Canada is facing difficult economic times, even though it has been praised internationally for managing inflation and achieving what the IMF calls a “soft landing.” Technically, Canada isn’t in a recession since the country’s GDP has either grown modestly or remained stagnant, avoiding the technical definition of two consecutive quarters of negative growth. However, if you ask Canadians, most will tell you things are getting worse. Groceries are expensive, housing remains unaffordable, salaries feel insufficient.
When you examine GDP per capita, which reflects output per resident, Canada is experiencing negative growth. This means Canadians are seeing a decline in their standard of living, with real GDP per capita falling back to 2014 levels. Some analysts are calling this a lost decade for the country’s living standards. In addition, labour productivity has decreased for three consecutive years, marking the worst stretch in at least four decades. Despite having a highly educated population, Canada is falling behind in terms of productivity, which is directly related to our declining GDP per capita. Canada’s productivity has stagnated in recent years and has significantly declined over the past four decades compared to other countries. Among G7 nations, only Italy has seen a worse decline relative to the United States.
Why Does Productivity Matter?
Though it may seem abstract, productivity has a major impact on standard of living. Productivity is a ratio between the volume of output and the volume of inputs. It measures how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output. In simple terms, productivity helps us ensure that we get paid well for fewer hours of work while ensuring goods and services don’t get too expensive. Productivity helps us tackle inflation, which has taken the world by storm in the last few years.
Perhaps it’s helpful to look at a cautionary tale. Argentina shows what can happen when productivity stalls. From 1970 to 2021, its productivity stagnated due to growth in low-productivity sectors. In 1970, Argentina’s productivity was 48% of the U.S. level but had fallen to 17% by 2020. The decline was most pronounced in high-tech sectors like chemicals and machinery, but it affected all industries. Low productivity leads to low wages, higher costs, and more work for less reward. Before COVID-19, when Canada had low inflation, Argentina was battling inflation at 53.55% in 2019. Wage growth was also negative in this period and the economy contracted during a time of economic prosperity in Canada. Productivity might seem irrelevant to everyday life, but it gives us an insight into why things feel like they’re headed in the wrong direction.
Canada’s Immigration Story
So why isn’t Canada in a recession despite flailing productivity and GDP per capita? In the past few years, Canada has welcomed a record number of immigrants, particularly to backfill low skilled jobs. Canada is very good at recruiting talented and highly educated immigrants, but we are not good at matching immigrants with the right jobs.
In 2019, 56% of very recent immigrants and 50% of recent immigrants working in Canada had a university degree. Many of these economic class immigrants are accepted based on their academic qualifications and work experience obtained abroad. To fully integrate them into the economy, their credentials and competencies need to be assessed and recognized within Canadian industries. The result of our immigration policy is to accept many highly educated immigrants but place them in jobs for which they are massively overqualified. As an example, 36% of foreign trained nurses work as nurses in Canada compared to 87% of those who are Canadian trained. Our approach to immigration also contributes to our productivity woes, with most growth occurring in low-productivity industries like retail, but higher-productivity industries like aerospace and advanced manufacturing growing very slowly or not growing at all, like the Argentinian story. The inability to properly acknowledge these foreign qualifications is costing Canada between $2.4 billion and $5.9 billion annually by some estimates.
International Students
The postsecondary education sector is facing criticism for significantly increasing the number of international students. Minister Miller’s changes to study permits and post-graduate work permits are expected to reduce international student immigration rates, disrupting vital public-private partnerships in Ontario and according to TriOS, one of our members, potentially leading to the loss of 5,000 full-time jobs. Frequent and sudden policy shifts have thrown the postsecondary sector into disarray. Immigration, Refugees, and Citizenship Canada (IRCC) is exploring more changes, adding to the uncertainty. These disruptions have affected recruitment at colleges and universities, caused international students to reconsider coming to Canada, and strained the financial stability of institutions, making it difficult to plan.
Although Minister Jill Dunlop allocated $1.3 billion to postsecondary institutions, they claim they need double that amount. Ontario’s 2024 budget estimates that lost international student revenue will cost the college sector around $3 billion over two years. In the past three years, ten Ontario public colleges issued nearly 30% of all Canadian study permits, with twelve colleges tripling their annual permits since 2018. This approach is effectively a blunt policy instrument for an entire sector for issues caused by a few actors.
While all of this has been going on, many international students have been shouldering much of the economy by backfilling understaffed jobs. What hasn’t been on the table in the international student debate is how talented and educated international students can be upskilled and reskilled for jobs that Canada desperately needs. Instead, this policy choice amounts to diminish one of the reasons why Canada isn’t in a recession today without a plan to make up for potential losses, and to say nothing of the sectoral blow a choice like this has on postsecondary education.
How to Address Lagging Productivity
The Bank of Canada identifies three main factors behind Canada’s declining productivity: capital intensity, labour composition, and multifactor productivity. Capital intensity is about equipping workers with better tools and technology, while labour composition focuses on the skills and training of the workforce. Multifactor productivity assesses how effectively capital and labour are utilized, factoring in competition, management practices, and technology adoption. Compared to the U.S. and other G7 countries, Canada’s productivity has fallen, driven by a lack of investment in capital, machinery, and intellectual property. While the U.S. invests around $27,000 per worker, Canada invests less than $15,000. Canada’s productivity has declined from 88% of U.S. levels to 71%.
To address these issues, the Bank of Canada recommends prioritizing high-value industries and improving efficiency in existing jobs. Unfortunately, Canada has struggled in both areas. Other ways to boost productivity include enhancing workforce skills through training and reskilling, increasing competition to drive innovation, and encouraging investment in machinery, equipment, and intellectual property. Despite a well-educated workforce, strong research culture, and favorable trade agreements, Canada lags in investment. Ensuring policy stability is crucial for encouraging investment.
Brampton’s Role
From the Brampton Board of Trade’s perspective, access to skilled labor is a top priority for our members. Brampton is home to high-productivity industries like advanced manufacturing, automotive, and aerospace, making it a prime location for Ontario’s industrial policy ambitions, such as building a complete supply chain for automative and EV manufacturing. Instead of penalizing legitimate postsecondary partners for integrating international students into the economy, we should leverage this talent pool to better address labor shortages.
In healthcare, for example, proper recognition of foreign credentials, along with upskilling and reskilling programs, could significantly improve productivity outcomes. Canada should streamline the integration of foreign-trained workers into the domestic workforce. Programs focusing on language and cultural training are especially crucial in sectors like healthcare. Without a proper system for both foreign credential recognition and better economic integration of international students, we risk increased xenophobia as immigrants are increasingly blamed for declining living standards.
Brampton’s strategic location near Pearson International Airport, Canada’s largest intermodal railway terminal, and in the heart of the Innovation Super Corridor, further strengthens its position to be the centrepoint of Canada’s productivity boom. Manufacturing accounts for 16% of Brampton’s employment and contributes around $4 billion to the national GDP, with aerospace being another key industry in the area. The need for skilled workers is also tied to Brampton’s housing targets and transportation infrastructure projects. As the Brampton Board of Trade looks to develop its strategy related to access to labour, we wish to invite members to share their input on how we can better advocate for you, whether its tangible recommendations for the government or simply stories of your struggles to find talent.
Boosting productivity will help create jobs, improve wages, and lower the cost of living. Canada is leaving a lot of unrealized wealth on the table by not pursuing an aggressive industrial policy agenda to improve productivity. We’re also actively worsening living standards and creating a more inhospitable environment for immigrants on which we rely. We ask the federal government, regardless of partisanship, to prioritize industrial policy and centre Brampton as one of the industrial hubs for Canada’s future.
If you have a story about challenges in attracting and retaining talent, or upskilling and reskilling workers, please reach out to vsingh@bramptonbot.com. We will discuss this topic and more at our upcoming In Conversation with Hon. Rechie Valdez, Minister of Small Business, on August 28th, as well as our forthcoming forums on the Future of Work and AI.
