Industry Mix, Plant Turnover and Productivity Growth: A Case Study of the Electronic and Electrical Product Manufacturing Industry

Abstract

Labour productivity growth in the Canadian electronic and electrical product manufacturing industry declined, from 21% per year in the period 1997–2000, to negative 4% per year in the period 2000–2006. This paper investigates if the restructuring and the reallocation of market share and resource within the industry following the bursting of the tech bubble in 2000 contributed to the slowdown in productivity growth. The reallocation may be a result of change in the composition of constituent sub-industries (industry mix), the entry of new firms and the exit of existing firms, and/or the growth and decline in continuing firms. This paper shows that the slowdown in productivity growth in the Canadian electronic and electrical product industry was mainly due to weaker productivity performance of the sub-industries, which can largely be traced to the decline in labour productivity growth of continuing plants. It finds that the reallocation had some impact, but it was not the primary factor behind the decline. Finally, the paper shows that even if the Canadian industry mix were the same as the U.S. industry mix over this period, the productivity growth profile of the Canadian electronic and electrical product manufacturing industry would not change.