Sources of aggregate labour productivity growth in Canada and the United States

In this paper we propose a decomposition technique to examine the sources of industrial contribution to aggregate labour productivity growth. We show that in terms of pure labour productivity growth, the manufacturing and service sectors contributed equally to the aggregate Canada‐U.S. labour productivity growth gap during the 1987–98 period. But, in terms of total industrial contributions, which also take into account the contributions from a change in relative size, the service sector was the largest contributor. We also find that high labour productivity growth industries did not attract resources from stagnant industries – a phenomenon consistent with Baumol's cost disease of stagnant industries. JEL Classification: O47, C43