Economy
What is ‘productivity’ and how can we improve it
From the Fraser Institute
Earlier this year, a senior Bank of Canada official caused a stir by describing Canada’s pattern of declining productivity as an “emergency,” confirming that the issue of productivity is now in the spotlight. That’s encouraging. Boosting productivity is the only way to improve living standards, particularly in the long term. Today, Canada ranks 18th globally on the most common measure of productivity, with our position dropping steadily over the last several years.
Productivity is the amount of gross domestic product (GDP) or “output” the economy produces using a given quantity and mix of “inputs.” Labour is a key input in the production process, and most discussions of productivity focus on labour productivity. Productivity can be estimated for the entire economy or for individual industries.
In 2023, labour productivity in Canada was $63.60 per hour (in 2017 dollars). Industries with above average productivity include mining, oil and gas, pipelines, utilities, most parts of manufacturing, and telecommunications. Those with comparatively low productivity levels include accommodation and food services, construction, retail trade, personal and household services, and much of the government sector. Due to the lack of market-determined prices, it’s difficult to gauge productivity in the government and non-profit sectors. Instead, analysts often estimate productivity in these parts of the economy by valuing the inputs they use, of which labour is the most important one.
Within the private sector, there’s a positive linkage between productivity and employee wages and benefits. The most productive industries (on average) pay their workers more. As noted in a February 2024 RBC Economics report, productivity growth is “essentially the only way that business profits and worker wages can sustainably rise at the same time.”
Since the early 2000s, Canada has been losing ground vis-à-vis the United States and other advanced economies on productivity. By 2022, our labour productivity stood at just 70 per cent of the U.S. benchmark. What does this mean for Canadians?
Chronically lagging productivity acts as a drag on the growth of inflation-adjusted wages and incomes. According to a recent study, after adjusting for differences in the purchasing power of a dollar of income in the two countries, GDP per person (an indicator of incomes and living standards) in Canada was only 72 per cent of the U.S. level in 2022, down from 80 per cent a decade earlier. Our performance has continued to deteriorate since 2022. Mainly because of the widening cross-border productivity gap, GDP per person in the U.S. is now $22,000 higher than in Canada.
Addressing Canada’s “productivity crisis” should be a top priority for policymakers and business leaders. While there’s no short-term fix, the following steps can help to put the country on a better productivity growth path.
- Increase business investment in productive assets and activities. Canada scores poorly compared to peer economies in investment in machinery, equipment, advanced technology products and intellectual property. We also must invest more in trade-enabling infrastructure such as ports, highways and other transportation assets that link Canada with global markets and facilitate the movement of goods and services within the country.
- Overhaul federal and provincial tax policies to strengthen incentives for capital formation, innovation, entrepreneurship and business growth.
- Streamline and reduce the cost and complexity of government regulation affecting all sectors of the economy.
- Foster greater competition in local markets and scale back government monopolies and government-sanctioned oligopolies.
- Eliminate interprovincial barriers to trade, investment and labour mobility to bolster Canada’s common market.
Quick Hit:
President Trump on Friday abruptly shut down trade negotiations with Canada and announced retaliatory tariffs over Ottawa’s new tax on U.S. tech firms. Calling the measure a “blatant attack” on America, Trump said he would unveil new tariffs within a week.
Key Details:
- Trump blasted Canada’s Digital Services Tax on Friday, saying it unfairly targets American tech companies like Amazon, Google, and Meta.
- In a Truth Social post, Trump said the U.S. is “terminating ALL discussions on Trade with Canada” and would announce a new tariff schedule in the coming days.
- Canadian officials confirmed the tax will be enforced starting Monday, retroactive to 2022, despite strong U.S. opposition.
Diving Deeper:
President Donald Trump on Friday pulled the plug on trade talks with Canada and said tariffs on Canadian exports are imminent in response to the country’s new Digital Services Tax (DST), which targets major American technology companies.
“We have just been informed that Canada… has just announced that they are putting a Digital Services Tax on our American Technology Companies, which is a direct and blatant attack on our Country,” Trump wrote on Truth Social. The president described Canada as a “very difficult country to trade with,” referencing longstanding frustrations over high tariffs on American agricultural goods—especially dairy.
The move comes just days after Trump returned from the NATO summit, where Canadian Prime Minister Mark Carney was also in attendance. Trump accused Canada of mimicking the European Union, which is engaged in similar disputes with Washington over taxing U.S.-based tech firms.
Citing the tax as unacceptable, Trump declared that “ALL discussions on Trade with Canada” were terminated immediately. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period,” he added.
The Canadian DST, which was passed last year, applies retroactively to 2022 and is scheduled to begin collecting payments Monday. The measure is designed to cover revenues generated by digital services operating in Canada, affecting both Canadian and foreign firms—chiefly U.S.-based tech giants like Amazon, Google, and Meta.
Canadian leaders signaled earlier this month they would not suspend the tax despite U.S. pressure, further escalating trade tensions. Prime Minister Carney, in a statement issued after Trump’s announcement, indicated Canada would remain at the negotiating table. “We’ll continue to conduct these complex negotiations in the best interest of Canadians,” Carney said, according to POLITICO.
Under current U.S. trade policy, goods covered by the USMCA are shielded from tariffs. But products failing to meet those guidelines could face steep penalties—25 percent under the April 2 “Liberation Day” reciprocal tariffs, with some Canadian energy and potash exports already subject to a 10 percent levy.
Trump’s response marks the most significant disruption in U.S.-Canada trade relations since his earlier standoff with former Prime Minister Justin Trudeau. Talks had shown signs of progress in recent months, but the Canadian DST appears to have ended that detente.
Quick Hit:
GE Appliances is reshoring its washer manufacturing operation from China to Louisville, Kentucky in a $490 million move expected to create at least 800 new jobs.
Key Details:
- The company will relocate production of more than 15 washer models to its sprawling Appliance Park campus in Louisville, where it already builds top-load washers and dryers.
- GE Appliances expects to hire at least 800 full-time employees as part of the expansion, which will add the equivalent of 33 football fields of production space.
- CEO Kevin Nolan said the move aligns with the “current economic and policy environment” and reflects a broader strategy to “make appliances as close as possible to our customers.”
Diving Deeper:
GE Appliances announced Thursday it will move most of its washer production out of China and bring it home to the U.S., investing nearly half a billion dollars in expanding its Appliance Park operations in Louisville, Kentucky. The strategic reshoring decision comes as U.S. policy increasingly favors domestic manufacturing and as companies respond to shifting global supply chain realities.
“With this investment, we are bringing laundry production to our global headquarters in Louisville because manufacturing in the U.S. is fundamental to our ‘zero-distance’ business strategy,” said GE Appliances President and CEO Kevin Nolan. “This decision is our most recent product reshoring and aligns with the current economic and policy environment.”
The $490 million investment will focus on Building 2 at Appliance Park, where more than 15 new washer models will be assembled, significantly boosting the company’s clothes care footprint. The added capacity brings GE’s total laundry production space at the Kentucky facility to the size of 33 football fields.
“This move puts our production closer to our designers, engineers and consumers so we can build our most innovative laundry platforms right here in the U.S.,” said Lee Lagomarcino, vice president of clothes care at GE Appliances.
Kentucky Governor Andy Beshear applauded the decision, calling it a major boost for the state’s manufacturing base. “This investment strengthens one of our vital Kentucky assets and underscores our state’s reputation as America’s destination of choice for advanced manufacturing and job creation,” Beshear said.
The reshoring announcement follows a broader trend under President Donald Trump’s economic agenda, which includes imposing tariffs to incentivize companies to relocate production back to American soil.
Appliance Park currently employs roughly 8,000 workers and has been the centerpiece of the company’s U.S. operations. Over the last 10 years, GE Appliances has invested $3.5 billion into domestic manufacturing, with facilities in multiple states. The company says the washer production shift to Kentucky will be completed by 2027.
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