver over time of productivity. Uh, you know, the amount of business investment, the amount of capital goods that get into the hands of, of workers.
That's been a big part of it. There's also been a lot of discussion over high tech and, uh, how differences in the high tech sectors, uh, in the two countries has been contributing to productivity. How differences in competition, for example, um, between the two countries and the intensity of competition contributes to productivity.
So the thing is, when you open this up, there is about. Six or seven ways you can go in terms of trying to understand, you know, that relative effect. But certainly when you look at Canada, uh, much of the discussion around productivity and competitiveness hinges on business investment. And, and we have seen some, uh, uh, some kind of weaker trends there.
Um, really starting mid last decade, uh, after oil prices dropped and a lot of that investment, uh, started to pull back.
Max: So I guess what I'm wondering next is, why should the average person care about this? Is this something that sort of ebbs and flows, or is this indicative of something that we should be worried about?
Guy: Oh, it, it absolutely is and you know, it's one of these difficult areas to talk about, but the way I like to come at it is, uh, we're basically talking about prosperity. So if you're a worker and you're concerned with the growth in your real wage or, or the growth in living standards over time. Almost all of the growth in GDP per capita, about 90 percent of it, uh, over the last four decades is coming from labor productivity.
So it might not be one of those things you want to spend all your day thinking about, but, uh, it certainly does matter in terms of income growth and wage growth, which is, uh, uh, kind of why, uh, so many who talk about competitiveness get so, so concerned around the, uh, kind of recent trends in, in the, uh, in the labor productivity numbers.
Max: What about all this stuff like new technology that we hear so much about today? AI, virtual reality, advancements in robotics, uh, how is this potentially affecting our productivity performance?
Guy: You know, it's one of those things, Max, I don't think you could point to it right now and say, aha, there's the impact of, uh, of all the new technologies.
Uh, it's pretty early days there. The adoption rates for a lots of the kind of the AI related stuff, uh, are still pretty low in Canada. Generally speaking, uh, most. are pretty convinced going in that they're potentially real game changers in terms of productivity. Much in the same way that ICT, information and communications technology, was back in the 90s when we started looking at these issues.
That had a huge impact on growth and on productivity statistics at that point, as businesses adopted new technology. We might be sort of at the start of another wave of that. with, uh, with AI and, and related technologies. And the thing that makes that particularly exciting for those who study productivity numbers is that, um, the reach of AI might be, might be much larger than what we saw in terms of the numbers of, uh, of, of jobs and occupations that are affected as well as the industrial sectors that are affected. So it might be a pretty far reaching impact on on on productivity and and by extension on income and a lot of other things. But I think unpacking that is something we'll have to wait for the numbers. We won't really know what that looks like until some of the data start coming in.
Max: What's the biggest takeaway from this? If you had to sum it up for someone, what would you want them to come away thinking about?
Guy: Well, I'd want to point to the fact that productivity statistics matter. They matter for income growth. They matter for the competitiveness of the economy and for understanding changes in living standards over time.
So there's lots of good reasons to be excited and engaged about productivity. Productivity data, um, and, uh, lots of good research that's, uh, helping us understand kind of, uh, uh, kind of where we currently are and, uh, and potentially where we need to go in terms of, uh, kind of writing that ship on, on productivity growth.
Max: Wonderful. Well, thank you for taking the time to be with us, Guy.
Guy: Thank you for the opportunity, Max.
Max: You've been listening to Eh Sayers. You can subscribe to this show wherever you get your podcasts. There, you can also find the French version of our show called Écoutez Bien. If you'd like to learn more about labor productivity, you can visit the StatCan website where you'll find the latest quarterly data as well as information on technology, AI, and more.
If you liked this show, please rate, review, and subscribe. And thanks for listening.
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