The focus in Canada, understandably, is presently on inflation. It is having a huge impact on the real income of Canadians. As prices dramatically escalate, we are all poorer. However, if the Bank of Canada and private sector economists are correct, inflation will subside over the course of 2023 to more typical levels. Canadian Federal and Provincial Governments must now look beyond the short term, and put in place the conditions to grow Canadians’ incomes over the medium and long terms.
Per capita income growth in Canada is lower than in most developed nations. David Williams of the Business Council of BC, in a 2021 report, reveals that in Canada the increase in real gross domestic product (GDP) per capita in the long-term, from 1961-2019, was 1.5%-1.7%, and in the latest business cycle, from 2008-2019, was .8-1.1% per year. The average increase of the 40 countries in the OECD (Organization of Economic Cooperation and Development) from 2008-2019 was 1.3% per year. Canada was ranked 27th of 40 countries.
In an October 2022 article, Williams bluntly notes, “The OECD projects that Canada will be the worst performing economy among 38 advanced economies over both 2020-2030 and 2030-2060, with the lowest potential growth in GDP per capita.” Why would Canada, with a developed economy and a highly educated population, suffer the worst growth in income of the 38 OECD countries? Williams, again, addresses this frankly, “The principal reason Canada is expected to rank dead last for growth in income per capita is its serially weak growth in labour productivity (i.e., real GDP per hour worked).”
In simple terms, productivity is a measure of the efficiency of the economy. Williams compares the income growth and productivity growth statistics in Canada from 1961-2019, as well as from 2008-2019. He concludes, “pay and productivity have broadly kept pace with each other over both the long run and the most recent business cycle from 2008-2019.” In other words, increases in income are substantially correlated with increases in productivity.
One must conclude, then, that productivity receives insufficient attention by governments, opposition parties, media, perhaps even economists. Stagnating productivity growth reduces the growth of real income as certainly as inflation does. Admittedly, inflation (at 7.9%) presently impacts Canadians’ standard of living more than low productivity growth. But excessive price inflation is expected to be temporary (and is at least partially offset by wage inflation). Consistently low productivity growth, by contrast, has plagued the Canadian economy for decades, as has the resulting anemic income growth.
From 1961-2019, Canada’s productivity growth was 1.5-1.7%. From 2008-2019, Canada’s productivity growth was about .7-1%. Williams estimates that, had the increase in productivity growth after 2000 matched that of the average of OECD countries, the average Canadian’s pay would have been $2900 higher in 2019. The OECD predicts that from 2020-2030, Canada will rank 36th out of 40 countries in productivity growth, and from 2030-2060, will be the lowest of all 40 countries. In both periods, productivity growth will be paltry, less than 1%.
Achieving higher productivity, says Williams, is about, “applying more advanced capital equipment, facilities, technologies, skills and scale for each hour of labour employed in the production of goods and services.” So, productivity growth is achieved by business investment in these advantages. In turn, the willingness of business to invest is impacted by government taxation, incentive and regulatory policies.
Federal and provincial governments offer a jumble of incentive programs to encourage investment. For example, the federal government offers investment tax credits and an assortment of finance plans and equity investment plans. Some commentators have stated that a revamp of governments’ structural policies would produce better results than these incentives. For example: taxation policy must be simplified and more competitive; regulatory policies must be less onerous and less complex; and environmental reviews must have time limits and predictable results.
When these fundamental problems are addressed, companies will invest more and productivity will grow. Only then, will Canadians’ real incomes increase appreciably. More on getting there in next week’s column.
Bruce W Uzelman
I grew up in Paradise Hill, a village in Northwestern Saskatchewan. I come from a large family. My parents instilled good values, but yet afforded us, my seven siblings and I, much freedom to do the things we wished to do. I spent my early years exploring the hills and forests and fields surrounding the village, a great way to come of age. My parents owned a successful general store. My siblings and I were required to help out in the business, no choices allowed there!
I attended the University of Saskatchewan in Saskatoon. I considered studying journalism at one point, but did not ultimately pursue that. However, I obtained a Bachelor of Arts, Advanced with majors in Economics and Political Science in 1982.
My career has consisted exclusively of small business, primarily restaurant and retail. I was originally based in Alberta, and then BC, first in Summerland, then Victoria and finally Kelowna (for over 20 years). I was married in Alberta, and we have two daughters, who have returned to Alberta as adults for career reasons, as did my now ex-wife. My daughters are successful, and now have families of their own.
I have maintained a healthy interest in politics throughout my adult years, and wish to put that and my research skills to work as a political columnist.