Canada’s Productivity Crisis Is a Structural Failure That Has Been Building for a Decade

Commentary

Here is a sobering number: Canada’s real GDP per capita fell 2.0 percent over the five years from 2020 to 2024—the worst such decline since the Great Depression. Meanwhile, the United States grew by roughly 4.5 percent over the same period. We didn’t fall behind because of a pandemic or a commodity shock. We fell behind because of choices.

Call it what it is: a productivity crisis. Not a slowdown, not a soft patch, not a transition. A crisis.

How Bad Is It?

In 2002, Canada’s GDP per capita was roughly 80 percent of the American figure. By 2024, that ratio had fallen to approximately 67 percent—a gap of more than $22,000 per person annually when adjusted for purchasing power. The OECD’s long-range outlook is even more sobering: Canada is projected to rank dead last among all 38 OECD member nations in real GDP per capita growth through 2060.

Labour productivity—the measure of how much output each worker generates—tells the same story. Since 2019, Canadian business-sector productivity has essentially flatlined. The Bank of Canada’s own senior deputy governor called the situation an “emergency” in 2024. A Canadian worker now produces roughly $143,000 in annual output compared to nearly $200,000 for an American counterpart—a 30 percent gap. For every dollar of new capital equipment and technology that an American worker has access to, a Canadian worker receives just 55 cents.

This is a structural failure that has been building for a decade.

How We Got Here

The diagnosis isn’t complicated, even if the politics around it are: Canada systematically discouraged the investment that drives productivity growth.

Energy sector investment fell 15 percent between 2010 and 2023, not because the resources ran out, but because a series of federal policy decisions made major projects financially and regulatorily unviable. Billions in capital that could have driven productivity left for jurisdictions more willing to say yes. Spending on machinery, equipment, and technology—the physical inputs of productivity—currently remains below 2008 levels in real terms. While investment was stagnating, real estate was booming, absorbing capital that in a healthier economy would have flowed into productive enterprise. Canada incentivizes condo speculators at the expense of entrepreneurial creators.

Immigration policy, well-intentioned in its framing, made things quietly worse. A surge in lower-skilled temporary workers reduced the incentive for businesses to invest in the capital and technology that actually drive productivity. When labour is abundant and cheap, the pressure to automate and innovate evaporates. The Bank of Canada estimated that the compositional shift in the temporary workforce reduced nominal wages across the economy by approximately 0.7 percent in 2023 and 2024 alone. This has had a cumulative effect over the years.

A Measure of the Damage

There is a metric that captures this failure with unusual precision. Economists call it the Incremental Capital Output Ratio, or ICOR—the amount of investment required to generate one additional unit of economic growth. A low number means capital is being deployed efficiently. A high number means it is being consumed without generating commensurate returns.

Canada’s ICOR, calculated from gross fixed capital formation as a share of GDP divided by real GDP growth, currently sits in the range of 15 to 18. The United States, investing at roughly the same rate as Canada as a share of GDP, posts an ICOR of 8 to 10. Canada’s number, in other words, is not the ICOR of a country in cyclical difficulty. It is the ICOR of a country that has structurally lost the ability to convert investment into growth.

The mechanism is not abstract. Consider the Eglinton Crosstown light rail line in Toronto—a project that took approximately 15 years and over $12 billion to complete, at a per-kilometre cost that would have funded multiple full metro lines in Madrid, Seoul, or Istanbul. This is not an anomaly. It is a symptom of an institutional environment where the productive deployment of capital has become extraordinarily difficult—where process has displaced outcomes, and where the returns on investment are consumed by complexity before they reach the economy.

Canada is investing. It is simply not getting anything back.

The People Who Are Leaving

The most corrosive consequence of these policies is the one hardest to measure in quarterly data: the departure of Canada’s most productive people.

Canadian net emigration reached 65,372 in 2024–25, the highest level in the 50-year data series. Of those leaving, close to 70 percent hold at least a university degree—more than double the share in the working-age population as a whole. Two-thirds are between 20 and 44 years old. They are disproportionately concentrated in natural and applied sciences and finance—precisely the fields that generate the innovation and investment returns an economy needs to grow.

The technology sector numbers are stark. Two-thirds of software engineering graduates from the University of Toronto, University of British Columbia, and University of Waterloo left Canada for work after graduating. Nearly two in three graduate researchers are considering leaving before completing their degrees. And whether social activists want to admit it or not, the top 10 percent of taxpayers in Canada pay well over half of all taxes.

We are, in a very literal sense, subsidizing the education of people who then go on to make the American economy more productive. Notable Canadian-educated tech entrepreneurs are leading companies headquartered in the United States.

The Way Out

The good news—if it can be called that—is that the path back is not mysterious. McKinsey & Company has estimated that if Canada seizes the available growth opportunities, households could be roughly $16,000 better off by 2035. The preconditions are not exotic: capital tax reform that makes investment here competitive with investment in the United States, regulatory streamlining that allows major projects to actually get built, and an immigration policy refocused on high-skilled workers who complement capital rather than substitute for it.

What Canada cannot afford is the continued pretence that aggregate GDP growth—propped up by population expansion—is the same thing as prosperity. It is not. Population growth disguised the contraction for years. The disguise has worn thin.

Mark Carney’s government has inherited a serious problem, and the political will to confront it honestly has been conspicuously absent from Canadian public life for a decade. Productivity is not a compelling election slogan, but a country that falls to the bottom of the OECD’s long-range rankings tends to, eventually, produce very compelling elections indeed.

The crisis is real. The causes are knowable. What remains to be seen is whether Canadian leadership has the resolve to choose differently.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.