Determinants of Trends in Living Standards in Canada and the United States, 1989-2000

The foundation for real income growth is productivity growth. This basic principle of economics is well illustrated in this article by Andrew Sharpe of the Centre for the Study of Living Standards on the determinants of trends in living standards in Canada in the 1990s. He shows that over the 1989-2000 period 80 per cent of the widening of Canada's income gap with the United States can be accounted for by our slower labour productivity growth. In the first half of the period our falling employment-population ratio contributed to the decline in our standard of living relative to that in the United States. With the recovery in the labour market in the second half of the decade much of this decline was reversed. The acceleration of productivity growth in the United States after 1995 was responsible for our relative deterioration in living standards during this period.