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IN SIMPLE words, productivity is a measure of economic performance that compares the amount of goods and services produced (outputs) with the amounts of inputs used to produce those goods and services. Thus, labour productivity is a key driver of economic growth and changes in living standards. For the past few decades, economists have been scrutinising Canada’s productivity growth. The explanation of this productivity question is as follows: If a worker produces 10 widgets in an hour today and then 11 widgets in the same amount of time tomorrow, his productivity grows. Apply that logic to any country’s workers and their output year over year, and you get national productivity, a statistical benchmark that links to our standard of living. Low productivity growth can cause wages (after inflation) to stagnate, and as a result, a certain segment of the population falls behind in living standards. Last week, Statistics Canada reported that real output per capita has fallen to 7 per cent below its long-term trend since the pandemic, resulting in a decline of income roughly to USD 4,200 per person. While the USA witnessed a growth of over 1.7 per cent per capita after the pandemic to recover lags, Canada fell behind.

Another important factor to cite is that Canada’s economic output has also not kept up with the pace of population growth. By enforcing a liberal immigration policy, Canada increased the number of residents by 3.2 per cent last year and thus reached a population size of 40.77 million, the highest ever growth since 1957. Also to note is that Canada is right in the middle of a pack of countries in the Organisation for Economic Cooperation and Development when it comes to productivity. To be clear, while Canada outperforms Mexico and Spain on labour productivity, it trails the US and a swath of Scandinavian nations by a fair margin.

The question is: what is dragging down Canada’s productivity? One external factor is the Ukraine war, which is stymying supply chains and has stalled global productivity. As well, a boom in home commuting during the post-pandemic period has not delivered productivity gains that many predicted. Other probable factors are: high levels of concentration in Canadian industries; inter-provincial trade barriers; weak private sector R&D; and a lack of entrepreneurial spirit. Canada’s geography and harsh winter contribute to inefficiencies in transportation, some researchers argue. Canadian employers are considered ‘significant laggards’ relative to nations like the US when it comes to capital stock availability to workers. This refers to infrastructure like roads, machinery, innovation funding and technology, or even leveraging software to accomplish a task.

What is the significance of the rise in Canada’s population? Since Canada’s productivity has stalled over the past two years, the economy has had to rely largely on importing new workers to sustain output. Unfortunately, these new workers, while critical to keeping the Canadian economy’s head above recession waters, have often found themselves in less productive industries like retail, food, security services, and accommodation. Most notable is that, amid a boom in Canadians working in food delivery or ridesharing during 2022–2023, landed immigrants accounted for nearly 60 per cent of the workers in this sector. It certainly reflects that the proportion of immigrant workers landing in the share economy is evidence of underemployment of their competencies and skills. Many, if not most, are college graduates and possess quality technical knowledge, including high-end IT skills and electrical and mechanical engineering. One economist observed that there is a demonstrable shock to the system with such strong growth in our demography, which is going to take time to resettle.

There is widespread belief that a lack of innovation and investments in businesses are key reasons why Canada’s labour productivity growth rate has declined in the past two decades. Innovation rates have declined noticeably in the past two decades compared to the 1980s. Wu Long Gu, an economist at Statistics Canada, said that Canada’s lower productivity growth after the 2000s is due mainly to a lack of investment, as highlighted earlier. In this regard, business leaders have criticised the federal government’s decision to increase the capital gains tax to 66 per cent from 50 per cent on gains of more than USD 250,000 a year. Tax reform is vitally needed. ‘Canada’s productivity is in crisis and the best way to get it back up is to attract new investments,’ claimed Renaud Brossard of the Montreal Economic Institute. Sadly, Canada’s current budget has largely left longer-term challenges such as productivity and competitiveness unaddressed. In the business community, there is clearly a prevailing frustration in this regard. Perrin Beatty of the Canadian Chamber of Commerce said Canada still does not have a clear plan to promote productivity and restore economic growth. As well, a change in the tax structure could make the country look less competitive as a place to do business compared to its international peers.

As recently as March 27, Bank of Canada deputy governor Carolyn Rogers said it was time to ‘break the emergency glass’ regarding the structural decline in Canadian productivity. As a policy measure, the government announced it is placing caps on temporary residents in a bid to stem Canada’s record population growth in recent years. Many believe that the move could potentially compel businesses to invest more in technology instead of relying on ‘cheap labor,’Ìýwhich may help attain higher productivity in the long run.

Three important components of labour productivity require attention, namely: a) capital intensity or investments; b) innovation; and c) labour composition that measures the skillsets. In the past decades, all three have witnessed a decline in Canada’s economy. It has become clear that a positive labour composition would mean an increase in the number of workers in high-skilled and higher paid jobs. As well, a downward adjustment of interest rates domestically and a fall in energy prices like oil could positively impact the functioning of the engine of economic growth. Some have looked back and identified four issues that caught Canada in two rough decades. These are: a) the financial crisis of 2008; b) a holdback in investment in the natural resources sector; c) the pandemic; and d) the high interest rates, all of which are causing business investment to experience a downward movement.

Based on data from the OECD, it was revealed that large companies invest more in productivity-improving technology and training, which is not the case in Canada. And worse is the fact that in Canada, many of its largest organisations are comfortably part of stable oligopolies, as can be seen in the banking and telecommunications sectors. Furthermore, Canada’s trade and apprenticeship programmes that foster productivity-enhancing measures are also less developed as compared to European countries. To conclude, Canada invests little, spends less on R&D, and has a low propensity to innovate.

Low productivity is also seen in other public sectors, such as health care, which is stretched to the limit, and the public transit system, which is a couple of generations behind other developed economies. One study finds that at the intersection of government and the private sector, Canada’s dismal performance is visible on large-scale infrastructure projects such as pipelines, transportation, and energy. Canada’s ability to move resources to markets, enable workers to commute efficiently, and execute large-scale projects takes twice or more as long and costs twice as much when compared to similar projects in Europe and Australia. Australia, a resource-driven economy much like Canada’s, has improved its productivity over the last 20 years and is now performing five per cent better than Canada.

The above discussions have a direct bearing on the immigrant population and have drastically changed Canada’s population dynamic over the past 20 years. Canada has initiated policy options to restrict the import of unskilled immigrants and scale back temporary foreign workers. But to be effective, the programme needs a complete overhaul. As part of its plan to shrink the number of temporary residents in Canada by 2027, Ottawa is cutting the number of temporary foreign workers that companies can hire from 30–20 per cent of their workforce. However, health care and construction will remain at 30 per cent. One important point to register is that these changes will apply to people applying to come to work in Canada as of May 1, 2024, meaning temporary foreign workers already in Canada will be able to continue working. There is, however, a different perspective on this policy. It is pointed out that companies in both the public and private sectors in Québec, where 70, 000 employers are active in the market, are already experiencing major losses because they are having a hard time finding workers for low-wage and high-wage jobs alike. With the new policy, the problem will only get worse. This may not be so in other provinces.

Jim Stanford, an economist, thinks Ottawa is correcting its overreaction to allowing businesses to hire low-wage workers en masse coming out of the pandemic. He says, ‘This is not going to have an overnight effect, but I think it will gradually reduce the extent to which we are getting hundreds of thousands of very desperate people coming to Canada and working in very desperate, vulnerable situations.’ Most advocated that foreign workers should either be given permanent status or a pathway towards it. Until that policy is adopted, aspirants from developing countries like Bangladesh who are unskilled or semi-skilled should weigh against applying to Canada for jobs to avoid being in severe hardship or even remaining unemployed. Let us be prudent about our immigration choices.

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Humayun Kabir ([email protected]) is a former United Nations official in New York.