A Guide to the BC Economy and Labour Market
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Labour

Labour is just another name for work effort. It includes all types of workers with all sorts of skill levels, from farm labourers and tradespeople to doctors and office workers.

The amount of labour used by an industry can be increased by hiring more workers, or by increasing the amount of time that people who are already on the payroll spend on the job.

Labour force

The labour force includes everybody aged 15 and over who is either working or looking for work. The number of people in the labour force is always greater than the number of people with jobs, because there will always be some people who are between jobs.

Labour income

Labour income includes wages earned by workers, as well as the benefits paid by their employers. Labour income accounts for about two-thirds of the total value added in the economy, making it the biggest component of gross domestic product, or GDP.

Measuring GDP

GDP is calculated as the difference between the value of an industry's total output and the cost of the materials, supplies and services consumed in production.

Using the millworking example again, let's suppose that each door produced by the factory is sold to the building supply store for $300. The cost of the door includes:

  • $110 for supplies like wood, glue, and varnish;
  • $130 for the work done by the person who made the door; and
  • $35 worth of electricity, transportation, accounting and other services purchased by the company.

The remaining $25 represents the profits of the factory owner. In this case, the value added resulting from the production of each door would be equal to the cost of the door ($300) minus the cost of materials and supplies, energy and purchased services ($110+$35), or $155 (as indicated by the shaded area in Figure 1).

GDP usually includes more than just labour and profits, but we've simplified things a little in this example.

GDP is a measure of the value added by the industry to the materials or services that it purchases in order to make its product

It's important to note that the millworking factory's contribution to GDP only includes the value of the work that was added to the raw materials purchased to make the door. Other industries produced the wood, glue, varnish, fuel and other supplies and services used in production and the value of the work they did is attributed to them, not to the millworking industry.

In other words, at each stage of production, GDP only counts the value of the work done by one industry.

The new economy: tourism and high tech

Tourism and high-tech are part of what is often called the new economy. Firms in these sectors don't belong to a single industry or group of industries. They produce many different types of goods and services, and thus span a number of different industries. In the case of tourism, the element that ties them together is the clients that they serve. In the high tech sector, it is the degree to which the goods and services they produce could be considered high tech products.

Because their products are so diverse, tourism and high tech are not included in the standard industry definitions used in NAICS. We measure the size of the tourism and high tech sectors by attributing part of the output of other industries to these special groupings. For example, some, but not all, of the output of the food and beverage service industry is attributed to tourism. The list of industries that are included in BC's tourism and high tech sectors in BC was developed by BC Stats.

We will mainly be talking about goods and service industries, using NAICS definitions, although some information on the tourism and high tech sectors is also included in the chapter describing the new economy.

Tourism

The tourism sector includes some of the activities of a variety of industries that produce services used by tourists. A percentage of the total value of production in accommodation, food services, transportation and selected other industries is attributed to this sector.

High tech

BC's high tech sector includes the activities of firms in a variety of manufacturing and service industries, which produce electronic equipment, robotics, computer consulting services, and other goods and services that involve a high degree of research and development activity.

Occupations

Each industry or sector in the economy employs people in a variety of different occupations. Types of jobs are classified based on the amount of skill or training needed to do them, as well as on the specific characteristics of the job. For example, people working in building trades might have the same amount of training or skills as office workers, but because their jobs are so different, they are classified into different occupational groups.

You will find an explanation of how occupations are classified, and what is included in the various classifications, in Appendix 2.

Primary industries

These are industries that involve the harvesting or extraction of natural resources. Fishing, logging, mining, oil & gas extraction and agriculture are all primary industries.

Production and output

The value or amount of a good or service produced by a company or an industry is usually referred to as the industry's production or its output.

For example, the output of a millworking factory that makes wooden doors could be measured in terms of either the number of doors produced, or the total dollar value of its products. It's important to note that output doesn't just include goods. Transportation, accounting, legal advice, and health care and other types of services also contribute to the economy's total output.

Productivity

Productivity can be described as a measure of the overall efficiency of the economy. Productivity improvements can be due to advances in technology, or to more efficient use of labour or capital inputs.

Labour productivity

Using the millworking example, suppose that the factory employs two people. Each of them saws the wood, nails or glues it together, then sands and varnishes or paints the finished product.

Suppose further that the workers discover that if one of them does all the sawing, nailing and gluing, while the other one does the sanding and varnishing, they can produce one extra door per day. The amount of capital and labour used in the factory hasn't changed, but because the work is being done more efficiently, the factory's output has increased. The growth in this case is due to increased labour productivity.

Labour productivity is calculated as the ratio of GDP to total labour inputs. Labour inputs are sometimes measured using employment, although a better measure would be based on the total number of hours worked in an industry.

When GDP grows faster than employment, it's usually because labour productivity is rising…

…but since labour inputs should be measured in terms of hours worked, a change in the amount of time spent on the job also plays a role

Measuring labour inputs

Some of the graphs in the following chapters show indices (defined below) of GDP and employment. The gap between GDP and employment indices can be viewed as a rough measure of changes in labour productivity. It's not an exact measure because employment counts do not take into account the amount of time spent on the job. In BC, the average work week has become slightly shorter since 1990, dropping from an average of 37.4 hours to 35.9 hours a week in 2008.

In other words, fewer workers, spending less time on the job, are adding more value to the economy than was the case in 1990. Figure 3 shows the difference between employment growth and the increase in the number of hours worked in the province since 1990. GDP per hour worked is a better indication of labour productivity than GDP per worker.

Labour productivity measures that are based on the number of workers rather than hours worked will be lower in industries where there are a lot of part-time workers, since simple job counts don't reflect the amount of time spent on the job. Even if part-time workers are just as efficient as full-time employees, the value added per worker in an industry where there are a lot of part-time jobs will be lower than in an industry with mainly full-time workers, because differences in the number of hours worked by each employee have not been taken into account. When comparing changes in GDP and employment over time, it's important to keep this in mind.

Other ways to look at productivity change

Labour productivity measures assume that all of the economic growth that is not accounted for by increased use of labour inputs is the result of more efficient use of labour. This may not always be the case, since economic growth might also be due to more efficient use of capital. Total factor productivity takes changes in both labour and capital inputs into account. It is a more accurate measure of productivity change, but much more difficult to calculate than the ratio of GDP per hour worked. That's why many analysts still use labour productivity figures.

It should be noted that labour productivity differences among industries may simply reflect differences in the relative importance of labour and capital inputs. For example, GDP per worker in the electricity industry, which relies mainly on dams and generating equipment to produce power, is high because most of the value added to the economy comes from the use of capital equipment. In this case, the ratio of GDP to labour inputs includes the value added by this equipment as well as the value added by the worker's efforts.

In other industries, such as personal services, the value that's added to the economy comes mainly from the use of labour. GDP per hour worked in these industries tends to be lower than in industries that use a lot of capital equipment, since labour is usually the only source of economic growth.

The production process

This is simply a term used to describe how an industry's final product is created. In the millworking example, the production process would include:

  • sawing boards into pieces of wood that have the right dimensions;
  • gluing, nailing or screwing the pieces of wood together into a door;
  • sanding and painting or varnishing the door; and
  • shipping it to a building supply firm where it is sold to a customer.

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A Guide to the BC Economy and Labour MarketA Guide to the BC Economy and Labour Market