July 8, 2024

Yes, it’s an emergency: Canada’s productivity record lagging other wealthy countries

In March, the Bank of Canada declared that Canada’s productivity problem is an emergency. And that improving it “needs to be a priority for everyone.”  

Productivity is the amount of goods and services produced for a given amount of “input”, often measured by GDP per hour worked. Importantly, a more productive economy is the only thing that leads to sustained wage growth without feeding inflation. 

Canada’s productivity is not only low but has failed to show strong progress for decades.  

As of 1985, Canadian workers produced $37 of value per hour worked compared to $43 in the US—around 87% of US levels. By 2022, productivity had reached $53 per hour worked in Canada but $74 in the US, leaving us at just 72% of US levels (all figures in US$).  

It’s not just that we’re falling behind the US, either. Relative to a dozen other comparably rich countries, Canada saw the least growth of any assessed, except Italy. Countries like Germany, France, and Sweden that used to be on relatively equal footing with Canada have all left us in the dust. Meanwhile, many countries that used to trail Canada (like Australia, the UK, Finland, and Iceland) now boast a productivity advantage. Overall, Canada’s ranking has fallen from 8th to 12th.  

Canada’s low and sluggish productivity isn’t a matter of Canadians not working hard enough. Productivity is high when workers have what they need—the tools, skills, and technologies—to do good work most efficiently. Think of a lumberjack cutting down trees; having a chainsaw allows them to cut far more, and more quickly, than with an axe. Canada’s poor performance suggests our economy is running on old tools and technologies with limited investment—all of which, it turns out, are true.  

There is no shortage of explanations for why that is. But improving Canada’s productivity may not require that we settle on its precise cause(s) to get to reasonable solutions. To reverse the trend that is otherwise set to continue, Canada will need to figure out how to best incentivize investment in the kinds of things required—e.g., research, technology, and innovation—to enhance productivity; and more critically assess the kinds of policies that will stymie it.  

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