Image Source: Pixabay
 

The Nobel Prize winner, Robert Solow famously quipped in 1987 that “you can see the computer age everywhere but in the productivity statistics”. Solow’s contribution to economic thought rests with his work on growth models, especially the role of technology in modern economies. Productivity growth is the economy’s backbone. Its influence is evident in the bond and stock markets, in determining interest rates and inflation. Economists use it as a major component in measuring economic potential growth----- productivity growth added to labour market growth.

We are familiar with the concept of labour productivity---- how many widgets a worker can turn out in an hour. But that measure falls short of capturing productivity. Economists have coined the term “total factor productivity”, a measure of output per unit of labor combined with capital inputs, such as equipment, machinery, and software. Total factor productivity is what lies behind how technological change increases national output. Labour productivity is greatly enhanced by better equipment, software and improved skills from education and work experience.

Figure 1 Canadian productivity relative to US

The accompanying chart measures Canada’ total productivity growth relative to a similar measure in the US. There was a period in the 1960s when Canadian productivity was growing faster than that experienced in the US. However, there has been a steady decline, starting in the early 1970s and continues to this day.

Ben Tal of CIBC argues that the US is experiencing a similar slowdown in productivity. He argues that employment quality in the US has been trending downward in recent quarters. That is, job growth is dominated by low-paid industries. He maintains that this downward trend in productivity is a function of declining employment quality, a trend he expects to continue in the US.  It is reasonable to assume that Canadian productivity performance is a victim of changes in employment in favour of lower wage jobs, especially in the service sector.

Back to Solow’s quip. If the technological developments are not showing up in the output data, there could be a statistical measurement problem. Or, more likely the nature of so many jobs is not able to take advantage of these advances. One could only speculate, wildly, about what the A I revolution will have on measuring productivity. Meanwhile, as the Canadian economy continues to remain sluggish, we should not get our hopes up for a reversal in the productivity numbers this year.  

More By This Author: