Skyrocketing Population Gains Highlight Canada’s Perennial Problem: Poor Productivity

Demographic data External link. released this week were no April Fools’ joke: Canada’s population climbed by a near-record 3.2% between April 1, 2023, and April 1, 2024, to exceed 41 million for the first time ever. These gains are keeping Canada’s economy afloat, but output per person has now fallen in six of the last seven quarters—a streak not previously seen outside of a recession (graph 1). What does this tell us about where Canada’s economy is right now and where we may be headed?

Per capita output measures our overall standard of living. Since GDP is the total income generated across the economy, declining real GDP per person means that the money being created—by households and firms—is less than what we should be getting from population growth alone. So even though Canada’s economy is still growing External link. and churning out jobs External link., many people and businesses feel worse off than they did a year and a half to two years ago. The severe 1980s and 1990s downturns are the only other times Canadians experienced such persistent standard of living declines, though output per person has fallen far less dramatically this time around.

The entire country is feeling the pain. In our latest Provincial Outlook External link., we noted that 2023 was the broadest-based standard of living decline in Canadian history aside from the pandemic. Early‑2024 data suggest that trend continued early this year. The data outside the two largest provinces are particularly troubling. Excluding Quebec and Ontario, GDP per person remains below both the 2014–15 peak and the Q4 2019 pre-pandemic level (graph 2). This mirrors the particularly difficult conditions that oil and gas producers faced beginning in the mid‑2010s. That means many people outside our two biggest provinces feel worse off today than they did 10 years ago.

Non-permanent residents—a category dominated by temporary foreign workers—continue to drive the bulk of the population surge (graph 3). But this tailwind to population and economic growth should fade over the coming quarters. Our work shows that Ottawa’s decision to reduce the temporary resident population by 25%–30% will weigh down External link. overall Canadian economic activity.

To be clear, skyrocketing population growth hasn’t been driving the recent slide in our standard of living. It simply illustrates the weaknesses under the hood of Canada’s economy. In fact, we think skilled newcomers can help boost Canada’s economic quality of life over time. For instance, employment outcomes External link. have improved significantly in recent years for both permanent residents and temporary workers. Economic immigrants in particular often fare better than Canadian-born workers. Nearly all the jobs created since the early‑2022 peak job vacancy rate have gone to newcomers. As the latest waves of international migrants more fully integrate into the Canadian labour market, they can reasonably be expected to bolster productivity by applying their skills, experiences and international networks.

Still, recent demographic gains have brought new attention to Canada’s longstanding productivity issues. Oil and gas extraction is by far the most productive sector in the country External link., and its recent challenges explain some of our more recent productivity results. Although oil and gas investment will remain a critical driver of Canada’s prosperity going forward, neither the Alberta government nor the Alberta Energy Regulator see it returning to pre‑2014 rates this decade (graph 4). Against that backdrop, new approaches must be considered. We recently made a series of policy recommendations External link. to promote innovation and productivity in Canada. Artificial intelligence External link. also offers tremendous opportunity (and risk), and getting adoption right is critical for Canadian businesses to be competitive.

Population growth has supported Canada’s economy significantly and can continue to do so in the future, but it’s also masking deeper weakness and highlighting longstanding challenges. Ultimately, for Canadians to truly feel better off over time, we need to fix our productivity problem.