Changes in Value-added Components of Canadian and U.S. GDP

A previous article entitled Manufacturing Rates Highly According to One Important Metric focused on labor efficiency in the U.S. by examining changes in output per worker and in value-added per man-hour for many major industrial sub-sectors between 2000 and 2015.

This current piece will present a similar study for Canada, but with a wrinkle. For Canada, while there are readily accessible value-added statistics, data on man-hours isn’t as easy to come by.

Therefore, the approach for Canada will be to examine value-added per employee. The employee counts come from the Survey of Employment, Payrolls and Hours (SEPH) rather than the Labour Force Survey (LFS). The former seeks responses from employers; the latter, from households.

(Man-hours would have been preferable to number of employees because any distinctions between part-time and full-time work would have been eliminated. Alas, one uses what one can.)

‘Value added’ is mainly sales/receipts (i.e., what’s known as ‘gross output’) minus material and energy input costs. Intermediate expenses are netted out. When the value-added by each subset industry is summed, the total is the same as the nation’s gross domestic product (GDP).

The changes in value-added per employee from 2000 to 2015 are shown in Graph 1. For ease of comparison, the five series have all been expressed as indices with the same starting point – which is to say, their values in 2000 have been set equal to 100.0

In Canada, ‘wholesale trade’ has been the industry sub-sector with the biggest jump (+46%) in output per worker from 2000 to 2015. Wholesale trade in the U.S. also had a nice gain (+30%) over the same time frame, but it wasn’t the leader among all sub-sectors.

With respect to the other four series, their patterns have been generally similar for Canada as for the U.S. ‘Information services’ has set a commendable pace in achieving more output per worker. Its 2015 index value was +25% compared with 2000.

‘Manufacturing’ has also turned in a strong record in Canada, +21%, as has ‘retail’, +20%.

‘Construction’, on the other hand, has failed to keep up. In 2015, its index value was -8% compared with 2000. (U.S. construction in 2015 versus 2000 was -7% in gross output per employee.)

Output per worker calculations have also been made for several other Canadian industrial sub-sectors. Those with gains between 2000 and 2015 have been: ‘finance and insurance’, +15%; ‘real estate, rental and leasing’, +14%; ‘professional and business services’, +8%; ‘transportation and warehousing’, +7%; and ‘educational services’, +7%.

Those with declines in value-added per employee have been: ‘health care services’, -6%; ‘accommodation and food services’, -7%; and ‘arts and entertainment’, -14%.

Table 1 steps away from the output-to-worker issue and concentrates only on value-added.

For both countries, Table 1 shows changes in shares of GDP for each industry, 2000 to 2015.

There is much to be learned from the results in Table 1. For example, the value-added from oil and gas extraction clearly plays a more prominent role in Canada’s GDP (despite falling from 8.9% in 2000 to 8.1% in 2015) than in America’s (climbing from 1.7% in 2000 to 2.4% in 2015).

Government, however, claims a much bigger piece of the pie in the U.S. (despite diminishing from 14.9% in 2000 to 12.5% in 2015) than in Canada (nudging up from 6.3% in 2000 to 6.4% in 2015). More extensive military spending in the U.S. accounts for much of the differential.

Value-added in manufacturing in the U.S. has shrunk as a share of GDP, but not as alarmingly as might be supposed (from 12.8% of GDP in 2000 to 11.7% in 2015). The retraction in Canadian manufacturing has been far more severe (nosediving from 16.1% in 2000 to 10.5% in 2015).

In 2000, construction’s value-added share of GDP was about the same in the U.S. (6.1%) as in Canada (6.0%). Since then, the construction slice has fallen to 3.8% in the U.S. while rising to 7.3% in Canada. Canada has performed relatively better in the new home and mega resource and power project markets.

The U.S. has been making significant value-added gains (i.e., as a percentage of GDP) in ‘information services’ (from 3.5% in 2000 to 5.2% in 2015), while Canada has been standing pat (3.0% in both 2000 and 2015). ‘Information services’ is where high-tech is carving out a new frontier.

Stronger shares for ‘educational services’ in Canada (5.2% in both 2000 and 2015) than in the U.S. (1.0% in both 2000 and 2015) have been almost equally counterbalanced by weaker portions for ‘professional and business services’ in the land that lies beyond Niagara Falls (7.3% in 2000 to 8.8% in 2015) compared with the nation that’s situated below it (11.2% in 2000 to 12.4% in 2015).

Finally, it might be a surprise for readers to learn that the value-added by ‘real estate, rental and leasing’ claimed the largest share of GDP among all industry sub-sectors in the U.S. in 2015, 13.2%.

At 12.9% for ‘real estate, rental and leasing’, the same held true for Canada in 2015.