On December 6, 2012 the Martin Prosperity Institute welcomed the Institute of Competitiveness and Prosperity (ICP) to our home in the new Rotman School of Management’s South Building. The ICP serves as the research arm of the Task Force on Competitiveness, Productivity and Economic Progress in Ontario. Through its research, the ICP aims to enhance public understanding of the macro and micro-economic factors behind Ontario’s economic progress, in order to ensure continued success in the creation of good jobs and a higher quality of life for all Ontarians. Both MPI and ICP share a research agenda that focuses on a cohesive examination of prosperity, by looking beyond economic measures alone to include the importance of factors such as quality of place and innovation. The MPI and ICP, along with sharing a workspace, will collaborate on research projects such as examining city productive and conducting cluster analyses.
“The Time is Now”
The ICP recently released their eleventh annual report entitled “A Push for Growth: The Time is Now”. The report analyses the persistence of a prosperity gap between Ontario and its U.S. peers, by comparing Ontario’s economy to a number of similar regions throughout the world. Through the analysis of key indicators such as productivity, educational attainment and hours worked, the report found that although Ontario’s economy is successful compared to non-North American peers, its economy lags in comparison to its North American peers, which was attributed in part to Ontario’s recent slow economic growth. While previous MPI Insights have looked at productivity (patents), geographic variation in GDP and the impact of urbanization on place of work, this Insight will draw on interrelated material from the recent ICP annual report.
In “A Push for Growth”, the ICP examines the relationship between labour productivity and place, by applying their labour productivity index to urbanization. Exhibit 1 displays the average percent of total population in metropolitan areas amongst North American provinces and states from 1996–2011, along with the labour productivity index for the same provinces and states. The North American peer states used throughout the annual report are highlighted in black. Exhibit 1 provides evidence that there is a direct correlation between innovation — or prosperity — and densely populated urban areas. As the Exhibit shows, generally the more urbanized the province or state was found to be, the greater the labour productivity index. On average, a 10 percent increase in urbanization leads to a 5.4 percent increase in labour productivity. This rate of increased productivity as urbanization is increased is more pronounced amongst states than provinces.
Productivity is undoubtedly affected by the large role that North America’s densely, high populated urban centers play on state and provincial success as they often provide an environment in which creativity and innovation can thrive. Rhode Island, Massachusetts and New Jersey are the states with the highest percentage of urbanisation, while Connecticut, New York and New Jersey have the highest scores on the labour productivity index. Ontario was found to have a labour productivity index lower than half of the states and provinces analyzed, while having a percentage of urbanization higher than half of these same locations. When looking at the peer states selected, Quebec was the only province/state in with labour productivity lower than Ontario.
As discussed in previous Insights, many rural communities within Ontario are experiencing issues in adapting to the knowledge economy, which could be contributing to Ontario’s overall lower labour productivity. However, Exhibit 1 sheds light on a possible greater issue, which is that Ontario’s urban centers might also be lagging behind in terms of productivity. While cities are often able to accumulate large numbers of highly skilled workers, and through the dense interactions that large cities offer, the knowledge spillovers and competition, that result can lead to innovation and productivity. Despite Ontario’s rate of urbanisation, the province’s labour productivity is lagging behind many other provinces and states. Where large, dense urban centers are pushing the urbanisation and labour productivity indexes in many states, in Ontario, some of our mid-small urban centers might be less productive. Labour productivity is an important metric to evaluate, as the shift to an economy with many low-skill service class occupations is one of the many factors that will continue to affect our provinces competitiveness and innovation.
Exhibit 1: More urbanization is linked with higher labour productivity
To learn more about this recent report, see ICP’s Annual Report press release.
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The Martin Prosperity Institute at the University of Toronto‘s Rotman School of Management is the world’s leading think-tank on the role of sub-national factors — location, place and city-regions — in global economic prosperity. We take an integrated view of prosperity, looking beyond economic measures to include the importance of quality of place and the development of people’s creative potential.