Canadian Productivity Challenges

 Canada continues to grapple with a persistent productivity challenge, a long-standing issue that has seen its economic output per worker lag behind many advanced economies, particularly the United States.

While the fourth quarter of 2024 showed a slight positive shift, with labor productivity growing by 0.6% – the best quarterly performance in a year and reversing a three-year decline – the overall trend since the mid-1990s has been one of underperformance.

Historically, Canada's labor productivity (output per hour worked) stood at roughly 71.1% of the U.S. level in 2022, a significant drop from 84.9% in 1970. This gap is further highlighted by the fact that in 2023, Canada's average GDP per capita trailed 47 out of 50 U.S. states.

Recent declines have been particularly noticeable in sectors like holding companies, transportation and warehousing, construction (which is at a near 30-year low), and manufacturing.

Surprisingly, even large, economically robust Provinces such as Ontario and Alberta are contributing to the overall national decline in productivity, notwithstanding Alberta's strengths in the energy sector.

-A core issue is "systemic underinvestment" across nearly all Canadian industries. The U.S., for instance, generates 1.5 times higher gross fixed capital formation per worker, with an even wider disparity in intellectual property (IP) and machinery and equipment (M&E) investments.

-This lack of capital deepening is coupled with a slow adoption of new technologies, including artificial intelligence and automation. Many Canadian businesses, especially small and medium-sized enterprises (SMEs), are hesitant to integrate these crucial productivity drivers.

-Structural issues further exacerbate the problem. Canada's economy features a higher proportion of small businesses, which generally invest less in productivity-enhancing technologies and training.

-Innovation can be held back in important sectors like banking and telecommunications because the market is controlled by a small number of large companies, lessening the pressure to compete through new offerings..

-Furthermore, while immigration bolsters the workforce, the underemployment of skilled immigrants represents a significant missed opportunity for productivity gains.

-Inefficiencies in the public sector, from regulatory burdens to underinvestment in public services like healthcare and education, also contribute to the overall challenge.

Improving Canadian productivity requires a multi-pronged strategy:

Firstly, boosting business investment is paramount. This means encouraging firms to invest more in machinery, equipment, software, and intellectual property. Increased public and private R&D investment, coupled with incentives for technology adoption, especially among SMEs, can accelerate growth.

Secondly, optimizing human capital is crucial. This involves effectively leveraging immigrant talent through improved credential recognition and workforce integration. Investing in skills development, including reskilling and upskilling programs for both youth and existing workers, is vital to meet the demands of a changing economy.

Thirdly, enhancing competition and market dynamics can drive innovation. Addressing oligopolistic structures and providing targeted support for SME growth can foster a more dynamic business environment.

Fourthly, improving infrastructure and the regulatory environment is essential. Increased investment in public infrastructure, streamlined regulations, and strong intellectual property protection can reduce costs and encourage investment.

Canada’s new P.M., Mark Carney's agenda directly targets many of the core issues underlying Canada's productivity weakness, particularly underinvestment, regulatory burdens, and internal trade barriers. The focus on infrastructure, technology adoption (especially AI), and streamlining processes is a step in the right direction.

In summary, while there are some positive signs in recent productivity figures, Canada's overall productivity performance remains a significant challenge with deep-rooted causes.

A sustained and coordinated effort from government, businesses, and educational institutions, focusing on investment in capital, technology, and human potential, along with regulatory reform and enhanced competition, is essential to considerably improve Canadian productivity and thus its standard of living..

SP

 Feel free to comment below and share your thoughts and give it a repost.. Thx.

 “For information purposes only and not a recommendation to buy or sell shares”.

Mining News: www.minestockers.com (Disclosure: the writer is a shareholder in minestockers.com) 

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