Canadians can add another crisis to the pile—productivity. Statistics Canada (Stat Can) data shows labor productivity fell in Q3 2024, extending a problem that’s been happening for years. The country has shown virtually no progress over the past decade, falling sharply behind its biggest trade partner. The problem is wreaking havoc in a number of areas, with the central bank even warning the “crisis” will impact Canada’s ability to attract global investment.
Rising Labor Productivity Is Fundamental To Economic Prosperity
Labor productivity is one of the most important but under-discussed aspects of an economy. It’s the economic output generated relative to the labor that produced it. Obviously it’s better to be more productive than less, but it’s not as simple as just telling workers to work harder, as some might imagine.
Higher productivity means the country is becoming more productive with the people it has. This is typically the result of investment in higher-quality education, technology, or specialized machinery. Anything that helps people produce more with the same hours is a net win here.
There’s a big payoff for countries that accelerate at increased productivity. Higher wages, and better working conditions are often the biggest and most immediate wins. It also helps with efficient job creation, requiring less state-backed stimulus, if any. Higher tax revenues with lower tax rates is another, as the rising income continues to pay for similar services.
Canadian Labor Productivity Has Fallen 4 Out of 5 Quarters
Canadian labor productivity extended its slide into the most recent quarter. The index fell 0.4% in Q3 2024, marking the third and largest consecutive decline. It’s worth noting the streak was only broken up by a single quarter, with erosion in the prior quarters too. Only 1 in 5 quarters have seen positive growth since 2020, with the index now roughly the same as 2019. The slowdown is bad news for the country, which is digging a deeper economic hole.
“Since productivity drives economic growth, this trend is a key headwind to a meaningful economic recovery,” explains Shelly Kaushik, an economist at BMO.
Adding, “Notably, Canadian productivity is still underperforming the United States, which helps explain the divergence in economic outcomes between the two countries.”
Canada’s Falling Productivity Is A “Crisis,” And A Drag On The Economy
Canada’s focus on so-called non-productive investment has been a major drag on its economy. These are investments where more money doesn’t result in additional output, just spending more money. Housing is one of the most common examples since it doesn’t continue to provide an increase in output. This is very different from something like machinery, which helps to create more output.
“For Canadian businesses, weak productivity performance, coupled with high labor costs, are an opportunity to invest in productivity-enhancing measures. But, that combination acts as a headwind for attracting capital to the country,” explains Kaushik.
Kaushik isn’t alone on this call. Earlier this year, Bank of Canada (BoC) Deputy Governor Carolyn Rogers warned the country is now in a productivity “crisis.” The focus on housing investment has pulled capital away from business investment. This hasn’t just left the country less productive but also creates fewer attractive paths for global investors. Focusing on pushing home prices creates short-term wealth, but this much of a focus is destabilizing over the long-term.
More recently, the Deputy Governor warned policymakers against tinkering with the mortgage market. In early November, she explained that changes to the mortgage market to facilitate more borrowing will make housing less affordable and further erode productivity. That fell on deaf ears, with the next round of mortgage tinkering going live in just 10 more days—providing increased leverage to new home buyers, where investors make up 70% or more of the market.
People don’t like working to give half of their salary to the government . Hence low productivity Low wages are also a result of Trudeau letting in 10 million people since he was elected
It’s the opposite issue at play here. The mid-range jobs are costing more and producing less, hence lower productivity.
But the unemployment and suppression of jobs on the low end are 100% entirely the result of trying to suppress wages with a manufactured labor surplus.
The thing is it’s political suicide. People don’t like to hear this, but the fact is that renters are less likely to vote.
There are homeowners that are opposed to this all-in approach, especially if they have kids and realize this is a very problematic issue for their kids that will have to move abroad to live like adults. But it’s still a small group.
Fundamental problem is too much government which results in lack of investment.
Other than housing which gets a little tax relief for personal dwellings, the environment in Canada is not good for investment.
The latest increase in the inclusion rate from 50 to 67 percent, is a direct assault on investment.
Without investing in new equipment, the only other way to improve productivity is to reduce wages and that is what is happening.
US capitol gains inclusion is 100%
Primary residence gains capped at sale price of 250,000!!! Any profit above is taxable.
Property tax rate 4% not uncommon! $40,000 a yr on 1 mil value
CANADIANS ARE NOT OVER TAXED
US capital gains are taxed at a lower rate, even with Canada’s 50% inclusion.
Dual income household doesn’t pay anything for the first 83k per year, and the highest is 20% for the amount above 500k.
Productivity is irrelevant as long as house prices continue to skyrocket.
Instant wealth.
Drop rates to 0% to help pump housing
0.50 cut to rates coming next week!
CAD to zero!
Nobody keeps businesses open or employees very long if they are not making any money. If you work for a company losing customers or suffering from falling sales – your days may be numbered there.
You will probably have to find something else so don’t get caught by surprise.
1) The social contract has been fractured to broken. Government and industry policy. Fix that. To fix productivity. For example why does Canada since about mid 90′ have so little value added manufacturing. Why is housing and post secondary education for careers so expensive. Why is there a service shortage in health care. Why is violent crime increasing.
2) government is 40% to 50% of my income. Hence that percent of GDP. What is government doing about waste, corruption,’not in public interest’ actions, full audits on every penny spent, audits on all politicians,
political and service delivery efficiencies. Etc.
Me, myself, believes workers are getting very lazy these days.
The laws must be tightened. Unemployment insurance repeated and all free money cancelled. Once this happens, productivity will skyrocket to the stratosphere.
It is not a productivity crisis but a demoralization crisis. Workers do not feel life in Canada is worth it any more. The social contract is completely broken for the youth.
Maybe we should consider taking up Trump’s offer and become the 51st state of US. We have always been under their yoke anyway.
Productivity is usually measured by the type of investment people make, not necessarily how they fell. But to the that point, there’s little reason to invest in anything but non-productive real estate if that’s what the gov is supporting while hitting the other industries with penalties.
Nobody will be enthusiastic to work when working full time doesn’t even cover the basic expenses anymore. Can’t afford a home, can barely make the rent, skipping meals due to the cost of food. Expect productivity to further fall.