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May 13, 2022MULTIFACTOR PRODUCTIVITY GROWTH, 2020 Statistics Canada has released provincial results for multifactor productivity and related variables for the business sector for 2020.
Growth in Real GDP can be decomposed into growth in hours worked and growth in labour productivity. Growth in labour productivity can be further decomposed into growth in capital intensity (ie: the amount of capital used in production), labour composition (ie: skills upgrading) and multifactor productivity. Multifactor productivity is the residual of economic growth that cannot otherwise be accounted for and is meant to reflect intangible contributions to economic growth from unobserved variables such as branding, economies of scale, technology, management practice or entrepreneurship.
Previously-released data showed that Nova Scotia had an extraordinary gain of 11.4% in business sector labour productivity from 2019 to 2020. This reflected the extraordinary decline in hours worked (-13.6%), which was considerably larger than the 3.7% decline in business sector real GDP. (In most years, the interaction between changes in both labour productivity and hours worked is negligible, but with larger movements in productivity and hours worked, this interaction offset some of the labour productivity gain). National productivity growth was 8.0% in 2020 with extraordinary gains in all provinces. The fastest gains in Newfoundland and Labrador and Prince Edward Island - which also reported the largest percentage declines in business sector hours worked. The slowest productivity gains were in Manitoba and New Brunswick, which also reported the least declines in business sector hours worked.
Multifactor productivity estimates released today further decompose the sources of provincial labour productivity growth in 2020. Much of the gain in productivity is attributable to rising capital intensity of production. In particular, losses in employment during the first waves of COVID-19 were concentrated in service industries which typically have lower capital intensity, leaving remaining employment that reflects a higher average capital intensity across the economy. Labour composition made small, positive contributions to labour productivity growth in each province.
Nova Scotia reported multifactor productivity growth of 5.4% in 2020. Nova Scotia reported the strongest multifactor productivity gain among provinces (followed by Prince Edward Island). Nova Scotia was also the only province in which multifactor productivity contributed more to labour productivity gains than capital intensity. Across Canada, multifactor productivity growth was only 0.5%, with declines in the prairie provinces as well as in New Brunswick.
After strong productivity and real GDP growth from 1998-2003, during which natural gas production facilities were constructed and reached peak production, Nova Scotia's reported very little labour productivity growth from 2003 to 2013. Over this period, output from the province's natural gas fields was declining, which is typical of production patterns after peaking early in their life cycle. From 2013 to 2017, Nova Scotia's labour productivity made significant contributions to overall business sector real GDP growth even when labour's contribution from hours worked was flat or negative during substantial declines in the province's labour force. In 2018, there was an extraordinary increase in contribution to real GDP growth from labour hours worked and an offsetting decline in labour productivity. In 2019, Nova Scotia's business sector real GDP growth reached its fastest pace since 2002 on another strong increase in labour productivity.
In the period from 1998-2003, labour productivity gains were driven mostly by capital intensity as well as multifactor productivity (which includes effects from bringing new natural resources into production). From 2003-2013, multifactor productivity growth was generally negative as natural gas output slowed - though capital intensity continued to grow through much of this period. Starting in 2014, multifactor productivity growth made significant contributions to business sector labour productivity gains and therefore to real GDP growth.
Among industries, Nova Scotia's 2020 productivity gains were spread across most business sector industries - as were declines in hours worked. Construction reported the largest productivity gains as well as the largest rise in real GDP among business sector industries. The most notable exceptions were in accommodation/food and arts/entertainment/recreation. These two industries reported the largest declines in real GDP as a result of both fewer hours worked and lower labour productivity.
Most industries reported strong gains in multifactor productivity - contributing to labour productivity growth. There were multifactor productivity declines in utilities, transportation, admin/support (including call centres), accommodation/food and arts/entertainment/recreation.
Statistics Canada. Table 36-10-0208-01 Multifactor productivity, value-added, capital input and labour input in the aggregate business sector and major sub-sectors, by industry; Table 36-10-0211-01 Multifactor productivity and related variables in the aggregate business sector and major sub-sectors, by industry
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