Canada’s labour productivity crisis is worsening and has been growing at a much slower rate than its southern neighbours, resulting in Canadians being left with less money in their pockets, according to a recent intelligence memo published by members of the C.D. Howe Institute.
The note, authored by Martin Eichenbaum, Michelle Alexopoulos, and Jeremy M. Kronick, said that the United States’ labour productivity has grown around 100% since 1985. In contrast, Canada has only grown 40%, making Canadian workers 70% as productive as workers in the United States.
“We’re not just falling behind the US — the growth rate of our productivity is well below that of the UK, Germany, and France,” reads the note.
One of the most effective ways to measure labour productivity is through GDP per hour worked. The more GDP generated per hour, the higher a country’s productivity.
According to the OECD’s most recent data, Canada’s GDP per hour worked in 2022 was 104.05, based on a 2015 baseline value of 100. The average OECD country was 106.76. Only ten countries had a worse GDP per hour worked growth between 2015 and 2022 than Canada. Ireland had the biggest GDP per hour worked growth, at 139.64, while 24 other countries were above Canada.
The three authors wrote that between 1994 and mid-2024, the growth of productivity and real wages in Canada rose an almost identical 35%. They argue that Canadian workers could be faring better and the situation is getting worse.
“While 35% over the period may sound pretty good, a closer inspection highlights how much better we could be doing,” the authors write.
“Canadian workers are getting less productive and poorer than their US counterparts. And the situation is getting worse. Last year, Canadian labour productivity fell and is now at its lowest point since the last quarter of 2018, where US labour productivity has risen by more than 9%,” reads the note.
Falling productivity in Canada has also resulted in wages decreasing.
In 2020, the median real weekly wage nationwide was $1,103. By the end of 2023, it had fallen to $1,078.
Economist Trevor Tombe highlighted that business sector labour productivity fell by 1.8% last year, marking the third consecutive annual decline in Canada. Since 2015, he said it has only increased by 1.6%, the same growth in almost ten years that was seen in each year for the past two decades.
The three authors with the C.D. Howe Institute identified the barriers to productivity growth as interprovincial trade barriers, over-regulation, project approval uncertainty, barriers to competition, and more.
Tombe joined Alberta Finance Minister Nate Horner at a press conference earlier this year to announce Alberta’s fall productivity summit to address the country’s productivity crisis
Horner explained that productivity is about how efficiently and effectively a country can produce goods and services, which determines wages, costs, and other components that directly affect the standard of living.
“Canadian productivity has fallen behind competitor nations in recent decades and the trend is now worsening. Several prominent economists and policy makers have been sounding the alarm , including Carolyn Rogers, the Bank of Canada’s own senior deputy governor who first sounded the alarm, or ‘Broke the glass,’ as she puts it,” said Horner.The Bank of Canada previously warned that low productivity would lead to further inflation.
“An economy with low productivity can grow only so quickly before inflation sets in. But an economy with strong productivity can have faster growth, more jobs and higher wages with less risk of inflation,” said Carolyn Rogers, senior deputy governor for the Bank of Canada. “You’ve seen those signs that say: In emergency, break glass — well, it’s time to break the glass.”
The C.D. Howe Institute emphasized that the views expressed in the notes are those of the three authors and that the organization does not take corporate positions on policy matters.
