Features | From Pivot Magazine

The solution to Canada’s plummeting productivity 

It isn’t what you think, says CPA Canada’s chief economist Francis Fong  

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Collage of people busy at workBaby boomers are about to retire en masse, and there are simply not enough young people to take their place (Getty)

Economists have been scrutinizing Canada’s productivity growth for decades. Let me explain. If a worker produces 10 widgets in an hour today, then 11 widgets in the same amount of time tomorrow, his productivity grows. Apply that logic to all of Canada’s workers and their output year over year and, voila, you get national productivity, a stat that economists link to our overall standard of living. Low productivity growth can cause wages after inflation to stagnate and certain segments of the population to fall behind.

Through the 1960s and ’70s, new equipment and machinery allowed Canadian workers to produce more with less, and a boom in international trade meant businesses had access to massive overseas markets to sell that output. Productivity grew roughly two to three per cent every year, contributing to average economic growth of four to six per cent. Over the past 20 years, however, things have slowed considerably. Annual economic growth has averaged about 2.2 per cent, and mean productivity growth is just 0.8 per cent per year. 

That structural decline shows no sign of stopping. Baby Boomers, who account for about one-quarter of our labour force today, will retire en masse over the next 15 years, and there are simply not enough young people to take their place. In a previous column, I noted that the old-age dependency ratio—the size of the 65-plus population relative to those aged 15 to 64—is projected to fall from four to one today to roughly two to one by 2060. Consider the efficiency of our systems—healthcare, education, public transit—right now. Now consider how well they’ll function when there are two working people for every one retired person. Our systems were not designed for the demographic reality that we now face. 

If you’re not worried about this by now, you ought to be. Think of economic growth in its simplest terms: the number of people working and how much they produce. The labour side of that equation isn’t growing, which means that it’s up to productivity growth to shoulder the expansion of the Canadian economy. But as the numbers show, our recent track record there is abysmal.

“Since 2000, ­productivity growth in Canada has averaged 0.8%, less than half the mean rate in the 1960s and ’70s.”

What can be done? Technology and innovation may seem like the key to reviving productivity. After all, so much of our collective energy is focused on chasing the next device or app—and who can blame us? A single gadget can net a developer hundreds of millions of dollars, startups are sitting on mountains of cash and billionaires are popping up all over the place. Beyond that, decades of progress and international trade have lifted hundreds of millions out of poverty across the world and allowed advanced economies like Canada to become decidedly richer.

But take a step back for a second. Even with all of our groundbreaking technological advances, we haven’t cracked one per cent productivity growth on average since 2000. And even if what we have in store—driverless cars, artificial intelligence, smart farming or whatever—helps get that number up, the last 30 years have taught us that those gains are not a free lunch.

Many have been left behind in the name of progress and productivity. New innovations may create lots of jobs and huge amounts of wealth, but they often do so at the cost of disrupting entire sectors. Workers in industries like manufacturing, forestry and other traditional goods-producing sectors are at war with obsolescence. As a result, job losses, stagnant wages and rising inequality are now commonplace. It’s two steps forward, one step back.

Those steps backwards have real consequences on the economy and beyond. In my mind, economic disenfranchisement—and the anger that comes with it—is at least partly responsible for the global rise of populism and the leaders who weaponize that anger. That movement—just as much as low productivity growth itself—is now threatening Canada’s standard of living.

Productivity growth must be our collective imperative. Our well-being depends on it. But to blindly chase productivity without considering its potential negative consequences will simply lead to further deterioration of the systems and institutions that underpin our current prosperity. What we need now are sister programs designed to help people transition into the new economy and adapt to an ever-changing labour market: skills training, income supports, affordable childcare, flexible post-secondary education. We must realize that we can’t do things the way we’ve always done them—that simply would not be productive.