Trevor Tombe, a Professor of Economics at the University of Calgary, dives into Canada's alarming productivity decline. He discusses how Canada has slipped behind the U.S. and identifies key sectors, like oil and gas, contributing to the lag. Tombe examines the impact of trade uncertainties and environmental policies, shedding light on complex internal barriers. He emphasizes the significance of productivity for living standards and suggests strategies for improvement, urging a focused framework for economic policy reform.
Canada's productivity has sharply declined compared to the United States, now producing 50% less per person, impacting living standards.
The interplay of external economic challenges and domestic policies contributes significantly to Canada's productivity crisis, highlighting the need for strategic reforms.
Deep dives
Understanding Productivity
Productivity measures the amount produced for each hour worked, acting as a crucial indicator of a nation's economic efficiency. For instance, it quantifies how many goods, such as haircuts or cars, are produced relative to the labor hours invested. This efficiency is vital for maintaining a standard of living and allows citizens to enjoy resources or potentially work less while preserving their quality of life. Therefore, productivity is not solely about raw output; it fundamentally reflects the effectiveness of labor in generating economic value.
Canada's Decline in Productivity
Historically, Canada's productivity was on par with or better than various advanced economies, but recent trends indicate a significant decline, particularly in comparison to the United States. In the past decade, Canada has seen sluggish productivity growth, with projections suggesting it may fall behind the average of advanced economies for the first time since the 1970s. This decline has resulted in a stark contrast, with the U.S. producing 50% more per person than Canada. This widening gap highlights a crucial issue, as low productivity directly correlates to slower growth in living standards and disposable incomes.
Factors Contributing to Productivity Challenges
Several interconnected factors contribute to Canada's declining productivity, including external economic challenges and domestic policy decisions. Canada's reliance on international trade exposes it to global uncertainties, particularly concerning its relationship with the United States. Additionally, shifts in government policies aimed at environmental goals may detract from investments in key sectors like oil and gas, further exacerbating the productivity crisis. Addressing these issues and promoting internal trade facilitation among provinces could significantly enhance productivity and economic performance.
Over the past several years, measures of economic productivity have seen Canada tumbling. First slowly, then rapidly. Once nearly at par with the United States, we've fallen far behind them—and by some measures we're one of the developed world's least productive countries right now.
How did this happen? Which industries are lagging behind and dragging us down? How much of this fall was within Canada's control, and how much was due to external factors? And when we speak of a country's or a province's "productivity", what exactly are we measuring, and how?
GUEST: Trevor Tombe, Professor at the University of Calgary’s Department of Economics; Director of Fiscal and Economic Policy at The School of Public Policy; Contributor at thehub.ca
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