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Economic performance associated with digitalization in Canada over the past two decades

Stats Canada | Huju Liu | Feb 24, 2021

labour productivity covid recovery stats can - Economic performance associated with digitalization in Canada over the past two decades

Introduction

While Canada has embraced digital technologies rapidly and broadly over the past two decades, there is no doubt that the adoption of digital technologies has been amplified and accelerated as a result of the COVID-19 crisis. A massive number of people have transitioned to remote work. Consumers have had to turn to online platforms to purchase merchandise. Business have had to use online platforms to sell their products and services and serve their customers facing mobility constraints. Wide digital adoption has leaped forward several years in a matter of weeks during the COVID-19 crisis (Baig et al. 2020), and these changes are likely here to stay even after the pandemic (UNCTAD 2020; Bloom 2020).

Economic performance associated with digitalization

The digitally intensive sector experienced higher growth in labour productivity over the past two decades than the non-digitally intensive sector (Chart 1)

From 2002 to 2019, labour productivity grew 22.1% cumulatively in the digitally intensive sector, compared to 6.3% in the non-digitally intensive sector. During the first decade up to 2009, labour productivity grew modestly in the digitally intensive sector, by about 6%, while it basically remained flat in the non-digitally intensive sector. While labour productivity had a larger decline due to the 2008 crisis in the digitally intensive sector, the rebound afterward was also stronger in the same sector. Since 2009, labour productivity growth accelerated in the digitally intensive sector, with an annual growth rate of 1.4% compared to 0.7% in the non-digitally intensive sector.

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The digitally intensive sector has also been more resilient during the COVID-19 crisis than the non-digitally intensive sector (Chart 2). While the COVID-19 pandemic has had negative impacts on both sectors, the impact on the non-digitally intensive sector has been more severe than that on the digitally intensive sector.

For the months of March to May 2020, employment declined on a year-over-year basis by 12.9%, 30.2% and 25.6%, respectively, in the non-digitally intensive sector, compared to 1.1%, 11.3% and 9.7%, respectively, for the digitally intensive sector.

Similar patterns have been found for the gross domestic product (GDP) growth. GDP declined on a year-over-year basis by 18.1% and 13.8% in April and May, respectively, in the non-digitally intensive sector, compared to 11.8% and 10.3% in the digitally intensive sector.

Both sectors have rebounded since June 2020. By September, employment in the digitally intensive sector returned to its 2019 level while the GDP was only slightly lower. However, the employment in the non-digitally intensive sector was still 7.8% below its level of the same month in 2019 and GDP was 5.3% lower.

Conclusion

Over the past two decades, digitalization in Canada appears to have benefited Canadian industries. While the evidence may not suggest a causal relationship, it does suggest digitalization is associated with a higher labour productivity growth. During the COVID-19 pandemic, the industries that have adopted digitalization more intensively experienced a much smaller negative impact and were more resilient, which likely is a result of the flexibility and adaptability brought by digitalization (e.g., digital infrastructure or platforms already in place, higher telework capacity [Deng, Morissette and Messacar 2020]).

See:

The COVID-19 crisis is likely to have a long-lasting effect on the way we work and do business, and digitalization is likely to become even more important during the recovery and for future growth. It is important to ensure a wider and more even adoption and diffusion of digital technologies among businesses by improving managerial quality, workers’ ICT skills and the quality of worker-to-job matches (Andrews et al. 2018).

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