If we want to achieve 2.7% annual real growth in provincial GDP over the next two decades, annual output per worker in B.C. would have to grow at more than triple the pace we’ve experienced over the past decade
In previous instalments of Statistically Significant, we’ve considered the role that migration (and, in particular, immigration) will play in shaping the provincial population and how the inevitable process of aging will lead to a decline in the size of the labour force without an international inflow of people to B.C.
We also considered how changing labour force participation rates – especially increases for the older age groups – will support only modest growth in our labour force as the post-war baby boom ages into retirement. Our projections show that even with elevated levels of migration and increasing labour force participation, the provincial labour force will grow by an average of only 1.2% each year over the next 20 years.
This begs the question: so what? So what if our labour force is expected to grow more slowly in the coming years than what we’ve experienced in the past – it’s still growing, right? From an economic perspective, it’s not that labour force growth is, in and of itself, important; rather, it all comes down to that simple little equation many of us learned in our first-year economics course – the one that says that economic growth is a product of two things: change in the number of people available to work in the labour force and change in the output each worker can produce. With this in mind, we are faced with a future where B.C.’s economic growth could be curtailed by our slow labour force growth and where productivity gains will be relied upon more heavily to bridge the gap between labour force growth and the pace at which we want (or need) the economy to expand. Productivity can be measured in many ways, but let’s focus on the amount of goods produced or services provided by a worker in an hour. If we look back at recent history using Statistics Canada data, B.C.’s labour productivity performance has been decidedly mediocre within the landscape of Canadian provinces.
Compared with an annual average increase of 0.4% between 2007 and 2012 across Canada as a whole, B.C.’s labour productivity grew by 0.5% per annum over this period, only marginally above the national average. While certainly better than being below average, these gains are nothing to write home about, especially when compared with other resource-rich provinces such as Saskatchewan (1.1%) and Alberta (0.8%).
To put this into a broader context, Canada hasn’t really fared well in the labour productivity department when compared with other OECD (Organisation for Economic Co-operation and Development) countries. In realizing a 0.7% increase in labour productivity each year over the past decade, Canada falls below the G7 average of 1.3%, the OECD average of 1.4%, the United States at 1.7% and even the relatively old (and getting older) euro area at 0.9%.
Canada’s apparently poor productivity performance has been studied many times without many firm conclusions. In B.C., one factor that could be limiting the potential gains in labour productivity is the organizational structure of the provincial economy. Specifically, more people are employed in small and medium-sized firms in B.C. than in the rest of the country: over the past decade, an average of almost three-quarters (74%) of B.C.’s workers were employed by firms of under 100 people, compared with 65% in the rest of Canada.
Again, while there isn’t a definitive answer as to why our provincial or national productivity performance has been relatively mediocre, what we do know is that any growth in our economy above the level dictated by labour force growth will have to be realized through productivity gains.
As an example, if we want to achieve 2.7% annual real growth in provincial GDP over the next two decades (as we did over the previous two), annual output per worker in B.C. would have to grow at more than triple the pace we’ve experienced over the past decade. Further to this, annual productivity gains will have to be achieved at an increasing pace in the coming years, as a growing number of the province’s residents age into the stages of their lives where they no longer want to, or no longer can, work.
In the end, there’s no silver bullet when it comes to managing our changing demographic, workforce and economic realities. Incremental changes will have to be made by all businesses in B.C.’s private sector, all levels of government and even individuals. If we plan on maintaining or improving our economic well-being in the years ahead, we all may have to work a little harder, a little smarter and a little more.
Andrew Ramlo ([email protected]) is Urban Futures Inc.’s executive director.
