Economists say in a new report that Canada risks decreased living standards if it doesn’t address labour productivity issues.
On Thursday, TD Bank’s Chief Economist Beata Caranci and Senior Economist James Marple released a report highlighting a “pronounced downshift” in Canada’s labour productivity across most industries following the pandemic. According to the report, the goods-producing sector accounts for the majority of the nation’s stagnant productivity growth, while the service sector has slowed to a lesser degree.
“If Canada does not play to win on labour productivity, it risks a continued drop in living standards, worsening wage stagnation and a dangerous deterioration in public services,” the report said.
The report noted that during the decade preceding the COVID-19 pandemic, business sector productivity rose by 1.2 per cent each year. However, since 2019 this measure has “ceased to expand at all setting Canada apart as one of the worst performing advanced economies,” the economists said.
Construction
Across various industries in the goods sector, the report said construction is performing the worst as labour productivity has reached nearly a 30-year low.
“This is a longstanding pattern that has worsened, injecting more pain into Canada due to its rising share of economic activity. Construction has generated no productivity growth over the past forty years. It’s not a uniquely Canadian problem, but rather global in nature,” the report said.
Despite the industry’s poor historical performance, construction is growing as a percentage of Canada’s economy more so than other countries, according to the economists.
“In 2023, the construction sector represented 12.6 of all labour hours worked in Canada, up from eight per cent in 1997. Isolating to just the goods-producing sector, construction hours worked now exceed those in manufacturing, nearly doubling from 23 per cent in 1997 to 42 per cent of today,” the report said.
Reform
The economists highlighted that addressing productivity-related issues will require comprehensive strategies like promoting competition, incentivizing the adoption of new technology, adopting smarter regulations and lowering barriers to growth across jurisdictions.
Given the issues, the government should at the very least focus on “doing no harm,” the report said.
“Reforming the tax code more broadly to reduce the cost of new investment should be a policy priority. Focusing on improving productivity in (the) construction sector is particularly urgent due to its growing economic importance,” the report said.