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April 14, 2025MULTIFACTOR PRODUCTIVITY, 2023 Statistics Canada has released provincial results for multifactor productivity and related variables for the business sector for 2023.
Growth in real value added (herein: real GDP) can be decomposed into growth in hours worked and growth in labour productivity. In most years, the interaction between changes in both labour productivity and hours worked is negligible, but with larger movements in productivity and hours worked, this interaction can be a more noticeable contribution to change in real GDP.
Growth in labour productivity can be further decomposed into growth in capital intensity (ie: the amount of capital used in production), labour composition (ie: skills upgrading) and multifactor productivity. Multifactor productivity is the residual of economic growth that cannot otherwise be accounted for and is meant to reflect intangible contributions to economic growth from unobserved variables such as branding, economies of scale, technology, management practice or entrepreneurship.
Previously released data for Nova Scotia's labour productivity in 2023 showed a continued rebound in hours worked (+3.15%) was partially offset by a 1.90% decline in labour productivity, resulting in an increase in business sector real GDP of 1.19% (after an interaction term of -0.06%).
This reflects continued recovery in economic activity after the pandemic, during which labour intensive and lower productivity employment hours were significantly disrupted in 2020. As lower productivity, labour-intensive workers returned to normal employment hours over the subsequent 3 years, overall business sector labour productivity declined as these industries resumed their usual contribution to overall hours worked.
All provinces reported gains in hours worked in 2023. All provinces except British Columbia reported declines in productivity. Newfoundland and Labrador was the only province in which a large decline in labour productivity more than offset the rise in hours worked, resulting in a decline for business sector real GDP.
Multifactor productivity estimates further decompose the sources of provincial labour productivity changes in 2022.
In Nova Scotia, business sector capital intensity contributed a 0.65% decrease to labour productivity, while labour composition (skill) added 0.82% to labour productivity growth (the strongest contribution from labour composition among provinces). Multifactor productivity decline of 2.06% contributed the most to Nova Scotia's overall labour productivity decline.
Declining business sector capital intensity was observed across all provinces except British Columbia.
Labour composition (skills) added to productivity in all provinces except Prince Edward Island, Québec and British Columbia (though declines in British Columbia and Québec were very small).
Multifactor productivity change was a drag on labour productivity for all provinces except Saskatchewan. The largest decline in multifactor productivity was observed in Newfoundland and Labrador.
After strong productivity and real GDP growth from 1998-2003, during which natural gas production facilities were constructed and reached peak production, Nova Scotia reported very little labour productivity growth from 2003 to 2013. Over this period, output from the province's natural gas fields was declining, which is typical of production patterns after peaking early in their life cycle. From 2013 to 2017, Nova Scotia's labour productivity made significant contributions to overall business sector real GDP growth even when labour's contribution from hours worked was flat or negative during substantial declines in the province's labour force. In 2018, there was an extraordinary increase in contribution to real GDP growth from labour hours worked and an offsetting decline in labour productivity. In 2019, Nova Scotia's business sector real GDP growth reached its fastest pace since 2002 on another strong increase in labour productivity.
During 2020, a sharp decline in hours worked for lower-productivity occupations boosted the average productivity across the remainder of the economy that continued operations with less disruptions. From 2021-2023, resumption of activities and hours worked in low productivity and labour-intensive activities dragged on the business sector average productivity.
In the period from 1998-2003, labour productivity gains were driven mostly by capital intensity as well as multifactor productivity (which includes effects from bringing new natural resources into production). From 2003-2013, multifactor productivity growth was generally negative as natural gas output slowed - though capital intensity continued to grow through much of this period. Starting in 2014, multifactor productivity growth made significant contributions to business sector labour productivity gains and therefore to real GDP growth.
Nova Scotia's multifactor productivity declined 2.1% in 2023, the steepest drop since 2012.
With the decline in hours worked in labour-intensive, low productivity occupations in 2020, there was a sharp increase in capital-intensity of the business sector reflecting the higher capital-intensity of remaining activities in the business sector. There were also notable contributions to the 2020 productivity spike from multifactor productivity and labour composition. As hours worked in labour-intensive occupations returned to normal from 2021-2023, capital intensity declined to pre-pandemic averages and weighed on labour productivity.
Among industries, labour productivity was up for: agriculture/forestry/fishing, manufacturing, retail trade, transportation, finance/insurance/real estate, professional/technical services and arts/recreation. The largest productivity gains were in arts/recreation and agriculture/forestry/fishing.
Labour productivity was down for mining, utilities, construction, wholesale trade, information/culture, administrative support/call centres, accommodation/food services and personal/repair services. The largest productivity declines were in construction and wholesale trade.
Capital intensity made positive contributions to Nova Scotia's labour productivity for the following industries in 2023: agriculture/forestry/fishing, utilities, construction, finance/insurance/real estate, professional/technical services and administrative support/call centres.
Declining capital intensity weighed on productivity in: mining, manufacturing, wholesale trade, retail trade, transportation, information/culture, arts/recreation, accommodation/food services and personal/repair services.
Agriculture/forestry/fishing reported the largest productivity gains due to capital intensity while information/culture reported the largest productivity drag from falling capital intensity.
Labour composition contributed to rising productivity for manufacturing, retail trade, transportation, finance/insurance/real estate, professional/technical services, arts/recreation and accommodation/food services. The largest labour composition contributions to productivity were in arts/recreation and retail trade.
Weakening labour composition weighed on productivity in agriculture/forestry/fishing, mining, utilities, construction, wholesale trade, information/culture, administrative support/call centres and personal/repair services. Utilities and mining reported the largest declines in labour composition.
Multifactor productivity contributed positively to labour productivity in 2023 only for mining, utilities, retail trade, transportation, information/culture and arts/recreation. Arts/recreation reported the largest improvement in multifactor productivity.
Declining multifactor productivity eroded labour productivity for: agriculture/forestry/fishing, construction, manufacturing, wholesale trade, finance/insurance/real estate, professional/technical services, administrative support/call centres, accommodation/food services and personal/repair services. The largest declines in multifactor productivity were in construction and wholesale trade.
Statistics Canada. Table 36-10-0208-01 Multifactor productivity, value-added, capital input and labour input in the aggregate business sector and major sub-sectors, by industry; Table 36-10-0211-01 Multifactor productivity and related variables in the aggregate business sector and major sub-sectors, by industry
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