CIBC: Productivity gap with U.S. narrower than previously thought, but still a problem
CIBC Economics Executive Director Helen Lao and Chief Economist Avery Shenfeld. / CIBC PHOTOS
Canada’s weak productivity growth has contributed to a decline in living standards relative to the United States, but the impact has been smaller than traditional economic measures suggest, according to a new CIBC Capital Markets study.
In an episode of CIBC’s Eyes on the Economy podcast, CIBC Economics Executive Director Helen Lao and Chief Economist Avery Shenfeld discussed research comparing Canada’s economic performance with the U.S. using purchasing power parity (PPP) measures, which account for differences in prices and the value of goods traded between countries.
Shenfeld said productivity measures such as real GDP per capita and GDP per hour worked do not fully capture Canadians’ actual purchasing power because “prices and what you can sell, what you produce to the rest of the world, also matter.”
The study found that Canada’s real GDP per capita growth has lagged the U.S. by about 14% cumulatively since 2000. However, when GDP is converted into U.S. dollars using PPP exchange rates, the decline in relative purchasing power was about half as large, at roughly 7%.
“It’s not as bad as the real GDP growth rates would have suggested, but it’s still certainly a problem that Canada wants to address,” Shenfeld said.
The research also examined incomes and found the gap is smaller for the typical Canadian worker. Shenfeld noted that many U.S. productivity gains have benefited higher-income earners, including executives and professionals, rather than the median worker.
From 2000 to 2014, the average Canadian worker increased its spending power compared to Americans, but that advantage faded after oil prices declined and Canada’s terms of trade weakened.
The study also found that Americans have benefited from stronger wealth gains, particularly through financial assets. While Canadian housing wealth has risen sharply, Shenfeld said it is “not easy to spend” and has created challenges, especially for younger Canadians.
Canada’s productivity weakness “really does still leave that as an issue that public policy needs to address as soon as it can,” he said.
