|Lost productivity could cost each Canadian $30,000: Carney|
Feb 04, 2010 Paul Vieira Financial Post
Carney warns job growth will be slow, economic growth could be limited to no more than 2% for much of this decade
Ottawa -- Mark Carney, the governor of the Bank of Canada, said on Thursday every Canadian stands to lose $30,000 in income over the next decade — a figure that amounts to nearly $1-trillion — unless Canada improves its “abysmal” productivity levels.
The stark warning came in a speech in Winnipeg Thursday in which he also said that even though a recovery has begun, employment growth might be “relatively” slow as companies hold back on hiring while they restructure their operations to compete in a reshaped global economy.
The sterling productivity record of the United States is one factor helping that country become more competitive against rivals such as China and India, and that, Mr. Carney said, “should, ultimately, encourage job creation.”
Figures released on Thursday showed U.S. business productivity grew at a 6.2% rate in the fourth quarter as employers ramped up output at the fastest pace in six years and kept a tight lid on hiring. U.S. Productivity has now grown robustly through three straight quarters.
The net result of strong U.S. productivity growth, Mr. Carney said, “is lower unit labour costs, which have boosted [U.S.] competitiveness and should, ultimately, encourage job creation.”
Canada’s productivity, meanwhile, fell during the recession, something that has not happened in any recession in the past three decades. Further, Canada’s productivity performance in the decade prior to the recession was “abysmal.”
“While the bank does not entirely understand why productivity growth has been as slow as it has been, we do understand the consequences,” Mr. Carney said, repeating a warning last month that economic growth could be limited to no more than 2% for much of this decade. This will be due to slower productivity growth and an ageing population.
According to the central bank’s calculations, slower productivity growth could cost every Canadian the equivalent of almost $30,000 over the course of this decade.
Meanwhile, Mr. Carney suggested job growth may not pick up quickly in the months ahead.
“Labour market behaviour has been somewhat unusual during this recession,” he said, adding employment levels held up relatively well while hours worked fell sharply.
He suggested companies might have engaged in a practice known as “labour hoarding,” whereby skilled workers were retained even though their services were not immediately needed.
“This suggests that employment may grow relatively slowly,” Mr. Carney said, adding a recent central bank survey suggested the number of companies reporting labour shortages is at its lowest level since 1998.
A recent survey of private-sector economists indicates a belief that unemployment peaked last August at 8.7%. The unemployment rate presently stands at 8.4%, and analysts expect it to remain unchanged following the release of jobs data Friday.
“With the scale of restructuring required, there may be reluctance to add personnel,” the governor said.
The coming corporate restructuring is a theme Mr. Carney has hinted at often in recent months. The belief is Canadian companies have to reorganize their operations to address structural changes in the global economy – namely, a transfer of power from developed countries, led by the United States, to low-cost emerging economies. As a result, firms have to find new markets for their products, or overhaul their product lines to meet the needs of the emerging middle classes.
To complicate matters, Mr. Carney said, there was a “significant drop” in business investment during the recession. As economic conditions improve, companies will need to play catch-up, thereby deploying most of its available cash to capital as opposed to labour.
The central bank does not provide projections for the national unemployment rate. However, in projections the Department of Finance released this week based on a survey of private-sector economists, the consensus is the jobless rate will, on average, come in at 8.5% this year and drop to 7.9% for 2011.
Prior to the onset of the recession, Canada’s unemployment rate was in the 6% to 6.5% range.
Meanwhile, a report from the economics team at Toronto-Dominion Bank says it expects sturdier job growth in the United States through its recovery, compared with the periods following the previous two recessions.
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