In many sectors, Canadian industry is less productive than its American counterpart, a factor that deters foreign direct investment. However, this competitive disadvantage is offset to some degree by lower labour costs in certain sectors that sell to North American markets. During the interviews, some foreign business executives argued that a Canadian dollar below $0.70 U.S. or $0.75 U.S., combined with lower labour costs, can compensate for Canada's low productivity and make the country more attractive for FDI.5 Last year's rise in the loonie has eliminated that advantage. The challenge for a multinational enterprise wanting to invest in North America is to determine the long-term U.S. value of the Canadian dollar.
| Canada's "productivity gap" is somewhat offset by lower labour costs in certain sectors. |
Canada's labour productivity level in the business sector was 10 per cent lower than the U.S. level in 2001. In the manufacturing sector, the productivity gap climbed from 25 per cent in 1990 to about 35 per cent in 2001.6 "Canada's productivity challenge is not confined to a few large industries. Instead, the problem is generally pervasive across Canadian industries."7 The exceptions to this rule are the mining, construction, forest products, primary metal, furniture and fixtures, and transportation equipment sectors.
Compared with the United States, Canada also has a disadvantage in attracting investment in large-scale production. Canadian plants tend to be smaller than U.S. plants because they have historically served small Canadian markets. In addition, Canada is farther from large markets than are U.S. plants, and it has a smaller pool of skilled workers.