Productivity and Income Growth

Archived Topic Box from the 2007 Seventh Annual Benchmark Report

The 2006 BC Progress Board report, Boosting Incomes, Confronting Demographic Change: BC's "Productivity Imperative" provides a good overview of the importance of productivity to BC's prosperity. Of particular relevance here, it includes a discussion of the relationship between productivity growth and increases in incomes.

Income increases can come about from either growth in labour productivity or increases in the labour force, employment rate or number of hours worked. The labour force is the proportion of the total population that is working or actively looking for work, and fluctuates depending on many economic factors and population characteristics. Because it is a ratio, it cannot exceed 100 percent. The employment rate as well cannot exceed 100 percent, meaning no more than 100 percent of those in the labour force can be employed. There is also a definite limit to the amount of hours that can be worked by any one person or population in a set period of time. Growth in any of these factors, due to their finite quality, may improve income for a period of time, but this cannot be sustained over the longer term.

The short term nature of improvements resulting from favourable changes in the labour force, employment rate or number of hours worked leads to the conclusion that the only long term method to improve income is to grow labour productivity.