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Keywords:

  • D24;
  • O47
  • excess capacity;
  • export growth;
  • productivity

Aggregate labor and multifactor productivity growth slowed substantially post-2000 in the Canadian manufacturing sector. To examine the source of the decline, this paper proposes a decomposition method that delves deeper into the two micro-components of aggregate productivity growth: a within-plant component and a between-plant component. The decomposition builds on earlier work by Jorgenson and his collaborators that decomposes aggregate productivity growth into its industry components, but applies it to the plant level and introduces non-neoclassical features of the plant-level economic environment. It finds that the preponderance of the aggregate labor and multifactor productivity growth slowdown is due to the pro-cyclical nature of productivity growth arising from capacity utilization. Almost all of the aggregate productivity growth slowdown is driven by exporters, as exporters experienced large declines in labor productivity growth in the post-2000 period as a result of large declines in their capacity utilization.