Moreover, this situation exists despite the fact that Canada would appear to have all the ingredients needed for innovation: a highly educated work force, flexible labour markets, and high rates of firm entry and exit. 12 A third influence on aggregate productivity growth is the reallocation of capital and labour across firms.
Recent Bank of Canada research suggests that job reallocation across firms is a significant positive factor explaining Canadian labour productivity growth over the 19922006 period. 13 This in turn suggests that such reallocation may be associated with more efficient economic specialization and the adoption of new work practices.