Canada’s Post‑pandemic Productivity Performance May Be Worse than Thought, but It’s Not Condemned to Mediocrity

The recent release of labour productivity data in Canada saw an end to the five-quarter slide in this key indicator of economic health. But it may not last, as total hours worked could again outpace output. Even worse, our analysis of a more apples-to-apples comparison with the US points to Canadian labour productivity having performed worse since 2019 than the oft-quoted data suggest. And if OECD forecasts prove correct, the gap with the US could get worse still. The reason: US investments in innovation over the past decade are paying off in a major way.

However, this dystopian vision for Canada’s future is not inevitable. As Budget 2024 fast approaches, the federal government would be wise to take the opportunity to refocus its plans for encouraging business investment and innovation in Canada. The ongoing erosion in productivity and living standards makes clear that what’s being done now isn’t working. However, a change in policy direction can’t wait for more deliberation. Action is urgently needed.