By Ako Ufodike, York University, Canada, The Conversation
As Canada moves into 2025, its productivity still lags, despite efforts by the federal government to address the issue in the 2024 federal budget.
Canada’s productivity has declined in nine of the last 10 quarters. Between 2015 and 2023, Canadian productivity fell by an average of 0.8 per cent per year. This means that, for every hour worked by Canadian employees, their output decreased by about eight per cent over that entire period.
Labour productivity measures how much an economy produces per hour of work. Increasing productivity means finding ways to help people create more value in the time they spend working. However, how productivity is measured — and who benefits from productivity stimulation initiatives — varies.
From an employer’s perspective, the main factor influencing productivity is the number of hours worked. For employees, the best proxy is wages received per hour worked — two related variables with differing implications.
To date, Canada’s strategy to improve productivity has been very traditional, in that its primary aim has been to provide incentives for improved business performance.
Global productivity issues
Canada’s productivity stagnation struggles are not unique. A December 2024 OECD working paper highlighted a widespread slowdown across the OECD nations.
From 1995 to 2023, ouputs from labour and capital inputs — know as multifactor productivity — declined sharply in both small and large advanced OECD countries.
In Australia, Austria, Belgium, Canada, France, Spain and the United Kingdom, productivity has nearly stalled. Greece, Italy, Luxembourg and Mexico experienced prolonged periods of negative growth.
The OECD paper also found a link between productivity decline and stagnating human capital development. Since 2003, young citizens of OECD countries have underperformed on standardized tests in science, math and reading.
At the same time, many skilled immigrants to these countries are selected from the sciences and must score exceptionally high on language proficiency exams such as the International English Language Testing System.
This raises questions about how countries assess and utilize human capital, and whether traditional productivity measures fully capture workforce potential.
Innovation in productivity approaches
Innovation improves productivity, yet Canada’s 2024 budget fails to embrace this principle. The 2024 budget prescribed five main strategies to address Canada’s productivity issues:
- incentives for entrepreneurs;
- fiscal incentives for productivity-enhancing assets;
- regulatory sandboxes to reduce bureaucratic red tape;
- enhanced federal research support;
- a $200-million investment in the Venture Capital Catalyst Initiative.
However, the initiatives largely continue to follow the traditional approach which focuses on incentivizing businesses to increase output, rather than focusing on workers — the factor most relevant to productivity.
One of the budget’s major assumptions, which has so far failed to materialize, was that productivity would grow by 1.8 per cent between 2024 and 2028, despite a 1.8 per cent decline over the previous three years and a 0.8 per cent decline over the preceding decade.
Another overlooked factor is that declining wages also decrease productivity. Instead of focusing solely on business incentives, a more effective labour-agency approach would also incentivize those who own the denominator in the productivity formula — workers.
Addressing immigrant underemployment
Immigrants are the primary drivers of population growth in most OECD countries, yet many end up in precarious employment or underemployed, despite being exceptionally qualified.
Even when immigrants are employed at the appropriate level, many are underpaid in comparison to non-immigrant workers or their predecessors in the same roles. This wage suppression is at odds with efforts to improve productivity.
This issue is particularly evident in Canada, where conversations about productivity are being shaped by immigration trends. In 2023, Canada welcomed one million new immigrants without a corresponding increase in economic output. From July 2023 to July 2024, immigrant underemployment rose by 3.1 to 12.6 per cent.
Labour market integration varies across regions. In Alberta, for example, 80 per cent of new jobs between 2018 and 2022 were filled by immigrants, yet, productivity did not rise.
Some critics have blamed immigrants for Canada’s productivity struggles, but this narrative risks fostering anti-immigrant sentiment. While population growth may contribute to declining per capita productivity, in reality, many highly qualified immigrants end up underemployed or unemployed through no fault of their own.
A 2024 Statistics Canada report highlighted this missed economic opportunity, stating: “recent immigrants were more likely than people born in Canada to be employed in professional occupations and lower-skilled and labourer occupations.”
Despite this, the 2024 budget doesn’t address harmful “unproductive immigrant” narratives.
Driving productivity growth
Canada’s current approach to productivity is incomplete. While business incentives play a role, productivity growth cannot be achieved without investing in workers — particularly immigrants, who represent a growing share of the workforce.
Canada and other OECD nations are missing an opportunity by failing to fully utilize immigrant talent. Rather than blaming immigrants for productivity declines, countries should recognize immigrants as valuable contributors. Proper credential recognition and expanding workforce integration programs could allow immigrants to contribute at their full economic potential.
A truly innovative productivity strategy would fund reskilling, upskilling and mentorship programs for immigrants and youth. It would also support equity initiatives to ensure immigrants aren’t exploited or paid less than their counterparts.
Improving career mobility is also essential. Helping immigrants transition into high-output sectors, such as technology or engineering, through retraining programs and targeted incentives could strengthen productivity.
Addressing wage inequity is also crucial. Ensuring immigrants receive fair wages aligned with their qualifications will improve worker motivation and productivity, consistent with the arguments of efficient wage theory.
If these issues remain unaddressed, Canada risks continued productivity stagnation by overlooking a key opportunity to harness the potential of its immigrant workforce.
Ako Ufodike, Associate Professor, Administrative Studies, York University, Canada
This article is republished from The Conversation under a Creative Commons license. Read the original article.
