Strategies for Addressing Canada’s Productivity Crisis

Canada is facing a significant economic productivity crisis, falling behind its peers in the OECD. Carolyn Rogers, senior deputy governor of the Bank of Canada, highlighted this urgent issue during a speech, stating it is time for decisive action. In 1970, Canada was the sixth most productive economy in the OECD, but projections indicate it may drop to last place by 2060. The productivity issues are clear: in 2022, Canada's economy produced only 71% of the value generated by the U.S. per hour—showing a decline of 17% since 1984. Consequently, the standard of living in Canada has worsened, with real GDP per person in 2023 lower than in 2014.

The looming threat of a 25% tariff on goods exported to the U.S. threatens to exacerbate these productivity challenges, as the U.S. represents the majority of Canadian exports. Various factors contribute to the crisis: low investments, weak competition, complex regulations, a skills gap, reliance on cheap labor, and rapid technological advancements that many struggle to adapt to.

To address these issues, three experts provide insights on how Canada can enhance productivity. Caitlin MacGregor, CEO of Plum, emphasizes that traditional hiring practices based solely on past experience do not predict future performance effectively. Instead, she advocates for assessing candidates based on their intrinsic motivations and alignment with the needs of the roles they are filling. By focusing on durable skills, organizations can adapt better to a rapidly evolving job market where conventional skills quickly become outdated.

Pierre Cléroux, vice-president of research at the Business Development Bank of Canada, suggests that while economic fluctuations are beyond businesses' control, productivity is not. He argues that companies within networks or chains tend to be more productive due to better peer benchmarking. Additionally, he emphasizes the crucial role of technology investment in productivity, noting that the most productive companies invest twice as much in technology per employee compared to others. Automation can significantly enhance production efficiency, especially in light of labor shortages.

Kristina McElheran, an assistant professor at the University of Toronto, underscores the challenges posed by the fourth industrial revolution, wherein rapid technological advancements—especially in AI, digitization, and data analytics—necessitate adaptation from businesses and workers. She highlights that while some firms adapt quickly, others lag behind, creating disparities in productivity. To minimize adverse effects on vulnerable groups, she calls for proactive measures, including data collection and analysis. Governments and academic institutions can enhance data-gathering efforts to facilitate a smoother transition into this technological era.

The consensus among experts is clear: Canada must revamp its approaches to productivity enhancement by focusing on behavioral alignment in hiring, fostering technology investments, creating robust networks for benchmarking, and facilitating proactive adaptation to technological changes. Keeping an open mind while navigating the complexities of technological adaptation will be vital for Canada as it seeks to move beyond its current productivity stagnation and flourish in the global economy.