Labour productivity, hourly compensation and unit labour cost for fourth quarter 2014

Ottawa - Labour productivity in Canadian businesses edged down 0.1% in the fourth quarter, following a 0.2% gain in the third quarter. In the fourth quarter, business output increased at roughly the same pace as hours worked.

Real gross domestic product (GDP) of businesses rose 0.6% in the fourth quarter, compared with a growth rate of 1.0% in the third quarter. Most major industries increased their output, while the output of both service-producing and goods-producing businesses grew 0.6%.

Hours worked devoted to production in the business sector rose 0.6% in the fourth quarter, after increasing 0.7% in the third quarter. Hours worked increased by 0.5% in goods-producing businesses and by 0.7% in service-producing businesses. Retail trade, real estate services, construction, agriculture, utilities and other private services were the main contributors to the increase in hours worked by businesses.

Overall productivity growth was relatively unchanged in the fourth quarter, both in goods-producing (+0.1%) and in service-producing businesses (-0.1%). The main increases were in finance and insurance (+2.3%), wholesale trade (+1.3%) and mining, quarrying, oil and gas extraction (+1.0%). By contrast, the main declines were in retail trade (-2.4%), other private services (-1.1%), real estate services (-1.0%) and construction (-0.7%).

In the United States, the labour productivity of businesses fell 0.5% in the fourth quarter, following two consecutive quarterly advances.

Productivity in Canadian businesses decreased at a pace similar to that of hourly compensation (-0.1%) in the fourth quarter. As a result, labour cost per unit of output in Canadian businesses was unchanged. This was the third consecutive quarter in which unit labour costs were relatively unchanged.

When factoring in the 4.0% depreciation of the Canadian dollar relative to the American dollar in the fourth quarter, the unit labour costs of Canadian businesses in American dollars declined 4.1%. This was the first decline in three quarters.

By comparison, American businesses saw their unit labour costs increase 0.7% in the fourth quarter, following two quarterly declines.

Annual 2014

For 2014 as a whole, labour productivity in Canadian businesses rose 2.5%, the largest annual increase since 2005. The productivity growth in 2014 was mainly a reflection of growth in real GDP of businesses.

Productivity increased in both goods-producing businesses (+2.5%) and service-producing businesses (+2.2%). Aside from agriculture and forestry, utilities and construction, productivity in 2014 increased in all major industries.

By comparison, annual productivity growth in American businesses was 0.6%, half the pace of the previous year. In 2013, the productivity of businesses in Canada (+1.1%) increased at a pace similar to that of the United States (+1.2%).

The difference in productivity between Canada and the United States in 2014 was mostly due to different trends in the increase in hours worked, as the two countries had similar increases in real GDP of businesses (+2.9%). For 2014 as a whole, hours worked increased 0.4% in Canada, while they went up 2.3% in the United States.

In Canadian businesses, unit labour costs went up 0.9% in 2014, compared with a 1.3% increase in 2013. The 2014 increase in hourly compensation was greater than the gain in productivity for the fourth consecutive year, at 3.5%.

However, the average value of the Canadian dollar relative to the American dollar registered its largest decrease (-6.7%) in three years. Consequently, in American dollars, the unit labour costs of Canadian businesses fell 5.9% in 2014. By contrast, the unit labour costs of American businesses rose 1.6%.

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