Productivity |  Quebec continues to catch up

Productivity | Quebec continues to catch up

Could this be a turning point for Quebec? A trend related to a fundamental indicator of our economy, namely labor productivity?

This is suggested by the data published on Friday by Statistics Canada, which compares business productivity by province.

Essentially, Quebec continues to catch up with the other major Canadian provinces. In the last three years, our business productivity has grown twice as fast as the Canadian average and nearly four times as fast as Ontario. The news is important, knowing that Quebec has had a delay to compensate for several years.

Labor productivity – or rather its growth – is one of the key indicators of our economy today, much more so than employment. Be careful with the words, it is not about the pace of work, but about the intelligence of the work, its more judicious organization, which implies innovation, the use of the latest technologies, as well as investment in more efficient tools, among others.

Do you want sustainable salary increases? Advocate for better productivity. Because otherwise, companies will have to reduce their profit margin to achieve it or raise the price of their products, which will make them less competitive, and we will all lose.

Let’s look at the productivity figures, defined as the gross domestic product (GDP) per hour worked. In almost all provinces, 2021 has been catastrophic, and for a very simple reason: the pandemic year 2020 with which 2021 is compared has turned the landscape upside down.

Hours worked fell sharply in 2020, but GDP did not so much, given government benefits and business support. Furthermore, it is the companies with poorly paid employees that have suffered (catering, accommodation, etc.), not the others. Result: GDP per hour worked artificially exploded in 2020, while in 2021 when everyone went back to work, this indicator fell sharply (-3.9% in Quebec and -5.8% in Canada).

To draw any conclusions, we need to compare 2021 to the pre-pandemic period, say 2019 or 2018. In doing so, we see that labor productivity was favorable in Quebec. It increased 5.6% in three years, compared to 2.5% in Canada and 1.5% in Ontario. These data are in constant dollars, that is, inflation-free.

Quebec even ranks at the top of the large provinces, ahead of dynamic British Columbia (5.1%), but behind the Maritime provinces, where productivity has risen sharply.

“If there is a change in trend, that is very good news,” said Jimmy Jean, chief economist at the Desjardins Group, who had not yet analyzed Statistics Canada data on Friday.

What’s going on? Economist Guillaume Marchand of the Quebec Statistics Institute (IQS) believes demography has a role to play. “Our aging population and labor shortages mean there are fewer people to do the work. Since the companies want to continue producing so much, they have to invest”, he tells me.

About recent data, precisely, we see that investments in Quebec are experiencing an interesting increase. In fact, over the past five years, nonresidential investment growth has been stronger in Québec than the Canadian average for four out of five years.

Additionally, a recent Statistics Canada survey of investment intentions in 2022 places Quebec at 2Y ranked among Canadian provinces (+11.8%), ahead of Ontario (+9.8%), and British Columbia (+7.2%).

The electric battery sector, among others, could well drive investment, with projects from GM, BASF, Sayona, or Nemaska ​​​​Lithium.

“There is a certain recovery in productivity that is happening, yes. The CAPEX craze has been going strong for a few years, we can feel it,” says Mr. Marchand.

Meanwhile, total compensation in Quebec is increasing much more than in other parts of Canada. It was $38.82 per hour worked in Québec in 2021, in the 5Y range of provinces. The increase in 3 years reached 19.4%, compared to 13.9% for the Canadian average.

According to Jimmy Jean, productivity is an antidote to inflation, a way to have sustainable wage increases, especially in these times of high price increases (as explained above). At the moment, however, the increase in compensation in Quebec is not explained by increased productivity, he says.

By the way, what is this productivity, in absolute value? In 2021, business productivity was $58.40 per hour worked in Canada. Quebec is $52.40, British Columbia is $53.10, and Ontario is $54.80.

These absolute values ​​depend not only on the dynamism of the companies but also on the composition of the economy. In Newfoundland and Labrador productivity is high ($87.20 per hour worked), but this is due to the strong presence of oil, as is Alberta ($80.50). Nova Scotia is $44.00.

The important thing is the relative progress of the productivity indicator, its annual growth. In this regard, Quebec must do better not only than the other provinces, but also the United States, a formidable competitor. In our neighbor to the south, productivity typically increases by more than 1.5% a year, compared to 1.3% in Quebec over 10 years and 1.1% in Canada.

It is expected that the trend of the last three years in Quebec will continue: 5.6% or 1.85% per year.

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