's Cost Competitiveness: An Exchange Rate and Productivity Story Andrew Sharpe Executive Director Centre for the Study of Living Standards Presented at the 57 th NABE Annual Meeting Session on North American Productivity and Competitiveness Sunday, October 11 1:15pm-2:15pm
Outline of Presentation I. Cost Competitiveness Trends I. Business Sector II. II. Manufacturing Exchange Rate Trends III. Productivity Explanations I. Growth Accounting II. Demand Conditions III. Investment IV. Innovation 2
Cost Competitiveness Trends: Business Sector 3
% 5.0 4.0 3.0 2.0 1.0 Unit Labour Cost Growth, U.S. Dollars, Business Sector, and the, Compound Average Annual Growth Rate, 2000-2014 4.3 2.1 2.1 1.0 1.0 3.0 3.1 2.0 1.0 0.0 Unit labour costs in US dollars Exchange rate Unit labour costs in Total nominal compensation per hour worked in Labour productivity (output per hour) in Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 4
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 250 Unit Labor Costs, Business Sector, and, U.S. Dollars, 2000=100, 1981-2014 200 150 100 50 0 Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 5
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 180 Nominal Hourly Compensation, Business Sector, and, National Currency, 2000=100, 1981-2014 160 140 120 100 80 60 40 20 0 Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 6
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 140 Output, Business Sector, and, National Currency, 2000=100, 1981-2014 120 100 80 60 40 20 0 Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 7
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 120 Hours Worked, Business Sector, and, 2000=100, 1981-2014 100 80 60 40 20 0 Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 8
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 140 Output Per Hour, Business Sector, and, National Currency, 2000=100, 1981-2014 120 100 80 60 40 20 0 Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 9
Per Cent 100.0 95.0 90.0 Relative Labour Productivity Levels (GDP per hour) in the Business Sector, 1969-2014 ( as % of the ) 85.0 80.0 75.0 70.0 65.0 60.0 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 Source: CSLS estimates. 10
Cost Competitiveness Trends: Manufacturing 11
% 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 Unit Labour Cost Growth, U.S. Dollars, Manufacturing Sector, and the, Compound, Average Annual Growth Rate, 2000-2014 3.9 2.1-0.9-0.9 Unit labour costs in US dollars 1.8 Exchange rate Unit labour costs in 2.8 3.0 Hourly nominal labour cost in 3.7 1.2 Labour productivity (output per hour) in Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 12
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 200 Unit Labour Costs, Manucfacturing, and the, U.S. Dollars, 1950-2014, 2000=100 180 160 140 120 100 80 60 40 20 0 Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 13
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 160 Nominal Hourly Labor Costs, Manufacturing, and the, National Currency, 1950-2014, 2000=100 140 120 100 80 60 40 20 0 Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 14
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 140 Real Value Added Output, Manufacturing, and the, National Currency, 1950-2014, 2000=100 120 100 80 60 40 20 0 Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 15
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 140 Hours Worked, Manufacturing, and the United States, 1950-2014, 2000=100 120 100 80 60 40 20 0 Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 16
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 160 Output Per Hour, Manufacturing, and the, National Currency, 1950-2014, 2000=100 140 120 100 80 60 40 20 0 Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 17
18 Exchange Rate Trends
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 -U.S. Exchange Rate West Texas Intermediate Oil Price (U.S. Dollars Per Barrel) 1.20 1.00 0.80 -U.S. Exchange Rate (CAD per USD) and West Intermediate Oil Price (U.S. Dollars Per Barrel), 1981-2015 120 100 80 0.60 0.40 0.20 0.00 -U.S. Exchange Rate (Left Axis) West Texas Intermediate Oil Price (Right Axis) 60 40 20 0 19 -US Exchange Rate West Texan Intermediate Oil Price Source: CANSIM 176-0064 and FRED (St. Louis Fed) from U.S. Energy Information Administration. 2015 values are an average based on data up to September 2015.
20 Productivity Explanations
1.2 1.0 Percentage Point Contributions of Capital Intensity, Labour Composition, and MFP to Labour Productivity Growth, Business Sector,, 2000-2013 0.9 1.0 0.8 0.6 0.4 0.2 0.2 0.0-0.2-0.4 Labour Productivity Capital Intensity Labour Composition -0.3 MFP Source: CSLS estimates based on CANSIM 383-0021. 21
1.0 0.8 0.6 0.4 CSLS Labour Productivity Decomposition, Business Sector, Compound Average Annual Growth Rates, Per Cent,, 2000-2012 0.6 0.5 0.8-0.2-0.4 Source: CSLS estimates based on Statistics data. 22 0.2 0.0 Within-Sector Effect Reallocation Level Effect -0.3 Reallocation Growth Effect Total
Per Cent Source: CSLS estimates based on CANSIM 380-0064. 23 8 7 6 5 4 3 2 1 0 Annual Growth Rate of GDP and its Components,, 1981-2000 and 2000-2014 2.7 2.6 2.0 Gross Domestic Product 2.9 Household Consumption 1981-2000 2000-2014 1.4 2.2 Government Consumption Expenditure 2.7 3.2 Investment 7.0 0.6 Exports
Per Cent 45 Inter Exports as a Share of GDP (Chained 2007 Dollars),, 1981-2014 40 35 30 25 20 15 10 5 0 Source: CSLS estimates based on CANSIM 380-0064. 24
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Per Cent 25 U.S. Imports for Consumption Market Share, China and, 1997-2014 20 15 10 China 5 0 Source: CSLS estimates based on CANSIM 380-0064. 25
Per Cent 120 110 100 90 80 ICT Investment per Worker in the Business Sector in as a Proportion of the, Current U.S. Dollars, 1987-2013 Total ICT Investment Computer ICT Investment Communications ICT Investment Software ICT Investment 70 60 50 40 30 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: CSLS estimates. 26
Share of BERD in GDP (%) 2.5 Business Expenditures on Research and Development (BERD) Intensity in and Australia, 1981-2015 2.0 1.5 1.0 Source: OECD Main Science and Technology Indicators for and Australia. OECD Main Science and Technology Indicators for from 1981-1993 and CANSIM 358-0024 and CANSIM 380-0064 for 1994-2014. 2015 is based on Statistics data for BERD and an estimate of GDP which assumes 2.0 per cent growth. 27 0.5 0.0 Australia 1981 1985 1989 1993 1997 2001 2005 2009 2013
28 Appendix Charts
% 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Unit Labour Cost Growth, U.S. Dollars, Business Sector, and the, Compound Average Annual Growth Rate, 1981-2014 2.7 1.8 1.8 Unit labour costs in US dollars 0.2 Exchange rate 2.4 Unit labour costs in 3.9 3.7 Total nominal compensation per hour worked in 2.0 1.3 Labour productivity (output per hour) in Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 29
% 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 Unit Labour Cost Growth, U.S. Dollars, Business Sector, and the, Compound Average Annual Growth Rate, 1981-2000 2.4 2.4 1.5 Unit labour costs in US dollars -1.1 Exchange rate 2.6 Unit labour costs in 4.5 4.2 Total nominal compensation per hour worked in 2.0 1.5 Labour productivity (output per hour) in Source: CANSIM 383-0008 and BLS Labour Productivity and Costs Program. 30
% 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5 Unit Labour Cost Growth, U.S. Dollars, Manufacturing Sector, and the, Compound Average Annual Growth Rate, 1981-2014 1.8 0.2 1.6-0.2-0.2 Unit labour Exchange rate Unit labour costs in US costs in dollars 3.9 3.6 3.7 Hourly nominal labour cost in 2.3 Labour productivity (output per hour) in Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 31
% 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 Unit Labour Cost Growth, U.S. Dollars, Manufacturing Sector, and the, Compound Average Annual Growth Rate, 1981-2000 0.4 0.3 0.4 Unit labour costs in US dollars -1.1 Exchange rate 1.4 Unit labour costs in 4.2 4.5 Hourly nominal labour cost in 3.8 3.1 Labour productivity (output per hour) in Source: Conference Board Inter Comparisons of Manufacturing and Unit Labor Costs Program. 32
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 160 GDP, Constant Dollars,, 2000=100, 1981-2014 140 120 100 80 60 40 Non-manufacturing business sector Business sector Manufacturing 20 0 Source: CANSIM 379-0031 extended backward using growth rates from 379-0020. 33