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Investment in machinery and equipment: the key-driver of labour productivity between 1997 and 2010

Published by Steve Coleman on March 12, 2012

A study published today by Statistics Canada shows that, from 1997-2010, investment in physical capital, such as plants, machinery and equipment, was the most important factor in the growth of labour productivity in almost every province.

The study found that gains in capital intensity were highest in Alberta (2.6 per cent increase annually on average) and Saskatchewan (2.7 per cent increase annually on average) between 1997 and 2010, mainly due to investments in resource-related activities in these two economies.

In Newfoundland and Labrador, the shift towards activities in oil production with relatively high productivity has ended up with an average annual increase of 2.9 per cent in productivity.

"These findings confirm that the natural resources sector is no longer an old industry with a very low level of productivity, but rather a key-driver of the new economy," said CME President and CEO Jayson Myers. "Resources-driven industries are actually the most capital-intensive industries in the country."

The study also shows the importance of investing in human capital to increase productivity. During this period, investment in human capital, which leads to a more skilled and educated workforce, made a significant contribution to the growth in labour productivity in every province except British Columbia.

In this province, the shift in labour composition toward more skilled workers had half the contribution to growth in labour productivity found in other provinces.

"The current review of the business taxation system in British Columbia is an historic opportunity to look at the long-term labour productivity issue in the province," Myers said. "The province should therefore reinstate the tax credit for manufacturing and processing equipment and look at making the provincial R&D tax credit more competitive, at least along the lines of what we find in other provinces".

Recent measures taken by the federal government to increase manufacturing companies' investments in machinery and equipment, such as the decrease of corporate income tax and the two year write-off for acquisition of machinery and equipment, are proving to be successful measures to increase labour productivity in Canada. Recent surveys conducted by various industry associations are concluding that manufacturing companies are planning to invest at least six per cent more in capital expenditures, including machinery and equipment, over the next year.

Contact: Martin Lavoie
Director of Policy/Directeur des politiques
Manufacturing Competitiveness and Innovation/Productivité et Innovation
Canadian Manufacturers & Exporters/Manufacturiers et exportateurs du Canada
P: 613-238-8888, ext. 2229
C: 613-406-9002

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