Canada’s productivity grew three times slower than the U.S. in last two decades: Report

The U.S. has beaten Canada in labour productivity growth in the past four decades, with the gap widening at an accelerated rate in the last 10 years. From 1981 to 2024, Canada’s productivity—the amount of real value derived per hour of work—grew by 61 percent, while American productivity grew by more than 127 percent, according to a new Fraser Institute research paper. The divergence of the two economies began largely at the start of the new millennium. Before that, from 1981 to 2001, Canada’s productivity grew by approximately 38 percent compared to the U.S.’s 47 percent. Canada’s productivity gap became especially acute in the last eight years. In his research, the report’s author and Fraser Institute senior fellow Steven Globerman cited numbers showing Canadian business productivity slipping 0.6 percent from 2017 to 2024, compared to the U.S., where it grew by 10.1 percent. The Fraser Institute also found Canada’s labour productivity would’ve been even lower had the pandemic not forced the permanent elimination of low productivity jobs like those in retail. “The majority of the productivity difference between Canada and the U.S. over the past two decades has been in what’s called the information and culture industries, which is increasingly encompassing digital services of all kinds,” Globerman told The Hub. The former economics professor says while the U.S. has reaped the rewards of a “productivity payback” with technology as a main driver, Canada has been a laggard. New per capita purchasing power data shows the stark results of Canada trailing well behind the U.S. in productivity. Eight of 10 provinces are in the bottom 15 provinces and states for GDP per capita, with jurisdictions such as Ontario ($65,000 USD) and Quebec ($60,100) losing to the vast majority of states, including Wyoming ($87,600), North Dakota ($100,500), and Nebraska ($94,400). “The main input that’s driving [American] productivity…is Information and Communication Technology (ICT) equipment. It’s computers, it’s software, it’s communications equipment.” A county’s labour productivity is affected by intangible capital assets (intellectual property, databases, and software) as well as tangible, physical assets like buildings, vehicles, and equipment. Globerman pointed out that business investment is more of a driver of labour productivity growth than spending by governments. Running parallel to the stagnation of Canada’s productivity growth rate, he compiled data showing capital investments within the country have decreased substantially as well. On the other hand, another recent study from the Fraser Institute shows Canadian governments’ investments in the green economy failing to spur productivity growth. The study showed federal and provincial governments spent $158 billion on the green economy to help create only 68,000 jobs. Getting back on track The former economics professor now sees Canada at an inflection point, where the setbacks of the last few years can be course corrected by capitalizing on emerging AI technology. “I think the real opportunities for major changes in productivity relate to exploiting the technological opportunity that’s created by these general-purpose technologies like AI,” he said. “We don’t want to fall behind again, the way we did in the late 90s and 2000s, in cultivating these world-class companies.” Globerman believes Prime Minister Mark Carney’s first budget is a promising departure from the Trudeau era, in that it diagnoses the country’s productivity problem. “Productivity remains weak, limiting wage gains for workers,” Budget 2025 reads, citing it as one of the main economic challenges Canada is facing. The Carney government announced it will spend $110 billion in the next five years to address this, including “innovation support programs” and “emerging technology support (AI, quantum, and electric vehicles).” However, Globerman argues that it’s somewhat foolhardy for the Carney government to believe it can pick winners and losers in the global free market. “Where I have a little bit of difficulty with the budget is that the government is playing a pretty large role in directing the investment, subsidizing the infrastructure bank that’s going to be either lending money or directly investing money in AI-related activities, [or] government funding the development of data centres,” he explained. The Fraser Institute report concluded a better prescription for curing Canada’s productivity ills would be to encourage top foreign talent and businesses to set up shop here by lowering corporate, individual, and capital gains tax, making us more competitive with the U.S and other developed countries. While the 2025 budget does focus on attracting highly educated global talent, including $1.7 billion to accelerate recruiting top international researchers, Globerman believes fostering a pro-business environment is much more crucial for Canada’s future productivity growth. “Let the market decide what the competitive advantages that Canada has in the AI area,” Globerman said. “No one has that much knowledge to be able to say, ‘I think the money should go here’…and that’s what worries me about centralizing a lot of decision making at the level of the minister of AI and digital innovation, you’ve got bureaucrats making decisions that capital markets should be making.”