MGTA05 – Foundations – Week 8

Measuring Performance
Continuing Chapter 6
(from p. 130)

Last update: October 31 2021

8:00 a.m.
 Announcement - Test 2

Next Tuesday, November 9 1:05 – 1:55

Coverage: All material covered to today
(Chapters 1 to 6)
Format: Similar to Test 1
15-20 MCQS x 1 mark
4-5 SAQs x 4 – 6 marks
40-50 marks in 50 minutes
The test is under construction

Probable Chap. 1 – 3 25%

weighting: Chap. 4 – 6 75%
 Assignment – Now Posted
Writing assignment (Nov 23) now posted

Discuss and analyze a city/region as the

chosen location to expand your business
“Hints and Tips on Researching Assignment”
Mariana Jardim, Management Dept. Librarian
Friday, November 12 11:00 – 12:00
 Measures of Performance
Last week:
{ GDP – a measure of “size”
{ GDP growth – a measure of “progress”
{ High growth countries: e.g. China, India
{ GDP per capita - measures “prosperity”
Today
{ Productivity - the cause of “prosperity”
{ Employment and unemployment
{ Wealth Distribution
 Review: Gross Domestic Product
GDP = Total value of all goods and services
produced by an economic system
(typically, in a year).

large many workers, using many factors,

GDP producing many things of high value
small suggests fewer workers (small population), using less capital,
GDP producing fewer things of less value
 Review: GDP Growth
As the population grows, we need
more food, more clothing, more shleter
 Canada – GDP Growth
8.0%
Canada’s GDP grows roughly 9 years out of 10
7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
-1.0%

-2.0% recessions
-3.0%
but not always
-4.0%
 Review: Prosperity
GDP
Population
“GDP per capita”
value of all goods and service produced
number of people who get to share that

Intended to show: wealth of “average” citizen

GDP Per Capita – Measures “Prosperity”
Measures wealth of “average” citizen

Canada = $1.74 trillion = $ 48,300 per capita

36 million pop’n

India = $2.87 trillion = ~$2,200 per capita

1.3 billion pop’n
Review: GDP per Capita
not a perfect measure of prosperity
But.... It’s a pretty good indicator

Rich
ries
Count
or
Po ries
t
oun
C
 Review: Productivity
“productivity” is a ratio
productivity output (results)
Measures: inputs (effort or resources

km bytes GDP points

examples:
hour sec capita game
measures: vehicle internet ability to basketball
travel download produce wealth scoring
speed speed per citizen ability
 Review: Productivity
“GDP per Capita” is measure of productivity

GDP
population
A wealthy country has high productivity.
Causes of High Productivity
Wealth is (high productivity) produced by:
Good labour: Well educated workers
Good labour: Well trained workers
Good labour: Healthy workers
Good natural resources: clean water
Good natural resources: fertile soil
Lots of capital: modern technology
Lots of capital: good transportation
Lots of capital: good communications
 Productivity
Two countries can have same population
but very different GDP / capita
Canada vs. Algeria Norway vs. Eritrea
Pop’n = 35 million Pop’n = 5.2 million
$42,158 vs $4,300 $78,013 vs $530

Workers in rich countries more “productive”

due to :
more education, more training, better health,
better transportation, better capital, etc.
“Rich” Country Workers Have Higher Productivity

North American and European workers have

more education, better health, more equipment

Rich
ries
Count
or
Po ries
t
oun
C

cleaner water, better roads, better housing,

more reliable electricity, etc. etc.
 How to make a country richer?
Increase “productivity”
Give everyone the tools to produce more
More and better education
More and better training
More and better capital
(roads, bridges, communication)
More and better resources
(clean water, dams, irrigation)
This Material Relevant to Assignment
The assignment asks you to explain and justify
your choice of locations for expansion.
Scarmark’s Board needs to know that
your chosen location can provide:
a well-educated, well-trained work force
access to high-quality educational institutions
good transportation connections
Affordable housing
Find and present relevant data.
 Employment

A measure of opportunity:

The ability to get – and keep – a job

 Unemployment

Wanting a job – but can't find one!

Unemployment defined:
% of people who are actively
looking for work (i.e. participating)
but can’t find work
 Unemployment
Unemployment lowers productivity
GDP this number is smaller that it could be
population

Some people who want work can’t find it

Some people doing less than they could
Less is being produced
Less available to be consumed
 Canada: Unemployment Rate
1985 - 2016

12%

10%

8%

6%

4%
Unemployment Rate – Canada 2020
Unemployment rate jumped due to COVID
 Unemployment - Canada
Historically - Canada’s unemployment
rate higher than rate in USA
Larger % of work force not working
This is one cause to our lower wealth
Unemployment Rate: Canada vs. USA

.
Canada

USA
 Unemployment Rate – recent*
  Country  Rate %
  South Africa 26.5 %
  Venezuela 26.4 %
  Greece 21.2 %
  Spain 16.4 %
France 9.6 %
Canada   5.9 %
United States 4.1 %
  Norway 4.0 % Germany
3.7 %
* 2017 or 2018
Weakness of “Unemployment Rate”

Official definition of “unemployed”:

looking for a job – can’t find one

However, this ignores:

1. Under-employment
2. Discouraged workers
Weakness of “Unemployment Rate”
Under-employment
Well educated and ambitious people working
at part-time or minimum wage jobs that don’t
fully utilize their education and experience
If a bio-chemist is driving a cab, or working
at McDonalds, her skills are under-used
(In Canada, common among recent immigrants)
Weakness of “Unemployment Rate”
Discouraged Workers
People who would have liked to have found a
job who eventually give up looking
People who see no reasonable chance of
getting a job who drop out of workforce
They retire, go back to school, or travel
Officially, they are not “unemployed”
 Wealth Distribution
High “GDP per Capita” suggests
“average” person is “rich”.
But
What if a few people are very, very rich
and
the rest are very, very poor?
Why Wealth Inequality Matters
 Lorenz Curves
to help us to visualize “distribution”, US economist
Max Lorenz developed the Lorenz Curve in 1905
% of income 100
or 90
% of wealth 80
70
60
50
40
30
20
10
% of pop’n 10 20 30 40 50 60 70 80 90 100
 Graphing Distribution
If everyone earns the same
% of
income 100
90
80
70
60
50
40
30
20% of population earns
20
20% of the income
10

% of population 10 20 30 40 50 60 70 80 90 100
 Graphing Distribution
If everyone earns the same
% of
income 100
90
80
70
60
50
40% of population earns
40
40% of the income
30
20
10

% of pop’n 10 20 30 40 50 60 70 80 90 100
 Graphing Distribution
If everyone earns the same
% of
income 100
90
80
70 60% of population earns
60 60% of the income
50
40
30
20
10

% of pop’n 10 20 30 40 50 60 70 80 90 100
 Graphing Distribution
If everyone earns the same
% of income
100
90
80% of pop’n earns
80 80% of the income
70
60
50
40
30
20
10
% of pop’n 10 20 30 40 50 60 70 80 90 100
 Graphing Distribution
If everyone earns the same
% of income
100 100%
earns
90
100%
80
70
60
50
40
30
20
10
% of pop’n 10 20 30 40 50 60 70 80 90 100
 Graphing Distribution
If everyone earns the same
% of income
100
90
ow
80
s h
il e
l
tr w t lin
70
60
ha h
50
c ig
e ra
40 h
t st
30
20
a
10
% of pop’n 10 20 30 40 50 60 70 80 90 100
Wealth and Income Distribution
However.... in reality

Some people get paid less than others

Some people own smaller houses
Some people have fewer savings

income and accumulated wealth

are not distributed evenly
US Income Distribution – 2015
Share of
income
20

15
lowest paid 20%
10 earns just
2.7%
of total income
5

% of pop’n 5 10 15 20
 Income Distribution – 2015
share of
income
40
35
Next 20%
30 of pop’n
25
6.3%
20 of income
15
40% of pop’n
10
<10%
5 of income

5 10 15 20 25 30 35 40
 Income Distribution – 2015
share of the
income 50
45
40
35
30
25 Middle 20% =
20 10.2% of income
60% of pop’n earns
15
<20% of income
10

5 10 15 20 25 30 35 40 45 50 55 60
 Income Distribution – 2015
% of the
wealth 100
90
80
70
60
50 4th quintile
40
(upper middle)
= 16.8%
30
80% of population
20
earns
10 36% of income

10 20 30 40 50 60 70 80 90 100
Source: *Wolff, 2017
 Income Distribution – 2015
% of the
wealth 100
90
80
70
60
next 10% = 14.1%
50
90% of pop’n =
40
50% of income
30

20

10

10 20 30 40 50 60 70 80 90 100
Source: *Wolff, 2017
 Income Distribution – 2015
% of the
wealth 100
Next 9%
90 earns
80 26.4%
of total
70
income
60
50
40
30

20

10

10 20 30 40 50 60 70 80 90 100
Source: *Wolff, 2017
 Income Distribution – Latest*
% of the
top 1%
wealth 100
earns
90 23.5%
80
of total
income
70
60
50
40
30

20

10

10 20 30 40 50 60 70 80 90 100
Source: *Wolff, 2017
 Income Distribution – 2015
% of the
wealth 100
90
80
70 l ity A
ua S
60 E q U
o f in
50 e l y
it e
n a rv
40
Li u
q cu
e
in nz
30 e re
m
o Lo
c
20 In
10

10 20 30 40 50 60 70 80 90 100
Source: *Wolff, 2017
 Income Distribution in USA - 2015
Net Income in 2015 % of total
.
Top 1% 23.5
5 quintile (richest 20%)
th
64.0 Next 9% 26.4

4th quintile (upper middle) 16.8

3rd quintile (middle 20%) 10.2

2nd quintile (lower middle) 6.3

1st quintile (poorest 20%) 2.7

Source: Edward N. Wolff, Household Wealth Trends In The United States, 1962 To 2016: Has
Middle Class Wealth Recovered? National Bureau Of Economic Research, Working Paper 24085,
Cambridge, Mass. Nov. 2017
Income Distribution Canada vs. USA
Distribution of income Canada USA
2009 2015
Top 1% 6.8% 23.5
Next 4% 12.2% 16.2
Next 5% 11.8% 10.2
9th decile - Next 10% 17.5% 14.1
5th quintile (highest income 20% 48.3 64.0
4th quintile (upper middle) 25.1 16.8
3rd quintile (middle income) 15.3 10.2
2nd quintile (lower middle) 8.9% 6.3
1st quintile (lowest paid 20%) 2.2% 2.7

Cdn Source: The Poverty Papers; Hunter, Sanchez & Douglas; Univ. of Regina, Mar 2012
 Income Distribution: Canada vs USA
% of the
wealth 100
90 ha s fewer
a
Canad r rich”
“supe
80
70
e
60 om Canada
inc ted
50 le ” r ibu
d
id dist USA
40 “m ly
s n
d a’ ve
30 n a ee
r
Ca mo
20
Canada’s lowest paid earn less
10 than the lowest paid in the US

10 20 30 40 50 60 70 80 90 100
 Gini Coefficients
You can put a number to size of Lorenz Curve:

“A” (area above curve)

as decimal fraction of
area of entire triangle

A
small area A = more equal
large area A = less equal
 Gini Coefficients
area A (above curve) as decimal fraction

small area A = more equal

area A = .30 of triangle
A

large area A = less equal

area A = .65 of triangle
A
 Lorenz Curves – 4 Countries
100 % of income

. 80
Gini
Coefficients
60
Norway .268

Canada ..340
40

USA .410

20 South Africa .634

0
poorest poorest 60% of 80% of 100%
20% 40% pop'n. pop'n.
 363least
equal
59 Gini Coefficients
57
30 selected countries
54
(mostly 2013 to 2018)
. 50

47
45
44
42 41 41
41
39 38
38
36
35
34
33
32 32
31
30
3 most
29 29 29
27
equal
25 25
24
 Review
Measures of economic performance:
Gross Domestic Product (GDP)
GDP Growth
GDP / capita
Productivity
Employment and Unemployment
Distribution
Measures of Performance - Summary

GDP – a measure of “size”

GDP growth – measures “progress”
High growth countries: e.g. China, India
GDP per capita - measures “prosperity”
Productivity - the cause of “prosperity”
Employment and unemployment

Many of these concepts will be relevant

to the assignment