Canadians are working harder but not getting ahead — and productivity is to blame

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Currency movements should, in theory, work in Canada’s favour. A weaker dollar ought to make exports more competitive. But without a robust manufacturing sector to respond, those gains are muted. Instead, we are left with a lose-lose scenario: a cyclical resource sector driving volatility, and a weaker currency that delivers fewer of the benefits it once did — because the sectors with export potential that would capitalize on it have diminished.

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Anil Arora, former chief statistician of Statistics Canada. Photo by Alan Cochrane/Times-Transcript

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Layered on top of this is housing. Over the past decade, rising demand, limited supply and escalating prices have drawn increasing amounts of capital and labour into real estate and construction. Housing is essential, but the sector itself has persistently weak productivity growth. The broader effect is one of reallocation. Capital that could be invested in technology, innovation and scale is instead tied up in land and buildings. When a growing share of economic effort flows into a sector that does not significantly raise output per worker, it weighs on overall productivity.

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Canada’s demographic trends are adding further pressure. An aging population — nearly one in five Canadians is over 65 — is increasing demand for healthcare and social services. Fertility rates have fallen to historic lows, reducing the flow of new workers. At the same time, recent surges in immigration, while essential for long-term growth, have strained housing, infrastructure and public services. Add the lingering effects of COVID-19, and a clear pattern emerges: A growing share of labour and capital is being directed toward maintaining and expanding capacity, rather than boosting productivity. Make no mistake, these investments are necessary. But they do not, on their own, increase output per hour worked.

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Taken together, these forces help explain Canada’s weak productivity performance. Underinvestment in business capital, limited commercialization of innovation, resource dependence, housing-driven capital allocation and demographic pressures are not separate issues. They reinforce one another. The result is an economy that is growing in size — but not in efficiency.

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It is this disconnect — between how hard we are working and how little we are getting ahead — that should concern us most.

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This is not a story of inevitable decline or a culture we cannot reverse. Canada has real strengths: a highly educated workforce, strong institutions, deep global ties and emerging leadership in critical technologies. What is missing is deliberate and structural alignment. We need policies that encourage and incentivize greater business investment in productivity-enhancing assets, particularly digital and intangible capital. We need to better connect research with commercialization, ensuring that Canadian ideas scale at home and where we can extract rents in an increasingly digital and data-driven economy. We need stronger frameworks to protect and leverage intellectual property. And we need to build industrial capabilities in strategic sectors, including defence and advanced manufacturing, where spillovers can lift productivity across the economy. Equally important is co-ordination. Immigration, housing, infrastructure and labour market policies must work together so that population growth translates into productivity gains — not just pressure on systems. Canada has also lost some of its large “anchor” firms — the kinds of companies that create ecosystems, drive innovation and generate spillovers. Rebuilding that capacity is essential.

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Productivity is not an abstract indicator. It determines whether wages rise, whether businesses remain competitive and whether governments can sustain public services without accumulating unsustainable debt. Left unaddressed, it is less like a sudden crisis and more like a slow leak — barely noticeable at first, but steadily draining strength from the system until the damage is undeniable.

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Having seen how quickly these dynamics can take hold — and how difficult they are to reverse — the cost of inaction is not theoretical. It takes a toll on those who can least afford it, and certainly not a legacy we want to leave for the next generation.

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Canada has the ingredients to succeed. The question is whether we are prepared to use them. Because in the end, productivity is not about producing more. It is about enabling Canadians to live better.

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Anil Arora is the former Chief Statistician of Canada and an adjunct lecturer at Harvard Kennedy School. On May 13, he will deliver the second talk of The Canadian Standard of Living, Productivity and Innovation lectures — a series of events focused on strengthening Canada’s productivity cycle and standard of living hosted by the Centre for International Governance Innovation and sponsored by Savvas Chamerblain.

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