productivityThis graph shows how American and Canadian worker productivity increased in tandem until year 2000 when they diverge. Why did they diverge in year 2000? Note: real wages have continued to grow in tandem to this day.
One explanation is found at the Globe and Mail. High commodity prices (mining, forestry, etc.) may be the cause.
When commodity prices are high, capital and labour react to this price signal by shifting out of other sectors and into the resource sector. The shift out of manufacturing -- the so-called ‘Dutch Disease’ -- is a part of this process. (See here for why we shouldn’t be thinking of it as a disease.)
This shift increases average incomes, but it also reduces average productivity. Standard productivity indices measure the quantity of output produced by a certain level of inputs. But the business of resource extraction is very much a matter of working harder and investing more in order to obtain smaller amounts of increasingly valuable commodities. Since the usual productivity metrics look only at the quantity produced and not its value, labour productivity in the mining and oil and gas extraction sectors has been falling over the past ten years.
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