Productivity is high in some Canadian sectors

Although worker productivity is low in Canada compared to the United States, there are some bright spots.  An editorial from the Ottawa Citizen reported that “With the exception of Jean Chretien, most agree that Canada’s level of productivity … has declined relative to our main trading partner (re-printed in the Daily News, January 27)”

productivity

The editorial was referring to a conference of the Centre for the Study of Living Standards, held January 21 and 22.  The CSLS is a Canadian organization which serves as an intermediary between the academic community and public policy makers.

One of the presenters at the conference, Jim Stanford, was not so gloomy.  Stanford, an Canadian economist who is not a spokesman for Prime Minister Chretien, reported to the conference that productivity is actually higher in Canada for a handful of sectors, including the automobile manufacturing sector.

The auto industry is one of a few manufacturing sectors in which Canadian productivity exceeds that of the United States, and the Canadian productivity advantage has grown through the 1990s.

In 1998, for example, it took an average of 22.6 hours to make a vehicle in a General Motors plant in Canada compared to 32.6 hours per vehicle in the United States.  The differences were less at other plants, and varied year to year, but on the average, Canadian productivity was 20 percent higher throughout the 1990s.

Productivity is often confused with work effort.  Some Canadians argue that if workers just worked harder, or if the unemployed were made more desperate for jobs by cuts to welfare and unemployment benefits, productivity would increase.  Desperation and unskilled workers contribute to a decline in productivity.  If the effort expended by workers was a significant factor, productivity would be highest in third world countries where people work very hard.   In Mexico, for example, it takes 39.4 hours to assemble the same vehicle that would take 22.6 hours in Canada.

Unions are also sited as factor in reducing productivity.  Rigid collective agreements and the work-to-rule mentality of employees, the thinking goes,  reduces productivity.  But Canada’s automobile industry is highly unionized; approximately 90 percent for assembly plants, and 50 percent for auto parts plants.  Unionization in the  United States is only slightly lower for assembly plants, and much less in the parts industry (20 percent).

However, there are difference between Canadian and American automobile unions.  The United States automobile union has traditionally followed a more “accommodating” strategy in its dealings with automakers than has the Canadian union –being much more open to various “cooperative” ventures such as wage concessions, profit-sharing schemes, and the introduction of workplace “teams.”

Reduced work time has been implemented by the Canadian union.  The Canadian Auto Workers has negotiated 2 paid weeks off per year (called Scheduled Personal Absence) in addition existing days off.  Since productivity has been growing faster than vehicle demand, a reduction in work time has kept employment levels up.

One of the main ingredients in productivity is investment, which forms part of what Jim Stanford calls the “virtuous cycle”.  Investment in new technologies improves productivity — more products are produced per worker.  This, in turn, generates a lower unit-cost for the product, resulting in more profits and capital to invest in  production and labour.  Investment in labour also increases productivity. When workers are well educated and trained for jobs, labour becomes a valuable asset.  Investment in skills and capital investment both increase productivity.

Unfortunately, productivity is not good in other sectors of Canada’s workforce.  Decreases have been a result of the deliberate actions of some large companies. By shedding employees, companies have improved their financial picture for the short-term, but  decreased national productivity.  That’s because laid-off workers end up in low paying wages or in self-employment with very little access to technology and information.  These companies have increased profits by reducing employee costs and by not investing in new capital equipment and information technology that would improve efficiency.  The strategy is short-sighted because it trades long-term investment for short-term gain.

Since the federal government hasn’t attempted to develop legislation that make it more cost effective to keep employees, rather than dump them, I assume that government finds the resulting drop in Canadian worker productivity acceptable.

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