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The data on this page are
current as of March 2013.
Income Per Capita
3 0
Income Per CapitaThe annual gross
domestic product divided
by population. This is the
same as GDP per capita
or standard of living.
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Page 1 of 5Canada Income per capita (GDP per capita) country ranking
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What is the connection between productivity and per capita income?
The most important determinant of a countrys per capita income, over the longer term, is the level of and growth in
productivity. Why? Because there is no limit to productivity growth. There is a limit to how many hours there are in
a day that employees can work, how low the unemployment rate can go on a sustained basis, how high the labour
force participation rate can rise, and how large the proportion of working-age people within the total population can
be. But innovation and technological change can sustain productivity growth indefinitely, and drive the growth rate
over time.
In the equation below, productivity is the only component with no upper limit. Therefore, improving productivity in
Canada is the only sustainable way to reduce the sizable gap between Canadian and U.S. income per capita that has
emerged in recent decades.
Why is Canadas income per capita lower than that of the United States?
Lower labour productivity accounts for the largest component of the income gap between Canada and the United
States. To get an idea of the role each component of income per capita plays in the CanadaU.S. income gap, we
used the equation shown above, substituting U.S. data for one component at a time, and keeping the country data
for the other four components. For example, to calculate what portion of the Canada-U.S. gap in income per capita
is due to Canadas lower labour productivity, we substitute U.S. labour productivity into the equation but keep
Canadian data for the other four components (hours worked, unemployment, labour force participation, and
demographic structure). When Canadian data are used for all five components, the income per capita in 2011 is
calculated as US$36,168. If we use the Canadian data for four of the components, but use the U.S. productivity
level (which is US$52.40 per hour worked) instead of the Canadian productivity level (which is US$41.50 per hour),
the income per capita in 2011 is $44,638. This means that Canadas lower level of labour productivity is causing its
income per capita to be US$8,500 lower than it could be.1
The results for Canada are described here and shown in the chart below. (The chart also shows result for all the
other peer countries.)
If Canadas level of labour productivity had increased to the U.S. level (and the other four factors had stayed
the same), Canadas income per capita would have been $8,500 higher. If Canadas hours worked had increased to the U.S. level (and the other four factors had stayed the same),
Canadas income per capita would have been $1,500 higher.
If Canadas ratio of employment to its labour force had decreased to the U.S. level (and the other four factors
had stayed the same), Canadas income per capita would have been $500 lower.
If Canadas labour force participation rate had decreased to the U.S. level (and the other four factors had
stayed the same), Canadas income per capita would have been $2,000 lower.
If Canadas share of working age people had decreased to the U.S. level (and the other four factors had
stayed the same), Canadas income per capita would have been $1,000 lower.
So, in Canadas case, lower labour productivity and fewer hours worked caused Canadas income per capita to be
lower than that of the United States. What helped to narrow the gap? Canadas higher ratio of employment to its
labour force, higher labour force participation rate, and higher proportion of working age people all helped to push
up Canadas income per capita relative to that of the United States.
Page 2 of 5Canada Income per capita (GDP per capita) country ranking
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Statistics Canada has raised questions about the reliability of the measures commonly used to compare Canadian
and U.S. income per capita.2 Shortcomings have been noted in the data on coverage, concept, and accuracy of
hours of work. However, even with adjustments to account for these shortcomings, productivity still contributes to a
significant portion of the gap in income per capita with the United States. The Conference Boards longstanding
message has not changed: Improving productivity should be a policy priority in Canadait is the only sustainable
way to narrow the CanadaU.S. income gap.
Use the drop-down menu to see the factors affecting the income gap with the U.S. for different
countries.
Does having higher labour productivity than the U.S. guarantee that a country will alsohave higher income per capita?
Not necessarily. Ireland and Norway both had higher labour productivity than the U.S. in 2012. But only Norway
with with its huge oil and gas revenueswas able to convert this into higher income per capita than in the United
States.
Why is Norway so much richer than Canada?
Both Canada and Norway have benefited from higher world energy prices, but the oil and gas sector accounts for a
much larger proportion of the economy in Norway. There are also some differences in the relative mix of oil and gas
produced in the two countries, with Canada producing relatively more natural gas (and the North American price has
declined in recent years) and more heavy crude oil, which is worth less than light oil.
What do higher oil prices mean for Canada and Norway?
Higher oil prices are a net positive for both Norway and Canada, but each country is facing different pricing and
related fiscal conditions. North America is currently awash in oilU.S. production is surging in states like North
Dakota and Texas, while Canadian production is also on the rise and will continue to increase steadily over the next
15 years. The benchmark price in North America, West Texas Intermediate (WTI), is about $95 per barrel, but
Canadian producers are getting far less, partly because of a lack of pipeline capacity to handle exports to the United
States and other global markets. In contrast, the European benchmark price, Brent, is about $110 per barrel.
Western European prices are bolstered by stronger demand coming out of developing regions and never-ending
geopolitical turmoil from key producing regions in the Middle East.
Both Norway and Canada made plans to save some of their oil revenues for the inevitable rainy day, but their fiscal
strategies are now diverging. In Norway, concerns about the longer term sustainability of North Sea oil and gas
production (some analysts say this production has already reached or passed its peak) led the Norwegian
government to establish the State Petroleum Fundnow called the Government Pension Fundin 1990. A portion of
annual oil and gas revenues flows into the fund every year. Norway has consistently put aside part of its resource
surplus into the fund and, as a result, it is one of the largest sovereign wealth funds in the world.
In Canada, Alberta has two savings funds for its oil and gas revenues. The firstthe Alberta Heritage Savings Trust
Fundwas established over 30 years ago to save about 30 per cent of oil and gas revenues for the provinces long-
term future. Unfortunately, for nearly two decades, the real value of this fund has not increased in any significant
way, as successive governments decided to use the royalty revenues to fund current spending, not to invest for
tomorrow. Had the Heritage Funds original intentions been adhered to over the past three decades, the value of
that fund could easily exceed $100 billion today.
A second savings account called the Alberta Sustainability Fund was created to manage short-term revenue
fluctuations. This fund grew quickly during the boom years, but the value has since dropped from $17 billion to
closer to $3 billion by fiscal-year 2013. The remaining savings could easily be absorbed by the government.
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In short, Norway and Alberta, Canadas top energy producer, each had a long-term vision for managing their energy
wealth, but they have adopted different strategies and are headed in different fiscal directions.
Has Canadas report card on income per capita improved?
Canadas relative position among its peer
group of countries has slipped. In the
1970s, Canadas GDP per capita was
US$20,340, the fourth highest of its peer
countries, earning a B grade. This gradewas maintained in the following decade
but dropped to a C average in the
1990s and 2000s.
Many countries saw their letter grades
slip in the 1990s and 2000s. This does
not mean that income per capita was
falling, but it does indicate that the top
countries were setting the bar higher
every year, thereby further widening the
income gap with Canada. In other words,
the top countries were pulling farther
ahead of the pack.
Canada will find it increasingly difficult to
narrow the gap. Countries with lower
income levels need greater and sustainedincome growth to try to match or exceed
superior economies.
Has any country managed to move up in the income per capita ranking?
Until recently, Ireland was the standout success story. Ireland transformed itself from one of the poorest countries
in western Europe to one of the richest. After its chronic showing as a D performer in the 1970s, 1980s, and
1990s, Ireland jumped to 3rd place in the 2000s. In the 1970s, Canadas income per capita was almost double that
of Ireland; by 2007, Irelands income per capita exceeded Canadas by US$5,000 in 2007, although the gap slipped
to only US$800 by 2012.
What ignited Irelands economy? A number of parallel developments played significant roles. These include prudent
fiscal policy, increased European Union structural funding, development of the single European market, lower labour
costs, and deep cuts to corporate tax rates. Irelands FDI-friendly environment certainly provided a strong
foundation for growth. The result was a substantial increase in foreign direct investment into the country.
Ireland has once again fallen on hard times since the 200809 bursting of the property bubble and associated
banking crisis that imposed a huge fiscal and economic cost on the Irish people. Nevertheless, the foreign
investment segment of the Irish economy has been able to sustain its level of activity, and provides a cornerstone
for rebuilding the Irish miracle, if and when the domestic economy can recover.
Footnotes
1 Note that the individual gaps generated using this methodology will not necessarily match the overall Canada
U.S. income gap shown in the first chart.
2 Jean-Pierre Maynard, The Comparative Level of GDP Per Capita in Canada and the United States: A Decomposition
Into Labour Productivity and Work Intensity Differences (Ottawa: Statistics Canada, 2007).
Economy Indicators
See discussions on other indicators
Income Per Capita Unemployment Rate
GDP Growth Employment Growth
Labour Productivity Growth Inward FDI Performance Index
Inflation Outward FDI Performance Index
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