Canadian Versus U.S. Competitiveness

March 16, 2010

Canada today reported a strong 1.4% increase in labor productivity last quarter, the best quarterly gain since the first quarter of 1998.  Trouble is that lift still was not as big as the 1.8% non-annualized advance in U.S. productivity.  Over the last four quarters, Canada’s 1.1% productivity rise was not even a fifth as much as the 5.9% increase in the United States.  Canadian unit labor costs rose only 1.0% between 4Q08 and 4Q09, but Canadian competitiveness weakened because U.S. unit labor costs fell by 4.7% from a year earlier. Translated into U.S. dollar terms, Canadian unit labor costs exceeded their fourth quarter 2008 level by 16.0%, reflecting Canadian dollar appreciation.

U.S. competitiveness vis-a-vis Canada also improved in previous years.  In the three years between 2006 and 2009, U.S. and Canadian labor productivity rose 7.9% and fell 0.6%, respectively.  Unit labor costs in U.S. dollars respectively climbed 1.4% in the States but 11.3% in Canada.  Over the past five years, that is between 2004 and 2009, Canadian unit labor costs translated into U.S. dollars increased by 35.7%, 5.5 times greater than America’s 6.5% advance.  The appreciation of the Canadian dollar has forced a rotation of Canadian growth away from net exports and toward domestic demand.  Forecasts published by the Bank of Canada in January look for net exports to exert a 1.2 percentage point drag on 2010 GDP growth and to mitigate a positive 3.4 percentage point contribution to GDP expansion from final domestic demand.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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