As published in the Guardian Newspaper February 4th, 2010 - written by Blake Doyle
Last week Statistics Canada released a report on labour productivity in Canada. This study left me thinking about our provinces productivity over the last decade; and more importantly how our labour productivity may be affected in the coming decade.
The basis of the Statistics Canada analysis was to examine business sector productivity from 1997 to 2008. Nationally, productivity improved at an annual rate of 1.3%.
Prince Edward Island fared well with an average labour productivity of 1.4%, just surpassing the national average. We were behind stronger performing province such as Newfoundland and Labrador (4.5%), Saskatchewan (2.1%), Manitoba (1.9%) and Nova Scotia (1.7). We also outpaced Alberta (0.6%) and BC (0.9%).
The obvious question: what does labour productivity measure? Essentially it is a measure of real gross domestic product per hour worked. Growth occurs when the production of goods and services grows faster than the volume of work dedicated to their production.
When an economy is booming (as Newfoundland and Labrador’s economy is from new oil extraction platforms) the gains are more pronounced. If an economy has access to capital then more efficient means of production can be employed. An economy that is growing is diversifying into new sectors (PEI enjoyed growth in aerospace, bioscience and IT), and slowing economies experience a reduction in productive output (for example Alberta experienced the transfer from traditional oil production to the more costly oil sand extraction).
Another measure of productivity is hours worked. PEI experienced a 1% average annual growth rate over this decade. This was at the lower end of the provincial field behind Alberta at 2.8% but ahead of Saskatchewan at 0.1%. The hours worked in a business are a reflection of the strength of an economy and the availability of employable labour.
So what does all this mean for PEI? We have experienced respectable growth over the decade of 1997 – 2008 both in real output and labour productivity. Was our economy pulled in the wake of our national economy; generally yes, this is what happens. Was our productivity a result of capital investment, training and labour improvements, maybe? Were our productivity statistics a result of doing more with less, as our unemployment rates dropped did business put more pressure on the available workforce?
If we scratch the data a little deeper we can see that labour productivity has been declining. From 1997 – 2003 the average annual percentage of change was 1.6%, 2003 – 2008 it was 1.3%; and if you look at the period of 2007 – 2008 there was no growth at all. This is an alarming trend.
A similar trend emerges when businesses look at hourly compensation on PEI. In 1997-2003 the average percentage change in hourly compensation was 2.9%, this increased in 2003 – 2008 to 3.1 percent and again in 2007-2008 to 3.5%.
Business on PEI appears to be witnessing a decline in productivity and an increase in hourly compensation. This is a caustic mix of inputs and outputs for any business.
An examination of output to hours worked is equally troubling. Real GDP dropped from 3.1% average annual change in 1997-2003, to 1.7% in 2003 – 2008, and again to -0.7% in 2007-2008. The hours worked also declined at a similar rate over the same period.
While there are many factors which contribute to this data, a flag should go off for small businesses. Your productivity is dropping. Input costs of hourly compensation are increasing. And productivity is trending the wrong way.
Going forward we can expect further pressure on a shrinking labour supply and increased pressure on other input costs such as electricity, oil and labour. Accessing capital has always been a challenge for businesses in our province and provincial governments will not have the flexibility to assist as they had in the past. Our relative ranking amongst our provincial peers may slip again in the coming decade and business will have to be creative and responsive to address market needs.
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