The Widening Canada-US Manufacturing Productivity Gap

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Abstract

This article documents the dramatic widening of the Canada-U.S. labour productivity gap in manufacturing since 1994, with Canadian output per hour falling from 87.7 per cent of the U.S. level in 1994 to 67.7 per cent in 2001. The authors find that roughly 70 per cent of the widening is attributable to the smaller size and weaker productivity growth of Canada’s high-tech manufacturing sector relative to its U.S. counterpart. Faster growth in capital intensity in the U.S., partly driven by higher labour cost increases, also played a complementary role. The total factor productivity gap in manufacturing widened from 3.7 per cent in 1994 to 17.6 per cent in 2000.

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