During a recession, and even into the early stages of a recovery, not many people pay attention to productivity.

However, a recent paper by Canada’s productivity guru, John Baldwin, and his associate Wulong Gu of Statistics Canada, does just that.

According to their analysis, productivity growth in Canada, having increased by an average of 3% per year over the past 20 years — approximately in line with the U.S. — has slowed significantly since 2000 to a more modest 2.2% per year.

Baldwin and Gu examined the three key components of labour productivity: capital intensity (adequate investment in new machinery and equipment); labour composition (the relative level of job skills and training); and multifactor productivity (technology, innovation, firm organization, scale and capacity utilization effects).

They found that the capital intensity of Canadian firms during the past eight years was on a par with the U.S., as was the composition of labour (i.e. the relative level of job skills and education).

Based on their analysis, however, multifactor productivity growth in Canada during this same period was much slower than in the U.S., and consequently was the major contributor to a divergent pattern of overall productivity growth between the two countries (See previous Economic Snapshot).

The study found that during the past eight years, three sectors: manufacturing; information and culture and finance; and insurance and real estate were largely responsible for the slower growth of multifactor productivity in Canada versus the U.S.

It is worth noting that despite this slower growth in Canada since 2000, real income per capital in this country over the past eight years has increased by 15.6% compared to 8.6% in the U.S.

This is due in part to strong, resource-driven inflows of foreign investment and the appreciation of the Canadian dollar versus the U.S. currency.