Report says that without improvement, everyone will suffer
Canada has a productivity problem, and if it’s not addressed then everyone will suffer from a weakened economy, poorer public services, and overall lower living standards.
That’s the stark warning from economists at TD Economics who say that the dynamics of Canadian industry also means it will be harder to improve in some areas than is the case for peers. This includes the “deepening presence” of construction in Canada with this industry’s productivity near a 30-year low.
But chief economist Beata Caranci and senior economist James Marple say that weaker labour productivity since the pandemic has been seen in most industries and severely lag US equivalents. Services have fared better than goods sectors but still show weakness.
The duo acknowledges that perception of what productivity is can make it hard to sell to the general population who may believe it’s about fewer people working harder, but they highlight how strong productivity drives real wage growth and improvement of public services.
This, they say, should make improving productivity a priority and a concern to all Canadians but especially younger generations who may face higher taxes or reduced public services as government spending outpaces wage growth and revenues.
The slowdown in productivity started before the pandemic, but only just. It had been growing by 1.2% annually up until 2019 when it stagnated across multiple industries but led by construction, especially residential which is dominated by smaller companies that have been generally slower to adopt new technologies.
Productivity in the sector has been in decline globally for decades, the report says, but for Canada it is constructions growing importance to the economy that means it has greater relevance. With a housing supply shortage, it is unlikely that construction will become less important in Canada any time soon.
“The rising importance of construction increases the urgency to improve productivity in the sector,” the economists state in their report. “But this requires more outside-the-box thinking, including moving to more prefabricated or modular building, developing a reskilled workforce around it, and rethinking the building code to allow for more flexibility in the sources of materials used that maintain the same results in terms of safety and durability.”
There has also been an over reliance on non-permanent workers in low-paid roles in services industries.
Some industries are doing better on productivity, including wholesale and retail trade, information and cultural industries, accommodation and food services, and real estate, rental, and leasing, but even though they are leading productivity growth in Canada, they are doing so at a slower pace than in the US.
“In fact, there’s only one sector that has consistently outperformed its American counterparts over the past decade and through the pandemic: finance, insurance, real estate, rental and leasing,” the report says.
Caracini and Marple say that Canadian productivity has gone from bad to worse and will require policies that promote competitiveness, fuel adoption of technology, and encourage capital investment.
“If Canada does not play to win on labour productivity, it risks a continued drop in living standards, worsening wage stagnation and a dangerous deterioration in public services,” they conclude.
