Pedestrians stroll through Toronto's financial district. (Credit: Brent Lewin/Bloomberg files)
Labour productivity in Canada declined by 0.2% in the second quarter of 2024, marking a second consecutive quarterly drop, according to Statistics Canada. This follows a 0.3% decrease in the first quarter. Overall productivity fell by 0.7% on an annual basis.
This ongoing decline in productivity, crucial for determining disposable income and living standards, is raising concerns among economists. Douglas Porter, chief economist at the Bank of Montreal, emphasized that this is a widespread issue affecting the entire economy, not just specific industries. He warned that if this trend continues, Canada's standard of living could further decline.
Despite a 0.6% increase in hours worked due to more job openings, output growth failed to match this rise. The service sector contributed significantly to the decline, with information and cultural industries down by 2.1%, real estate services by 1.5%, and professional services by 0.9%.
Pedro Antunes, chief economist at the Conference Board of Canada, highlighted that productivity has been on a downward trend since before the pandemic, and Canada has historically lagged in productivity growth. This concern has also been noted by the Bank of Canada, with senior deputy governor Carolyn Rogers declaring the issue as critical earlier this year.
Antunes pointed out that Canada's business investment in machinery, equipment, and infrastructure is low compared to labour, which affects overall productivity. GDP per capita also dropped for the fifth consecutive quarter in the second quarter of this year, showing a negative trend in Canadians' standard of living.
Canada's productivity has fallen behind the U.S. by 10% over the past five years, and among OECD countries, Canada now ranks lower than Italy and Spain. Antunes identified significant declines in productivity in transportation and warehousing (-9.4%), construction (-11.5%), and utilities (-13.5%) compared to 2019 levels. The construction sector, in particular, has seen little innovation, affecting its productivity despite substantial investment.
Porter noted that increased capital spending on residential housing might be diverting resources from more productive sectors. He emphasized that while housing is essential, the focus on real estate at the expense of other areas may be detrimental to overall productivity.
In summary, the persistent drop in productivity is impacting Canadians' earnings and overall economic well-being. Without addressing these issues, Canada may continue to fall behind other developed nations in productivity and living standards.
