Multifactor productivity (MFP)

Another productivity measure, used by the OECD, is the long-term trend in multifactor productivity (MFP) also known as total factor productivity (TFP). This indicator assesses an economy’s “underlying productive capacity (‘potential output’), itself an important measure of the growth possibilities of economies and of inflationary pressures”. MFP measures the residual growth that cannot be explained by the rate of change in the services of labour, capital and intermediate outputs, and is often interpreted as the contribution to economic growth made by factors such as technical and organisational innovation. (OECD 2008,11)

According to the OECD’s annual economic survey of Canada in June 2012, Canada has experienced weak growth of multi-factor productivity (MFP) and has been declining further since 2002. One of the ways MFP growth is raised is by boosting innovation and Canada’s innovation indicators such as business R&D and patenting rates were poor. Raising MFP growth is “needed to sustain rising living standards, especially as the population ages”.