Explaining Post-2017 Productivity Decline in Canadian Transport Sector

Explaining the Post-2017 Fall in Productivity in the Transport Sector in Canada Andrew Sharpe Centre for the Study of Living Standards CEA Presentation Toronto, Canada, June 1, 2024

Outline Explaining the Post-2017 Fall in Productivity in the Transport Sector in Canada Part One: Documenting Productivity and Related Variable Developments in the Transportation and Storage Productivity Developments in Two-digit NAICS Industries in Canada Productivity Developments in Three-digit Transport Industries Part Two: Accounting for the Fall in Productivity in Transportation and Storage using Different Methodologies Sources of Labour Productivity Growth in Transportation and Storage in Canada from Growth Accounts Decomposition of Labour Productivity Growth in Canada into Within-sector and Reallocation Effects Distribution of Productivity Gains in Transportation Industries Part Three: Explaining the Fall in Transport Sector Productivity in Canada since 2017 Air Transportation Urban Transit Systems Trucking 2

Multifactor Productivity by Industry Index (2012 = 100) Source: Stats Can Table 36-10-0208-01 3

Labour Productivity by Sub-Sector Index (1997=100) Source: Stats Can, Table 36-10-0480-01 4

Historical Evolution of Labour and Multifactor Productivity Growth Rates, Business Sector and Transportation and Warehousing, Canada, 1961-2022 Compound Annual Growth Rate Panel A: Labour Productivity Panel B: Multifactor Productivity 3.00 3.00 2.00 2.00 1.00 1.00 0.00 0.00 -1.00 -1.00 -2.00 -3.00 -2.00 -4.00 -3.00 -5.00 -4.00 -6.00 -7.00 -5.00 1961-2000 2000-2017 2017-2022 1961-2000 2000-2017 2017-2022 Business Sector Transport Business Sector Transport Source: Statistics Canada, Table: 36-10-0208-01 5

Annual Changes in Output, Hours and Labour Productivity in the Business Sector and Transportation Industry, Canada, 2017-2022 Compound Annual Growth Rate Panel B: Hours Panel A: Real Output 15 20 15 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 -20 -20 -25 2018 2019 2020 2021 2022 2023 -30 2018 2019 2020 2021 2022 2023 Business Sector Hours growth rate Transportation Sector Hours growth rate Business Sector Real output growth rate Transportation Sector Real output growth rate Panel C: Labour Productivity 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 2018 2019 2020 2021 2022 2023 Business Sector Labour prod growth rate Transportation Sector Labour prod growth rate Source: CSLS calculations, Statistics Canada, Table: 36-10-0480-01 6

Absolute and Relative Change in Labour Productivity, 2-digit NAICS Industries, Canada, 2017- 2023 Compound Annual Growth Rate Change in Labour Prod. (Dollars per hour) (5) = (2) (1) Growth rate of Labour Prod. (%) (6) Labour Prod. (Dollars per Hour) Relative Labour Prod. (%) Contribution to Growth (pp.) (7) Contribution to Growth (%) (8) = (7)/0.17 2-digit Industry 2017 (1) 2017 2023 2023 (2) (3) = (1)/58.50 (4) = (2)/60.40 Business sector 58.50 59.1 100.0 100.0 0.60 0.17 0.17 100.0 Agriculture, forestry, fishing and hunting 53.00 58.5 90.6 99.0 5.50 1.66 0.05 29.1 Mining and oil and gas extraction Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and warehousing Information and cultural industries 208.20 196.3 355.9 332.1 -11.90 -0.98 -0.02 -11.6 209.80 54.40 68.10 68.00 31.70 196.6 48.6 67.2 72.2 35.6 358.6 93.0 116.4 116.2 54.2 332.7 82.2 113.7 122.2 60.2 -13.20 -5.80 -0.90 4.20 3.90 -1.08 -1.86 -0.22 1.00 1.95 -0.01 -0.21 -0.03 0.06 0.25 -4.9 -121.8 -15.9 36.6 148.0 54.30 45.6 92.8 77.2 -8.70 -2.87 -0.19 -112.3 96.50 102 165.0 172.6 5.50 0.93 0.02 13.4 Finance and insurance 82.30 89.8 140.7 151.9 7.50 1.46 0.09 55.3 Real estate, rental and leasing 151.70 159.1 259.3 269.2 7.40 0.80 0.02 11.6 Professional, scientific and technical services 57.30 58.2 97.9 98.5 0.90 0.26 0.02 12.7 51.6 21 88.2 35.5 -30.60 -13.91 -0.10 -57.3 Holding companies Administrative and support, waste management and remediation services 37.00 36.2 63.2 61.3 -0.80 -0.36 -0.02 -12.9 Educational services Health care and social assistance Arts, entertainment, and recreation Accommodation and food services 25.90 33.7 44.3 57.0 7.80 4.49 0.03 16.7 50.90 48.7 87.0 82.4 -2.20 -0.73 -0.03 -19.4 33.40 34.9 57.1 59.1 1.50 0.73 0.01 6.8 24.30 25.3 41.5 42.8 1.00 0.67 0.05 29.8 Other private services 26.80 29.3 45.8 49.6 2.50 1.50 0.07 39.4 7 Source: Statistics Canada, Table: 36-10-0480-01

Labour Productivity, 2-digits NAICS Industries, Canada, 2017-2023 Compound Annual Growth Rate Transportation and warehousing Transportation and warehousing -2.87 Construction -1.86 Utilities -1.08 Mining and oil and gas extraction -0.98 Health care and social assistance -0.73 Administrative and support, waste management and -0.36 Manufacturing -0.22 Business sector industries 0.17 Professional, scientific and technical services 0.26 Accommodation and food services 0.67 Arts, entertainment and recreation 0.73 Real estate, rental and leasing 0.80 Information and cultural industries 0.93 Wholesale trade 1.00 Finance and insurance 1.46 Other private services 1.50 Agriculture, forestry, fishing and hunting 1.66 Retail trade 1.95 Educational services 4.49 -4 -3 -2 -1 0 1 2 3 4 5 Note: The Holding Companies Industry (NAICS code 5511 13) is not included in the chart. Source: Statistics Canada, Table: 36-10-0480-01 8

Labour Productivity Growth, Business Sector and Transportation and Warehousing, Canada, 2000-2023 (Index, 2000=100) Compound Annual Growth Rate 135 130 125 Productivity Index 120 115 110 105 100 95 90 Business Sector Transportation and Warehousing Source: Statistics Canada, Table 36-10-0480-01 9

Transportation and Warehousing and Business Sector Labour Productivity (Ratio of real value added and hours worked), Canada, 2000-2023 Panel A: Labour Productivity Levels, Chained (2017) dollars per hour. 70.0 65.0 Dollars per Hour 60.0 55.0 50.0 45.0 40.0 35.0 Business Sector Transportation and Warehousing Panel B: Labour Productivity Levels of Transportation and Warehousing Sector as a percent of Business Sector (=100) 95 90 Per cent 85 80 75 70 Note: Real value added for each industry and each aggregate is constructed from a Fisher chain index. The y axis represents the labour productivity level in the transportation sector relative to the labour productivity level in the business sector. Source: Statistics Canada, Table: 36-10-0480-01. 10

Labour Productivity of 2-digits NAICS Industries, Canada, 2023 Business Sector = 100 Panel B: Labour Productivity Relative to the Business Sector (Business Sector = 100) Utilities Mining and oil and gas extraction Real estate, rental and leasing Information and cultural industries Finance and insurance Wholesale trade Manufacturing Agriculture, forestry, fishing and hunting Professional, scientific and technical services Construction Health care and social assistance Transportation and warehousing Transportation and warehousing Administrative and support, waste management Retail trade Educational services Arts, entertainment and recreation Other private services Accommodation and food services 0 0.5 1 1.5 2 2.5 3 3.5 Note: The Holding Companies Industry (NAICS code 5511 13) is not included in the chart. Source: Statistics Canada, Table: 36-10-0480-01 11

Multifactor Productivity, 2-digits NAICS Industries, Canada, 2017-2022 Compound Annual Growth Rate Transportation and warehousing Transportation and warehousing -6.1 -1.7 Arts, entertainment and recreation Construction -1.4 Administrative and support, waste management and remediation -1.3 Manufacturing -0.3 Business sector -0.1 Professional, scientific and technical services 0.2 Other private services 0.20 Utilities 0.2 Agriculture, forestry, fishing and hunting 0.4 Information and cultural industries 0.5 Wholesale trade 0.7 Finance, insurance, real estate and renting and leasing 0.7 Accommodation and food services 0.8 Mining and oil and gas extraction 2.0 Retail trade 2.1 -7.0 -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 Source: Statistics Canada. Table 36-10-0208-01 12

Multifactor Productivity, Business and Transportation Sectors, Canada, 1961-2022 (Index, 1961=100) Compound Annual Growth Rate 220 200 180 160 140 120 100 80 Business sector Transportation and warehousing Source: Statistics Canada, Table: 36-10-0480-0 13

Absolute and Relative Change in Labour Productivity, 3-digits NAICS Transportation and Warehousing Industries, Canada, 2017-2023 Compound Annual Growth Rate Labour Productivity (2017 Dollars per hour) Relative Labour Productivity (%) Growth rate of Labour Productivity (%) Change in Labour Productivity (2017 Dollars per hour) Contribution to Growth (pp.) Contribution to Growth (%) 3-digits Industry 2023 2017 2023 2017 Transportation and warehousing Air transportation Rail transportation 54.3 45.60 100.0 100.0 -8.7 -2.87 -2.87 100.0 87.3 126.8 50.80 112.00 160.8 233.5 111.4 245.6 -36.5 -14.8 -8.63 -2.05 -0.61 -0.09 21.3 3.3 57.5 50.10 105.9 109.9 -7.4 -2.27 -0.04 1.4 Water transportation 38.1 31.50 70.2 69.1 -6.6 -3.12 -1.06 37.1 Truck transportation Transit and ground passenger transportation 37.9 30.10 69.8 66.0 -7.8 -3.77 -0.58 20.4 53.3 31.9 98.2 70.0 -21.4 -8.20 -0.57 19.9 Urban transit systems Taxi and limousine service 13.8 19 25.4 41.7 5.2 5.47 0.28 -9.8 Other transit and ground passenger transportation and scenic and sightseeing transportation Support activities for transportation 42.8 34.2 78.8 75.0 -8.6 -3.67 -0.13 4.4 58.9 52.90 108.5 116.0 -6.0 -1.77 -0.29 10.2 454 579.30 836.1 1270.4 125.3 4.15 0.05 -1.8 Pipeline transportation Postal service and couriers and messengers Postal service Couriers and messengers 36.8 30.90 67.8 67.8 -5.9 -2.87 -0.39 13.6 40.2 39.3 74.0 86.2 -0.9 -0.38 -0.02 0.8 34 25.5 62.6 55.9 -8.5 -4.68 -0.35 12.3 39.7 35.10 73.1 77.0 -4.6 -2.03 -0.11 3.9 Warehousing and storage Note: The weights used to calculate the contribution to Growth were the average hours share of each 3-digit industries between 2017 to 2022. 14 Source: Statistics Canada. Table 36-10-0480-01; CSLS calculation

Labour productivity within Transportation and Warehousing Sector, 3-digits NAICS Industries, Canada, 2017-2023 Compound Annual Growth Rate 6.0 4.1 4.0 2.0 0.2 0.0 -2.0 -1.8 -2.0 -2.3 -2.0 -2.9 -2.9 -3.1 -4.0 -3.8 -6.0 -8.0 -8.6 -10.0 Source: Statistics Canada, Table: 36-10-0480-01 15

Comparison of the Productivity Growth 3-digit Industries within Transportation and Warehousing between Canada and United States, 2017-2022 Compound Annual Growth Rate Per cent Growth Rate -15 -10 -5 0 5 10 Transportation and warehousing Transportation and warehousing Air transportation Rail transportation 3-digits industries Water transportation Truck transportation Transit and ground passenger transportation Pipeline transportation Other transportation and support activities Warehousing and storage US CAN Source: CSLS calculations. 16

Total Factor Productivity, Transportation and Warehousing Industry, G-7 Countries, 1995-2020 Panel A: 1995-2020 (Index, 1995=100) 140 130 120 TFP Index 110 100 90 80 70 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 France Germany Italy United Kingdom United States Canada Panel B: 2017-2020 (Index, 2017=100) 105 100 95 TFP Index 90 85 80 75 2017 2018 2019 2020 France Germany Italy United Kingdom United States Canada Source: Euklems & INTANProd database, 2023 release. Statistics Canada, Table: 36-10-0208-01 17

Absolute and Relative Change in Real Output, Measured by Real Value added, 3-digits NAICS Transportation and Warehousing Industries, Canada, 2017-2023 Compound Annual Growth Rate Real Output (2017 billions of dollars) Share of Output (%) Change in Output (2017 billions of dollars) Growth rate of Output (%) Contribution to Growth (pp.) 3-digits Industry 2017 2023 2017 2023 Transportation and warehousing 90.4 89.5 100.0 100.0 -0.9 -0.2 100.0 Air transportation Rail transportation Water transportation Truck transportation Transit, ground passenger and scenic and sightseeing transportation Urban transit systems Taxi and limousine service Other transit and ground passenger transportation and scenic and sightseeing transportation 10.3 9.6 1.7 21.6 7.1 9.6 1.7 21.2 11.4 10.6 1.9 23.9 7.9 10.7 2.0 23.6 -3.2 -0.1 0.0 -0.5 -6.1 -0.1 0.1 -0.4 355.5 7.4 -1.3 51.6 9.8 7.6 10.8 8.5 -2.1 -4.0 236.2 6.2 1.2 4.0 1.3 3.2 1.2 4.4 1.5 -2.2 0.1 -7.1 1.7 243.6 -13.6 2.4 2.1 2.0 2.3 -0.3 -2.4 37.0 Support activities for transportation Pipeline transportation Postal service and couriers and messengers Postal service 16.2 9.2 15.7 10.5 18.0 10.1 17.6 11.7 -0.5 1.3 -0.5 2.3 54.3 -147.3 8.4 9.0 9.2 10.1 0.7 1.3 -74.2 4.1 4.4 4.4 5.0 0.4 1.4 -38.8 4.3 4.6 4.8 5.1 0.3 1.2 -34.2 Couriers and messengers Warehousing and storage 3.6 6.0 4.0 6.7 2.4 8.8 -264.3 Source: CSLS calculations based on Statistics Canada, Table: 36-10-0480-01 18

Sources of Labour Productivity Growth, Business Sector and Transportation and Warehousing Sector, 2000-2022 Business sector Transportation and warehousing Contribution of labour composition to labour productivity growth Contribution of capital intensity to labour productivity growth Contribution of labour composition to labour productivity growth Contribution of capital intensity to labour productivity growth Period Labour productivity Multifactor productivity Labour productivity Multifactor productivity 2000-2017 1.02 0.26 0.83 -0.08 1.32 0.24 1.33 -0.25 Per cent Contribution 100.0 25.5 81.4 -7.8 100.0 18.2 100.8 -18.9 2017-2022 0.6 0.3 0.5 -0.1 -4.0 0.2 1.99 -6.1 Per cent Contribution 100.0 50.0 83.0 -16.6 100.0 -5.0 -50.0 152.5 Source: Statistics Canada, Table: 36-10-0208-01 19

Summary Results of the Decomposition of the Decline in the Productivity Growth Rate, Business Sector, Canada, 2017-2023 Total effect Observed change in prod. growth (1) Within-sector effect Re-allocation level effect Re-allocation growth effect 2-Digit Industry pp. (2) Contribution (%) (3) = (2)/ 0.17 pp. (4) Contribution (%) (5) = (4)/ 0.17 pp. (6) Contribution (%) (7) = (6)/ 0.17 pp. (6) Contribution (%) (7) = (6)/ 0.17 Business sector industries 0.17 0.001 3.8 0.22 129.4 -0.03 -17.6 0.17 100.0 Agriculture, forestry, fishing, and hunting Mining and oil and gas extraction Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and warehousing Information and cultural industries 1.66 0.047 27.4 0.008 4.5 -0.007 -4.0 0.05 23.5 -0.98 -0.068 -40.0 0.048 28.1 -0.004 -2.3 -0.02 -12.0 -1.08 -1.86 -0.22 1.00 1.95 -0.029 -0.183 -0.031 0.074 0.143 -17.1 -107.7 -18.3 43.5 83.9 0.005 -0.017 -0.011 -0.002 0.072 2.7 -10.1 -6.4 -1.1 42.3 0.000 -0.027 0.002 -0.001 -0.009 -0.2 -15.8 1.0 -0.4 -5.2 -0.03 -0.23 -0.04 0.07 0.21 -12.4 -112.7 -20.0 35.4 102.0 -2.87 -0.164 -96.6 -0.008 -4.5 -0.017 -9.9 -0.19 -93.6 0.93 0.038 22.5 0.014 8.0 0.002 1.0 0.05 26.6 1.46 0.137 80.4 -0.005 -3.0 -0.001 -0.9 0.13 64.5 Finance and insurance Real estate, rental and leasing 0.80 0.052 30.5 -0.037 -21.5 -0.003 -1.6 0.01 6.3 Professional, scientific and technical services 0.26 0.021 12.5 -0.006 -3.4 0.001 0.8 0.02 8.4 -13.91 -0.061 -35.8 0.009 5.2 0.040 23.7 -0.01 -5.8 Holding companies Administrative and support, waste management and remediation services -0.36 -0.014 -8.1 0.023 13.3 0.001 0.9 0.01 5.2 4.49 0.014 8.2 -0.002 -1.4 0.001 0.3 0.01 6.0 Educational services Health care and social assistance -0.73 -0.028 -16.5 -0.008 -4.5 -0.003 -1.7 -0.04 -19.1 Arts, entertainment and recreation 0.73 0.007 3.9 0.005 2.8 0.000 -0.1 0.01 5.6 Accommodation and food services 0.67 0.021 12.5 0.104 60.8 -0.001 -0.7 0.12 61.2 1.50 0.032 18.7 0.033 19.3 -0.002 -1.2 0.06 31.0 Other private services 20 Source: CSLS calculations

Relative Change and Growth Rate of Labour Productivity and Share of Hours 3-digits NAICS Transportation and Warehousing Industries, Canada, 2017-2023 Within-sector effect Reallocation level effect Reallocation growth effect Total Effect Observed change in productivit y growth (1) Contribution (%) (9) = (3) + (5) + (7) Contribution (%) (5) = (4) / -2.87 Contribution (%) (3) = (2) / -2.87 pp. (4) pp. (6) Contribution (%) (7) = (6) / -2.87 pp. (8) 3-Digit Industry pp. (2) Transportation and warehousing Air transportation Rail transportation Water transportation Truck transportation Transit, ground passenger and scenic and sightseeing transportation Support activities for transportation Pipeline transportation Postal service and couriers and messengers Warehousing and storage -2.87 -2.44 84.9 -0.55 19.1 -0.09 3.13 -3.07 107.1 -8.63 -0.85 29.7 0.00 0.0 0.00 0.03 -0.85 29.7 -2.05 -0.22 7.8 -0.05 1.8 0.00 -0.15 -0.27 9.4 -2.27 -0.04 1.5 0.00 0.0 0.00 0.01 -0.04 1.6 -3.12 -0.74 25.9 0.00 0.1 0.00 -0.01 -0.74 25.9 -3.77 -0.40 13.9 0.14 -4.8 -0.01 0.27 -0.27 9.3 -1.77 -0.33 11.4 -0.02 0.7 -0.01 0.44 -0.36 12.6 4.15 0.50 -17.5 -0.38 13.4 -0.13 4.48 -0.01 0.4 -2.87 -0.27 9.3 -0.07 2.5 0.01 -0.40 -0.33 11.4 -2.03 -0.08 2.9 -0.16 5.4 0.04 -1.52 -0.20 6.8 21 Source: CSLS calculations

Changes in Output, Hours and Labour Productivity, Select 3-digit Industries within Transportation and Warehousing, Canada 2017-2023 (Index = 2017) Panel A: Air Transportation Panel B: Truck Transportation 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 2017 2018 2019 2020 2021 2022 2023 2017 2018 2019 2020 2021 2022 2023 Labour prod Output Hours Labour prod Output Hours Panel C: Transit Transportation 120 100 80 60 40 20 0 2017 2018 2019 2020 2021 2022 2023 Labour prod Output Hours 22