Why Canada’s low productivity is problematic for B.C.’s businesses, workers and economy

Low productivity can mean stagnant income, fewer jobs, slow economic growth and poorer quality of living

Many B.C. business leaders say they agree with the Bank of Canada’s statement that the country is facing a productivity “emergency” that has already negatively impacted Canadians’ quality of living and that requires immediate redress.

In a recent speech, senior deputy governor Carolyn Rogers emphasized the threat to national living standards presented by chronically sluggish productivity growth.

“I think that’s pretty accurate because labour productivity in

Canada has fallen for three consecutive years. That’s the worst performance in 41 years,” said David Williams, vice-president of policy at the Business Council of British Columbia.

Statistics Canada defines labour productivity as the value created per hour. Its statistics show that in 2021, there was an average of $65.20 in value created per hour in Canada, a decrease of $3.30 per hour since 2020. This figure declined further to $63.70 in 2022.

Productivity in B.C. has also seen consecutive declines over the past three years—dropping from $68 per hour in 2020 to $65.10 in 2021 and to $64.60 in 2022.

Canada’s productivity was only 71 per cent of that in the U.S. in 2022, according to the Bank of Canada, and the country has also fallen behind its other G7 peers— except Italy.

“For the same number of working hours, we produce less than we did the year before, and less than the year before that. It’s quite an extraordinary situation that Canada finds itself in,” said Williams.

Productivity is an important indicator of a country or region’s economic growth and competitiveness. A consequence of lower productivity, said Williams, is fewer profits for businesses and stagnant income for workers— realities that can in turn lead to poorer quality of living.

“Australia is a smaller country than Canada but their standard of living and income per person is now much higher than Canada’s and that’s really down to its productivity being higher,” he said. “German workers get 20 per cent more time off than we do by being more productive.”

David Van Hemmen, vice-president of the Greater Vancouver Board of Trade, said B.C. will face serious consequences if it is not able to turn the tide on its lagging productivity.

“We will have less revenue available for governance to fund the programs that we need, the great talent that we have in B.C. will look at other jurisdictions, businesses will look to invest elsewhere and wages would stagnate rather than increase,” he said.

Without growing productivity, Canadians will have to borrow to sustain their current quality of living. This is already happening and can be seen in high levels of household debt and large government budget deficit, said Williams.

“But that’s not something that can go on and on without

consequence.”

Stringent regulatory environment hinders productivity

Van Hemmen said one of the main reasons for lower productivity in Canada and B.C. is the stringent regulatory environment, which curbs businesses’ ability to make profits and invest.

“The feedback [from B.C. businesses] is that British Columbia is increasingly a challenging place to invest in. And without becoming a more attractive destination for investment, we will continue to struggle to become more productive,” he said.

“B.C. has the highest marginal tax rates for new capital investment. We’re the highest tax jurisdiction in North America for investing in new machinery and equipment, for example.”

In fact, business investment per worker has declined in Canada since 2015 and is not keeping up with depreciation, according to Williams.

“We have high corporate taxes, high personal taxes, rising carbon tax, we have the provincial sales tax.… In British Columbia’s case, we have seen almost no private sector jobs growth since 2019,” said Williams.

He said it’s “certainly clear” that private-sector incomes and labour productivity is not a priority for the federal and provincial governments. So BCBC has been calling for the establishment of an Australian-style national productivity commission to keep labour productivity top-of-mind for policymakers.

“It will look at how markets are operating, where are the inefficiencies, where are their structural disincentives to investing to do R&D [research and development], to scaling up and exporting into international markets. Those are all the things that lead to higher productivity over time,” said Williams.

Van Hemmen said both the Canadian and B.C. governments need to be “laser-focused” on attracting investment and providing a better regulatory environment to ensure that businesses are able to invest and innovate.

There are also gaps that governments can address to help increase productivity—strengthening the connection between research funding and testing the commercial viability of a product or service, for example, and aligning training and education with present and future labour needs.

Canada can also improve its immigration system to allow immigrants to quickly begin working in their area of practice—something the U. S. does, according to Van Hemmen.

“The results [in Canada] have not matched the rhetoric of the programs that have been announced,” he said.

“We need to ensure that it’s not just saying the right things, it’s being proactive in making the right investments and demonstrating that those investments are having the results that we’re all hoping that they will have.” •