Future of work

This report examines structural changes in the Canadian labour market since mid-1970s, its relationship to changes in productivity, and the impact on jobs and labour compensation. Structural changes in the Canadian labour market can be clearly identified by looking at changes in labour shares in manufacturing and service industries. More specifically, over the 1976-79 to 2001-05 period labour use has significantly declined in the manufacturing industries, while it has increased in service industries. Given rapid productivity growth in the manufacturing sector, these labour shifts out of manufacturing raise concerns regarding labour compensation and improvement in standard of living.

Taking a closer look at changes in labour productivity using “shift-share” analysis suggests that most of the increase in labour productivity during the analyzed time period can be attributed to productivity growth within individual industries. Structural changes had a small but significant negative impact on productivity growth that was due to differences not in productivity levels but in productivity growth rates between industries that were gaining and losing labour share. The weak performance of the service sector was the primary drag on productivity growth, reducing “within industry” productivity growth and being the main factor behind the negative contribution of structural change to productivity growth. This has potentially serious implications for the Canadian economy which seems to have a dominant sector with a weak capacity for innovation and productivity growth.

Service sector jobs which have increased in importance differ in some significant respects from traditional manufacturing jobs. Service industries have a higher incidence of part-time and temporary workers and make greater use of flexible work arrangements. The proportion of workers with at least a university degree is, on average, higher in services than in manufacturing.

In terms of labour compensation, the relatively weaker productivity growth in the service sector has also contributed to slower growth of real wages in this sector. However, similar to productivity results discussed above, structural changes do not seem have a significant negative impact on real wage growth rate, which confirms results found by other studies.