Canada's multifactor productivity grows in 2022

After a challenging 2021, Canada sees a 0.6% rise in multifactor productivity, driven by GDP growth

Canada's multifactor productivity grows in 2022

In 2022, Canada’s multifactor productivity in the business sector, which measures output per unit of combined labour and capital inputs, saw an increase of 0.6 percent, according to Statistics Canada. 

This improvement follows a 2.2 percent decline in 2021 and is reflected in the 4.4 percent growth in gross domestic product (GDP) and a 3.8 percent increase in combined capital and labor inputs. 

Multifactor productivity gauges the efficiency with which inputs are used in the production process, often linked to advancements such as technological and organizational changes, or economies of scale.   

The trajectory of multifactor productivity experienced fluctuations during the COVID-19 pandemic.  

In 2021, the recovery of the economy from its significant drop in 2020 led to strong GDP growth and an even greater increase in hours worked, resulting in a substantial decline in multifactor productivity for that year.  

From 2019 to 2022, there was a slight average annual decrease in multifactor productivity by 0.1 percent.   

Multifactor productivity is a crucial element of labor productivity, alongside capital intensity and labor skill upgrading. Capital intensity grows through investments in equipment, structures, and intellectual properties that bolster labor productivity.  

Labor skill upgrading, measured by shifts towards more educated and experienced workers, reflects how enhanced skills from education and experience impact productivity.   

However, Canada has seen slower productivity growth since 2015, primarily due to a reduction in capital investment following the downturn in commodity prices starting in 2014.  

Between 1980 and 2015, rising capital intensity contributed 0.9 percentage points annually to labor productivity growth. From 2015 to 2022, its contribution halved to about 0.4 percentage points.   

During the periods from 1980 to 2000 and from 2015 to 2022, labor productivity growth rates were 1.8 percent and 0.8 percent per year, respectively, marking a 1 percentage point reduction in growth.   

The most significant factor in the slowdown of labor productivity growth post-2015 was the weaker investment in fixed capital. Approximately half of the decline in labor productivity growth can be attributed to the drop in capital intensity.  

Additionally, the reductions in multifactor productivity and skill upgrading after 2015 accounted for a 0.4 percentage point and a 0.1 percentage point decline in labor productivity growth, respectively.