Living standards in Canada are growing at a faster pace than in the United States even though comparisons of labour productivity—the most often-cited indicator—show Canada falling behind during the past decade.
Two other measures of standard of living—real gross domestic product (GDP) per capita and real gross national income (GNI) per capita—show that Canada's performance has improved relative to the United States during this period.
Labour productivity, a measure of real GDP per hour, suggests that Canada's economic performance has lagged behind that of the United States. Between the first quarter of 1997 and the first quarter of 2011, labour productivity in Canada declined 17% relative to that of the United States.
However, based on real GDP per capita, Canada's living standards improved by 5% relative to those of the United States during the same period. A large part of the difference in the trajectories of labour productivity and GDP per capita between Canada and the United States has been because of better job growth in Canada.
A larger proportion of the population that is working raises real GDP per capita. However, it also raises the number of hours worked, and therefore lowers labour productivity. Canada's lower productivity growth relative to that of the United States has occurred at the same time as it experienced stronger employment growth.
When real GNI per capita is used, Canada's living standards increased 12% relative to those of the United States between 1997 and 2011. Of the three measures considered for this study, real GNI offers the most comprehensive picture of a country's economic performance and changes in living standards.
Real GNI is a measure of the purchasing power of the income that accrues to Canadians through the production process, regardless of where that production occurs. It is a measure of real income that focuses on what Canadians can buy with their income.
Real GDP per capita measures income based on what is being produced, for example, the number of barrels of oil extracted. However, in a market economy such as Canada's, which trades extensively, that production can be turned into imports (for example, computers, electronics, cars, clothes and machinery) for consumption or investment.
To capture the full effect of that trade, it is necessary to incorporate international price movements, most importantly, the terms of trade. Real GNI combines production with income changes from non-merchandise trade-related international activity, that is, flows related to the income derived from international investment and relative price movements. Importantly, it also includes changes in the terms of trade.