Talk of Canada's sluggish productivity performance has been trending. Senior Deputy Governor Carolyn Rogers recently said the need to bolster productivity is “an emergency -  it’s time to break the glass”.

Productivity is the ability to convert resources (raw materials, people and capital) into output. It ultimately determines a jurisdiction’s living standards. Nobel Prize-winning economist Paul Krugman once remarked: “Productivity isn’t everything, but, in the long-run, it is almost everything”.

While that sounds important, it also sounds a bit theoretical. It’s easy to dismiss productivity as an abstract academic concept. 

Incomes are more relatable. In a Hub article released last week, University of Calgary professor Trevor Tombe shows a clear connection between declining real earnings growth and weak productivity, warning the “Great Canadian Slump” is back.  

Another way to make the productivity-wage connection is by looking at industries.  Statistics Canada maintains detailed productivity accounts for individual industries. As shown in the below figure, there is a strong relationship between the productivity of workers in an industry and the wages it pays. 

Energy-related industries have among the highest levels of productivity and wages in Canada. We recently showed that the majority of Alberta’s higher overall labour productivity (vs. the national average) is due to the province having a higher concentration of workers in these industries.

Bottom line: Productivity shouldn’t be dismissed as a theoretical or academic concern. When labour productivity suffers on a sustained basis, it ultimately translates into lower overall wages for workers. 

Answer to the previous trivia question: Salt is thought to be the root of the English word salary because the Latin word salarium originally meant “salt-money or a soldier's allowance for the purchase of salt.”

Today’s trivia question: When was the bestselling book “Freakonomics: A Rogue Economist Explores the Hidden Side of Everything” by Steven D. Levitt and Stephen J. Dubner first published?