Economists like to fashion themselves as the “adults in the room.” However, their notion that incomes are determined by productivity is incredibly naïve, writes D.T. Cochrane. Photo courtesy Archives of Ontario/Wikimedia Commons.

Earlier this month, Statistics Canada released the latest numbers on productivity. Economists are in a tizzy over a third consecutive quarter of falling productivity, which means we’re getting less output per unit of input. There is plenty of misplaced blame being cast at predictable targets like government spending and regulation.

Desjardins, North America’s largest federation of credit unions, offered a particularly bad take on Canada’s productivity. In its analysis of the latest numbers, the financial institution set its sights squarely on workers. But in doing so, it created a misleading picture of the issue.

The analysis includes this chart:

The chart compares labour productivity with unit labour costs. While labour productivity is the economic output per hour of paid work, unit labour costs are the hourly compensation of workers per unit of output. Whenever productivity increases, the economy generates more per hour. Both series are indexed to equal 100 in 2017.

The chart creates the impression that workers are taking far more than their fair share of the economic pie as productivity plateaus. Despite having over $400 billion in assets under management, Desjardins apparently does not know the difference between nominal and price-adjusted values, which are typically referred to as “real.”

Output for both series is “real” GDP. That means the labour productivity measure removes the impact of inflation. However, workers’ compensation is not adjusted for prices. It is reported in current dollars, also known as nominal values. It doesn’t tell us the actual purchasing power of the workers receiving the........

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