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Management and Productivity in Canada: What does the Evidence Say?

By Nicholas Bloom.

Canada's productivity growth rates have been poor by international standards, and its productivity is now mid-table by OECD (Organisation for Economic Cooperation and Development) standards. Most notably, Canada has a 20% productivity gap with the United States (U.S.). One long-standing question is whether poor Canadian management practices are a factor behind its poor productivity performance? To address this the author presents evidence on Canadian management practices in manufacturing and retailing. This reveals that in fact Canada has generally good management practices, similar to those in firms in Germany, Japan and Sweden and better than firms in most other European countries and the developing world. But Canada's management practices are still not as good as those in the neighboring U.S. The author then discusses the reasons for differences in management practices across firms and countries, and particularly for Canada's gap with the U.S.. The author highlights the importance of product market competition in improving management by thinning the ranks of the badly managed firms. One reason for the predominance of the U.S. in management scores is that better managed firms appear to be rewarded more quickly with greater market share and the worse managed forced to shrink and exit. Lightly regulated labor markets are also important as they enable managers to adopt the best practices for their firms, rather than have these dictated by the government. A third factor is ownership, with publicly quoted and private equity owned firms appearing to be well managed on average, particularly when compared to government and inherited family managed firms who tend to be badly managed on average. Fourth, worker and manager education seems strongly related to better management – in firms with a higher share of university degree educated workers and managers the management practices are significantly better. On the policy front Canada appears to be performing well in terms of promoting product market competition, imposing only light regulation of labor markets and minimizing estate tax distortions in favor of family ownership. The one area that Canada does not perform so well – especially when compared to the U.S. – is the relatively lower share of university degree educated managers and employees.

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