Canada is facing a national productivity emergency, Bank of Canada Senior Deputy Governor Carolyn Rogers, said in a candid speech on March 26.
If Canada wants to remain a country of high living standards, something must be done about it.
“The level of productivity in Canada’s business sector is more or less unchanged from where it was seven years ago,” Rogers said.
If productivity does not increase, we are setting ourselves up for a brain drain as people and businesses seek better opportunities elsewhere.
A Statistics Canada report said productivity “measures the efficiency with which an economy transforms inputs into outputs.” Productivity growth is closely related to growth in our standards of living, it said.
“An economy with low productivity can only grow so fast before inflation starts to set in, but an economy with strong productivity can have faster growth, more jobs and higher wages with less risk of inflation,” Rogers said.
Canadian productivity was only 73 per cent that of the United States in 2021, the Organization for Economic Cooperation and Development stated.
That means for every hour worked, a Canadian worker produces less than three-quarters of an American worker.
This is not a recent problem. Statistics Canada reports productivity has been lagging behind the United States for decades, with productivity experiencing a steady slowdown since the 1970s.
How can Canada expect to stay globally competitive when it can’t produce as efficiently as other countries?
The answer is it can’t.
The Royal Bank of Canada, in a report published on the company website, said the “lagging productivity in Canada (along with a softening labour market backdrop) are threatening future wage gains.”
The Bank of Canada has identified three strategies that will contribute to growing productivity in the economy. “Productivity is a way to inoculate our economy against future inflation,” Rogers said.
These are greater capital intensity, meaning giving workers better physical tools like machinery to improve their output and efficiency.
Companies need to invest in improving their workers’ skills through more training.
The third is using both capital and labour more effectively.
Rogers said newcomers to Canada too often wind up stuck in low-wage, low-productivity jobs and that matching jobs and workers is crucial to the future of Canada’s economy.
The Department of Innovation, Science and Economic Development Canada said in a report that of the 1.22 million employer business in Canada in 2022, 97.8 per cent were small businesses.
Only 1.9 per cent were medium-sized businesses, and 0.3 per cent were large businesses.
This is one of the major factors holding back Canada’s productivity.
There is an assumption that small businesses are nimble and faster at implementing new technologies than large companies, which are imagined to be slow and inefficient.
A Harvard Business Review of American companies from 2019 found the opposite. It said large companies are becoming nimble, adopting technologies early and have become much more profitable while small businesses have stagnated.
The Review also said greater research and development funding in large companies was responsible for their greater growth.
Canadian businesses have much to learn from their southern neighbours in terms of the investments, innovation and adoption of technology necessary to inject energy into the economy.
This is a country of vast natural resources with an educated and skilled population. Canadian workers deserve to reap the rewards of increasing productivity.
The benefits of higher wages, improved living standards, and an economy more resistant to inflation should not be passed up.