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PRB 03-15E

Productivity: Its Increasing Influence over Canadians’ Standard of Living and Quality of Life

Daniel J. Shaw
Industry, Infrastructure and Resources Division

Revised 5 November 2009

PDF (551 kB, 21 pages)




This document explores one of Canada’s lesser-understood economic indicators, productivity, and its importance to Canadians. Most people do not know that an improvement of even one percentage point in the annual growth rate of productivity, sustained for an extended period, can significantly improve the daily lives of Canadians. It can mean a more comfortable home, a more luxurious car, improved health services, more leisure or a cleaner environment. The upcoming decades will increasingly highlight this fact. This paper aims to demystify productivity, explain its relationship to both standard of living and quality of life, and demonstrate its effectiveness as a means for addressing two emerging social concerns: the gap between Canadian and American standards of living, and the economic implications of an aging society.

In the first instance, this document finds (as past research has also concluded) that a positive relationship exists between productivity and standard of living. That relationship is evident from both time-series data and cross-country comparisons. The cross-country comparisons also confirm a positive relationship between the narrowly defined economic standard-of-living indicator and the more broadly defined quality-of-life indicator. Together, these positive correlations show that the pursuit of higher productivity does not come at the expense of leisure or environmental quality or both. Instead, these relationships support the proposition that workers’ higher productivity permits their firms to pay them higher wages without the usual disadvantages that accompany higher wage rates, notably a loss in competitiveness. Higher wages, in turn, provide workers and their families with greater purchasing power and, therefore, permit greater consumer choice. At a national level, more productive lives that include a greater number of individual consumption options translate into more desirable combinations of material wealth, good health, varied leisure opportunities and a healthier environment. Higher productivity levels in Canada could also conceivably reduce, and possibly eliminate, the gap between Canadian and American standards of living.

In the second instance, this document investigates the implications of an aging society on living standards by focusing on the lower employment rate that this demographic trend implies. It finds that a lower employment rate will strengthen the link between productivity and standard of living. Indeed, Canada’s aging society will increasingly depend on growth in productivity to maintain and improve its standard of living and quality of life. At the same time, an aging society poses a number of new challenges to Canadians, in particular rapidly rising health care costs. The promotion of public policies that would stimulate productivity growth rates appears to be the best economic strategy for meeting these challenges.

Productivity and Public Perceptions

News of the rising or falling growth rate of Canadian productivity, as well as updates on productivity issues of particular concern to Canada, have often been met with public indifference. One explanation for this is that the indifference reflects a widely shared belief among Canadians that productivity is of little significance to them. However, even a small improvement in the annual growth rate of productivity when sustained for a number of years has a profound impact on the daily lives of Canadians.

It is likely that the public’s view of productivity has been shaped mostly by individual experiences, and has thus centred on one person’s putting more effort or time into his or her job (often by taking work home in the evening and on the weekend) in order to produce more. Viewed in this way, where leisure time and the capacity for material consumption are traded off against each other, it is not surprising that productivity issues and statistics on good or bad performance arouse little public enthusiasm.

Individual scepticism also extends to groups within society who share specific social concerns. Take, for example, the environmental community. Environmentalists have long understood that more industrial production usually results in more pollution. From this perspective, investments in additional industrial equipment with the aim of stimulating production and productivity are seen as sacrificing environmental quality to obtain more material goods. Framed in this way, higher productivity is at best a mixed blessing and not readily accepted as an improvement in the quality of life.

Properly understood, however, productivity is not a matter of working longer or using more capital resources more intensively. Productivity measures the relationship between the physical volume of goods and services produced and the resources used to produce them. It is thus a measure of the efficiency with which labour, capital, natural resources, and knowledge are combined in the economy. When an individual takes work home in the evenings or on weekends, he or she is by definition increasing the labour input. And raising the output of an economy (the numerator of the labour productivity measure) by increasing the labour input (the denominator of this measure) does not raise labour productivity.(2) Similarly, increased manufacturing output made possible by using more energy, natural resources or equipment does not necessarily raise productivity levels.

In the alternative, productivity centres on how to get more output while using fewer resources (i.e., raising the numerator while lowering the denominator of the productivity measure). Productivity is about working smarter and more efficiently – for example, through innovation and technological change – rather than working people and capital resources harder or longer. Consequently, material well-being, good health, varied leisure opportunities and environmental quality can be made complementary to one another through higher productivity levels.

Standard of Living is Driven by Productivity

Of the many factors that influence a country’s standard of living, by far the most important is productivity. Productivity is one of a number of key indicators of the vitality or resilience of an economy, and possibly the most fundamental determinant of long-term economic growth.(3) The positive relationship between productivity and living standards can be demonstrated in two ways: first, by comparing Canadian time-series data on standard of living with those of labour productivity; and, second, by comparing data from Canada with those from other countries. The findings confirm economic theory which contends that higher productivity levels drive higher standards of living.

Figure 1 reveals that these two economic variables – standard of living and labour productivity – are closely related. They moved in the same direction and fairly uniformly throughout the 1961–2008 period. Labour productivity in Canada, as measured by gross domestic product (GDP) in constant 2002 dollars per hour worked, was valued at $19.95 in 1961; by 2008, it amounted to $43.99. During that period, the compound annual growth rate of labour productivity was 1.7%. Similarly, standard of living in Canada, as measured by GDP in constant 2002 dollars per capita, was $14,475 in 1961; by 2008, it was $39,667. This increase represents a 2.2% compound annual growth rate between 1961 and 2008. The difference in the two growth rates indicates that standard of living is influenced by factors other than productivity, such as the number of people working or the number of hours each works – factors that will be drawn out below.

Figure 1 – Standard of Living and Labour Productivity in Canada, 1961–2008 (constant 2002 dollars)
Figure 1 – Standard of Living and Labour Productivity in Canada, 1961–2008 (constant 2002 dollars)
Source:  Statistics Canada, GDP Data, CANSIM, 2009; Centre for the Study of Living Standards, Income and Productivity Data, Personal Income and Productivity Trends: Canada vs. United States, 2009.

Figure 2 is a scatter diagram that maps any statistical relationship that might exist between labour productivity and standard of living in countries that are members of the Organisation for Economic Co-operation and Development (OECD). For each country, one point represents both its average productivity level, as measured by GDP per hour worked at current prices and purchasing power parity (PPP) in US dollars, and its average standard of living, as measured by GDP per capita at current prices and PPP in US dollars. The line drawn through these points represents the correlation between the standards of living and labour productivities among all these countries. The slope of this line is positive and the correlation between the two variables is statistically significant and “robust.” This relationship suggests that higher productivity levels translate into higher standards of living.

Figure 2 – Standard of Living and Labour Productivity in OECD countries, 2008
Figure 2 – Standard of Living and Labour Productivity in OECD countries, 2008
a Purchasing power parity.
Source:  OECD, National Accounts of OECD Countries, Main Aggregates, Volumes 1 and 2, 2009.

Figure 2 also indicates that, in some cases, higher productivity levels do not translate into greater material well-being. Luxembourg and Norway decisively lead all other OECD countries in labour productivity and standard of living, but Ireland, the Netherlands and Belgium, with the third, fourth and fifth most productive labour forces among OECD countries, respectively, do not have the third-, fourth- and fifth-highest standards of living. The labour productivity indicators of Belgium and the Netherlands are biased upward relative to those of North American and Australasian countries because, like most West European states, these two countries legislate more paid holidays and other employee benefits (e.g., job security) for their labour forces than do North American and Australasian countries.(4) This factor leads their industries to substitute more capital for labour. Higher capital–labour ratios in Belgium and the Netherlands (and Western Europe generally) than in North America and Australasia result in relatively higher labour productivity levels, but also in relatively lower capital productivity levels. Because this bias leads to a less efficient allocation of resources, it partly explains both countries’ poorer performance, when compared to other OECD countries, in terms of standard of living relative to labour productivity. Other reasons include the direct effects of the above-mentioned greater holiday and job security benefits provided to its labour force. West Europeans, in general, choose to consume more of their labour productivity in the form of more leisure and greater income security relative to material well-being than people elsewhere. It is also widely acknowledged that, in general, environmental performance in Western Europe is better than that in North America.(5) This means that West European countries are also choosing to consume more of their productivity in the form of greater environmental quality relative to material well-being than are other countries.

Quality of Life and Standard of Living Go Hand in Hand

Standard of living, as measured by GDP per capita, is evidently not the sole indicator of quality of life. Non-economic factors such as good health, a long lifespan, leisure opportunities, income and personal security, stable family and community life, income and gender equality, human rights and a healthy environment are also important. Although many difficulties are associated with the construction of a quality-of-life index, including issues of criterion selection, appropriate indicators of the criteria, indicator weights and the perennial problem of obtaining data that is consistent from country to country, it is nevertheless instructive to compare the relationship of quality-of-life indicators and standard-of-living indicators across countries.

Figure 3 maps a composite quality-of-life indicator against the standard-of-living indicator of GDP per capita across many OECD countries in 2005.(6) The quality-of-life indicator incorporates nine factors that the Economist Intelligence Unit derived from life satisfaction surveys, with respective weights assigned according to results obtained from quantitative measuring techniques and final values or scores calibrated between 0 and 10. The nine quality-of-life factors were material well-being, health, political stability and security, family life, community life, climate and geography, job security, political freedom and gender equality. The line drawn in Figure 3 represents the correlation between the two variables across these countries. The correlation is positive, statistically significant and “robust.”

Figure 3 – Quality of Life and Standard of Living in OECD Countries, 2005
Figure 3 – Quality of Life and Standard of Living in OECD Countries, 2005
a Purchasing power parity.
Source:  The Economist Intelligence Unit, Quality-of-Life Index, 2005.

In 2005, the Economist Intelligence Unit’s quality-of-life index put Ireland at the top, followed closely by Switzerland, Norway, Luxembourg and Sweden, respectively. These countries made up the top five countries in terms of quality of life in 2005. At the opposite end of the continuum, Zimbabwe was found at the bottom, behind Haiti, Tanzania, Nigeria and Tajikistan, respectively. These countries made up the bottom five countries in terms of quality of life in 2005. Canada placed 14th on this index, immediately following the United States.

Certain conclusions can be drawn from Figure 3. First, when it comes to the quality of life as measured by the Economist Intelligence Unit’s index, there was not much difference in being placed first or 20th. The country in 20th place, Austria, has a quality of life comparable to that of the first-placed country, Ireland. The difference in score between the two countries was slightly larger than 1 (using a 10-point scale). Second, although the quality of life may be about the same in the 20 countries of the world that scored highest on the Economist Intelligence Unit’s index, the composition of this quality of life is not. For example, in terms of life expectancy at birth – the health indicator – the greatest difference lay between the performances of Japan and Denmark. In 2007, a Japanese could expect to live 82.7 years (on average), while a Dane could expect 78.2 years of life (on average). So while a Japanese can expect an almost equivalent standard of living to that of a Dane, on average – PPP US$36,130 vs. PPP US$33,362, respectively – a Japanese will enjoy this standard of living for four and a half more years. Canadians, by contrast, could expect to live 80.6 years, on average, in 2007, which puts Canada in 10th place among the top 20 countries in terms of the health factor.(7)

Overall, the most important conclusion to draw from this analysis is that the statistical relationship between standard of living and quality of life is a positive one. A high standard of living clearly means a high quality of life, and vice versa. Simply put, the richer a people are, the longer they can expect to live, the more literate, educated and skilled they are likely to be, and the better family and community life they are likely to share. They are also likely to enjoy a cleaner and healthier environment than a less prosperous people.(8) Trading off one quality-of-life criterion for another also appears possible.(9) Therefore, combining these conclusions with that of the previous section – that higher productivity translates into higher standard of living – leads to the assertion that material well-being, good health and longevity, leisure and environmental quality are the fruits of a productive economy. Being more productive provides more choice among these “fruits.” The next section will suggest just how many of these “fruits” can be obtained by even the smallest of improvements in a nation’s labour productivity growth rate.

What a Rise in Canada’s Productivity Growth Rate Might Buy

It is one thing to suggest that productivity drives standard of living and quality of life, and that an increase of as little as one percentage point in the annual growth rate of labour productivity in Canada would be sufficient to make Canadians measurably better off. It is quite another thing to demonstrate how Canadian lifestyles could change and improve in a tangible way because of such a miniscule improvement in productivity.

The key to understanding this conundrum is to consider the length of time over which a one percentage point improvement takes place. If the improvement lasts for one year only, Canadian lifestyles will be largely unaffected. If it extends over a full working career, which is usually about 35 years, then Canadian lifestyles will be greatly affected. Since 1973, Canada’s annual rate of growth in labour productivity has averaged about 1.25%, down considerably from 3.00% between 1961 and 1973. A one percentage point increase in this performance would nearly double the annual growth rate to 2.25%, and such a growth rate in labour productivity would mean that the average labour productivity level in Canada would double every 32 years, not every 58 years as it does with a 1.25% growth rate. Furthermore, if Canada’s labour productivity level were to double every 32 years, then (in the absence of significant demographic effects) so would Canada’s standard of living.

Compare two scenarios: in one, Canada’s average annual growth rate in labour productivity is 1.25% for 35 years, and in the other, it is 2.25% over the same period. Instead of speculating on the forecast of these scenarios in the future, consider the easier and more reliable exercise of applying the scenarios to the past. Between 1973 and 2008, Canada’s average annual rate of growth in labour productivity was 1.25%. This trend is represented in Figure 4 by the solid black line. This productivity performance and other factors led to an average annual growth rate in the standard of living of 1.7% during the same period, a decrease from its performance of 3.5% from 1961 to 1973, which is represented in Figure 4 by the solid blue line. These performances are historical facts.

Figure 4 – Actual and Counterfactual Labour Productivity and Standard of Living in Canada, 1961–2008 (constant 2002 dollars)
Figure 4 – Actual and Counterfactual Labour Productivity and Standard of Living in Canada, 1961–2008 (constant 2002 dollars)
Source:  Statistics Canada, GDP Data, CANSIM, 2009; Centre for the Study of Living Standards, Income and Productivity Data, Personal Income and Productivity Trends: Canada vs. United States, 2009.

Under the second, counterfactual scenario, labour productivity rises by 2.25% per annum throughout the 1973–2008 period. Such an event is not inconceivable. Indeed, Canada’s labour productivity grew at an even greater average rate from the 1950s through to the mid 1970s, and Ireland’s did still better from the late 1980s to 2007. In this case, labour productivity of $28.46 per hour in 1973, which actually grew to $43.99 in 2008, would instead have grown to $62.01 (see the dashed black line in Figure 4). Given the same demography and no other non-historical economic influences, Canada’s standard of living value of $21,950 in 1973, which actually grew to $39,667 in 2008, would instead have risen to $56,001, representing 2.7% compound annual growth rate (see the dashed blue line in Figure 4).(10)

Under the counterfactual scenario, Canada’s standard of living in 2008 would have been $16,334 higher than what it was. A Canadian’s average annual standard of living during the 1973–2008 period would have been $6,190 higher. Cumulatively, it would have been $216,660 higher over the 35-year period under consideration. The relevant question is this: What could a typical Canadian have bought with this extra $216,665? The answer is, “Many things.”

A typical Canadian family, in 1973, could have afforded a house worth $7,700 more (on average) than it had bought, financing this expenditure entirely through a 35-year mortgage bearing a 10% interest rate. Expenditures on health care in 2007 in Canada were $4,867 per capita (by way of both private and public expenditures).(11) Either through direct payments or indirectly through higher taxes devoted to health care, a typical Canadian could have increased his or her health care expenditures, and thus contributed to reducing the wait times for various medical treatments during that period. Alternatively, throughout the 35-year period, a typical Canadian could have spent, either directly or indirectly through higher taxes, an additional $6,190 per annum on pollution abatement to meet tougher environmental standards on any number of industrial activities, or to comply with more stringent emission standards for automobiles. This additional expenditure could have delivered a cleaner and healthier environment. Finally, a typical Canadian, who worked (on average) a 33.3 hour workweek in 2008, could have afforded the same lifestyle he or she enjoys today by working only 27.5 hours per week (either 5 days for approximately 5.5 hours per day or 4 days for approximately 7 hours per day).

Under this counterfactual scenario, the productivity gap between Canada and the United States could have been eliminated and even reversed. Assuming an unchanged US productivity performance – not an unreasonable assumption, given that Canada’s greater purchasing power and the resulting increased imports from the United States would have an infinitesimally small impact on overall American exports – Figure 5 demonstrates that Canada’s productivity would have been 12.2% higher than that of the United States in 2008. Moreover, although it is unlikely that Canadians would have chosen to consume all of the increased productivity under this counterfactual scenario in the form of goods and services, had they done so the Canada–U.S. standard of living gap would have been reversed. Canada’s standard of living could have been 18.7% higher than that of the United States in 2008.(12)

Figure 5 – Canada–United States Standard of Living and Labour Productivity Gaps, 1961–2008
Figure 5 – Canada–United States Standard of Living and Labour Productivity Gaps, 1961–2008
Source:  Statistics Canada, GDP Data, CANSIM, 2009; Centre for the Study of Living Standards, Income and Productivity Data, Personal Income and Productivity Trends: Canada vs. United States, 2009.

An Aging Society Will Increasingly Rely on Productivity Growth

The most prominent demographic trend at the beginning of the third millennium is an aging society. Statistics Canada reports that the ratio of the elderly (65 years and older) relative to people of working age (15–64 years) has grown from 0.13:1 in 1971 to 0.20:1 in 2008 and will rise rapidly to 0.33:1 by 2025. Today, the economy employs five working-age persons for each elderly one; in 25 years, only three working-age persons will be employed per elderly person.(13)

The greying of the population has a number of consequences for society as a whole, most notably with regard to the affordability of certain services of particular importance to the elderly, such as health care and old age security benefits.(14) On the other hand, an aging society will also mean declining per capita Registered Retirement Savings Plan (RRSP) contributions and educational expenses (even if each new recruit to the labour market seeks more years of formal education as per the exigencies of the “knowledge-based society”). The former trend will result in a higher tax yield to the federal government; the latter will mean lower expenditures for provincial governments. It is unclear, however, whether these and other offsetting effects will be sufficient to ensure that current levels of health care can be maintained and afforded by governments and taxpayers without sacrificing other publicly provided services.

Some industry analysts claim that an aging society will mean a labour or work skills shortage, as retirees outnumber new recruits to the labour force in the very near future.(15) This scenario may indeed be possible, and even probable for some job classifications. Moreover, even if these predictions do not materialize, an aging society will have major implications for Canada’s standard of living and the importance of its productivity performance. Consider the fact that per capita improvements in standard of living can be attained in only three ways:

  1. increased levels of output (GDP) per hour worked (higher productivity levels);
  2. people working more hours (less leisure time); or
  3. more people working (a higher employment rate among the population).

These three sources of an improved standard of living can be expressed by a simple mathematical formula:

Equation 1 (Levels)


 =  GDP

Hours worked
 ×  Hours worked

Number employed
 ×  Number employed


Standard of living, or GDP per capita (the first term of the first equation), is equal to: (1) labour productivity, or GDP per hour worked (the second term), multiplied by (2) the average number of hours worked per employed person (the third term), multiplied by (3) the increase in the employment rate (i.e., the number of employed persons relative to the population; the fourth term). A second equation expresses the same terms in growth rate form:

Equation 2 (Growth Rates)

Rate of growth
of standard of living
=  Rate of growth
 of productivity
 +  Rate of growth
of the hours worked
 +  Rate of growth
of employment rate

In this case, the growth rates of the second, third and fourth terms sum to the growth rate of the first term.

This additive formula is shown graphically in Figure 6. As can be seen by the heights of the bars, the growth rate of GDP per capita (“GDP to population”) is the sum of growth rates of labour productivity (“GDP to hours worked”), the hours worked per employed person (“Hours worked to number employed”), and the employment rate (“Number employed to population”). The performances of these statistics are grouped into three periods corresponding to business cycles to capture the trends in the sources of growth of Canada’s standard of living, rather than to economic cycles.

Figure 6 – The Sources of Standard of Living Growth – Average Annual Growth Rates, 1981–2008
Figure 6 – The Sources of Standard of Living Growth – Average Annual Growth Rates, 1981–2008
Source:  Statistics Canada, GDP Data, CANSIM, 2009; Centre for the Study of Living Standards, Income and Productivity Data, Personal Income and Productivity Trends: Canada vs. United States, 2009.

Figure 6 indicates that the average annual growth rate in Canada’s labour productivity (the “GDP to hours worked” bar) increased slightly from the first to the second period but decreased considerably from the second to the third period (from 1.25% to 1.58% to 0.77%). The average annual growth rate in the standard of living (the “GDP to Population” bar) nonetheless fell in all three periods (from 1.86% to 1.57% to 1.27%). The difference in the two performances was attributable to the declining number of workweek hours (from 0.03% to −0.10% to −0.34%) throughout the three periods and the declining growth rate in the employment rate from the first to the second period (from 0.57% to 0.08%), where the latter rebounded to 0.84% in the third period. In the 1980s, productivity growth contributed to 67% of the standard of living increase; employment accounted for 31%. In the 1990s, productivity growth accounted for almost all of the standard of living increase. The inference is that the lower fertility rates among “baby boomers” since the 1970s led to lower labour force recruitment rates by the 1990s, and thus to a significantly reduced growth rate in the proportion of the working-age population to total population. Those lower fertility rates, which resulted in lower labour force recruitment rates, are therefore at the root of the reduced growth rate in the standard of living in the 1990s. Finally, the growths in labour productivity and the employment rate contributed almost equally to the standard of living increase in the 2000s.

Although the future is difficult to predict, some developments seem likely. Workweeks, which averaged 64 hours in the 1870s, 58.6 hours in 1901, 43.6 hours in 1951 and 33.3 hours in 2008, are likely to continue their decline.(16) Each generation has demanded and received more leisure time than the one before it, and this trend is likely to continue. Fortunately, changes in this variable are likely to have little impact on the growth rate of the standard of living in Canada in the foreseeable future. This is not true of the employment rate, however. The declining rate of growth in employment is not only likely to continue over the next decade, it may even turn negative as growing numbers of “baby boomers” retire.(17) This leaves us with only productivity growth as a source of growth in the standard of living, not only in the upcoming decade but also over the next three decades.(18) Canada’s future standard of living thus seems inescapably tied to its productivity performance – even more so than in the past.


A country’s productivity is the key determinant of the standard of living and the quality of life of its citizens. Small improvements in productivity sustained for an extended period can make a huge difference in the standard of living and quality of life. Indeed, increased Canadian productivity is the only effective option for reversing the growing standard of living gap between Canada and the United States. Moreover, productivity will prove to be the most important factor in addressing the current and upcoming challenge of the assuring the sustainability and financial viability of Canada’s government-financed health care services sector as increasing numbers of “baby boomers” retire over the next two decades.

Canada’s productivity growth performance actually surpassed that of the United States between 1960 and the mid-1970s. Favourable demographics were on Canada’s side then, as its relatively larger “baby boom” population entered the labour market in the early 1960s and was an important contributor to Canada’s better standard of living. Now, however, the demographics have turned against Canada. Canadians will soon be affected by relatively higher labour force retirement rates, as the “baby boomers” get older. Canada’s productivity performance will be pivotal, therefore, in determining what standard of living and quality of life Canadians will enjoy over the next three decades.


  1. This paper is a revised version of a paper entitled The Productivity Imperative: Why Productivity Matters to Canadians by the same author.
  2. In fact, depending on the activity and the technologies employed, increasing the number of hours worked beyond a certain level often leads to exhaustion and a lower average productivity rate. Working more intensively may have the same effect on average productivity in the longer term, in addition to harming the worker’s health.
  3. There are two widely accepted measures of productivity: labour productivity and multifactor productivity. Labour productivity is simply the amount of output produced by an economy, or GDP, divided by the amount of labour employed (either in terms of working persons or hours worked) in that economy. Multifactor productivity is also defined by the amount of output produced by an economy, or GDP, but, in this case, the output is divided by an index of all factors of production (not just labour), including capital and purchased inputs, such as energy, raw materials and other goods and services.

    The two productivity measures have their strengths and weaknesses, suggesting that the choice of one over the other should be based on the issue at hand. The labour productivity measure is of considerable relevance to a country’s standard of living because of its close relationship to labour compensation over time. This measure, however, can be influenced by the use of other complementary factors of production, such as differential investment rates in physical capital, and can at times be misleading when making cross-country comparisons. On the other hand, the multifactor productivity measure was devised to provide a more comprehensive understanding of the forces driving growth than the simple partial measures of productivity. But this measure also has a number of methodological and statistical aggregation challenges to overcome before it is free of any measurement bias. For example, there are unresolved theoretical issues, such as the competitive model chosen, that affect the appropriate weights to assign to each factor of production (usually determined on the basis of its share in national income) and the determination of the value of the capital stock and its rate of depreciation, in order to properly calculate capital services charges.

    The present paper focuses on the labour productivity statistic because it more closely tracks and explains standard of living than does the multifactor productivity statistic.
  4. One study of employee statutory and public holiday entitlements ranks Finland and France in first place and shows Russia and the United Kingdom tied for second place; Greece, Austria, Denmark, Sweden, Norway and Luxembourg all tied for fourth place; and the United States and Canada placed respectively in 11th and 14th places. The lowest ranking was 14th position. (See Mercer Consulting Inc.,Employee Statutory and Public Holiday Entitlements – Global Comparisons,” 2009.)
  5. One comprehensive study ranks seven West European countries among the top 10 countries in the world in terms of their environmental performance: Switzerland (1st), Sweden (2nd), Norway (3rd), Finland (4th), Austria (6th), Latvia (8th), and France (10th). Canada is in 12th place. (See Yale University and Columbia University, 2008 Environmental Performance Index, pdf (2.6 Mb, 382 pages) 2008.)
  6. For a more complete definition of the quality-of-life measure see The Economist, “The World in 2005: The Economist Intelligence Unit’s quality of life index,” pdf (67 Kb, 4 pages) pp. pp. 1–4.
  7. Data for 2007 was obtained from United Nations Development Programme, Human Development Report 2009 – HDI rankings, 2009.
  8. Because only a correlation, and not causality, has been established between these socio-economic variables, the direction of impact from one indicator to the other has not been determined. Conventional economic theory, however, suggests that productivity drives variables relating to both standard of living and quality of life.
  9. Some trade-offs in the quality-of-life criteria may not be obvious owing to custom and cultural influences.
  10. It is likely that the increase in income earned under this scenario would have attracted more people into the labour market than was in fact the case over the past 35 years, and a larger labour force would have raised Canada’s GDP still higher. Given an unchanged fertility rate, still higher GDP would translate into a still higher living standard than is modelled under this counterfactual scenario.
  11. Canadian Institute for Health Information, Health Care in Canada, pdf (2.9 Mb, 103 pages) 2008, p. 2.
  12. This comparison assumes that Canada’s purchasing power parity bundle of goods and services and Canada-US currency exchange rates remained unchanged over the period. These assumptions are unlikely, so caution should be exercised when comparing the standards of living of the two countries.
  13. Statistics Canada, A Portrait of Seniors in Canada, Cat. No. 89-519-XIE, 2006.
  14. Provincial and territorial governments spent, on average, $9,500 per senior (65 years and older) compared to $1,700 per individual aged 1–64 years in 2007. (See Canadian Institute for Health Information, Health Care in Canada, 2008, p. 6).
  15. Department of Finance, Budget 2005, Annex 3, “Canada’s Demographic Challenge,” 2005; J.A. McMullin, M. Cooke and R. Downie, “Labour Force Ageing and Skill Shortages in Canada and Ontario,” pdf (1.7 Mb, 64 pages) Canadian Policy Research Networks Inc., 2004; Government of Canada, “Addressing the Challenges and Opportunities of Ageing in Canada,” pdf (119 Kb, 34 pages) 2002.
  16. Andrew Sharpe, “The Contribution of Productivity to Economic Well-being in Canada,” in Productivity Issues in Canada, Industry Canada, 2002, p. 856.
  17. Further exacerbating this demographic trend is the possibility that Canada’s NAIRU (that is, the non-accelerating inflation rate of unemployment) may reverse course and begin to rise as “baby boomers” retire. This possibility reflects the fact that the NAIRU, which some people call the economy’s natural rate of unemployment, is affected by the structure and age composition of the labour force. The increasing rate of retirement of elderly workers, who enjoy relatively lower rates of unemployment than others, will lead to higher national levels and rates of unemployment. This possibility suggests an additional impetus for further declines in the country’s employment rate.
  18. A higher productivity growth rate may provide an additional benefit to the economy beyond higher standards of living. It may result in more employed persons in the economy. This development can be deduced from the fact that higher-trend productivity growth rates are negatively correlated with the NAIRU. Therefore, a higher-trend productivity growth rate leads to a lower unemployment rate, or conversely a higher employment rate, which will attenuate the adverse employment effects implied by higher retirement rates.

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