Decomposing Canada's Post- 2000 Productivity Performance and Pandemic-Era Productivity Slowdown

Labour productivity growth in Canada has been significantly lower since 2000, and has fallen further since 2019. In this article we examine why this has occurred. We approach the question from three angles: first we look at how Canada's performance compares to other OECD countries, particularly the United States; second, we decompose Canadian productivity growth by sector, and look to see to what extent slower productivity growth is due to lower growth within sectors, or reallocations across sectors; and finally we perform a growth accounting exercise in order to understand the relative contributions of multifactor productivity, capital intensity and labour quality. We find that Canada's productivity growth since 2000 has been similar to peer countries, but that the level of productivity is lower than for almost all other peer countries. Weak productivity growth after 2000 is largely attributable to weak productivity within sectors rather than sectoral reallocation. We also find that the slowdown in productivity growth post-2000 relative to 1981-2000 is largely a result of declines in multifactor productivity. However, during the latter part of the post-2000 period there was a pronounced slowdown in capital growth, particularly in ICT, that put downward pressure on productivity growth. More recently, productivity growth over the 2019-2022 period has been very weak. As a result, returning even to the pre-pandemic levels of productivity growth in the near term will be challenging.