What is Canada's productivity gap with the United States?
Answer
Canadian labour productivity is about 75 per cent of the U.S. level in 2023, the largest persistent gap among G7 countries, driven by under-investment in machinery and software.
Explanation
Canada's productivity gap with the United States is one of the country's most persistent economic weaknesses. Canadian labour productivity (gross domestic product per hour worked) ran at about 75 per cent of the U.S. level in 2023 according to Statistics Canada and the OECD, the largest productivity gap among G7 countries. The gap has widened slightly since 1984, even as Canadian labour-force participation, education levels, and innovation outputs rose.
The leading cause identified by economists, including Nick Carney, the Bank of Canada Governor in 2024, is under-investment in machinery, equipment, and software per worker. Canadian businesses invest about 60 per cent as much per hour worked as their U.S. counterparts, particularly in information and communications technology. The smaller scale of Canadian firms, the share of foreign-owned subsidiaries that follow head-office decisions, and the structure of Canadian tax policy have all been cited as explanations.
The productivity gap has direct consequences for living standards. Real GDP per capita, a closely related measure, was about 80 per cent of the U.S. level in 2023 and the gap has widened since the 2008 financial crisis. Wage growth and disposable income have lagged. The Bank of Canada called the productivity situation 'an emergency' in a March 2024 speech, urging policy attention to investment, scale, and competition.
Federal policy responses include the Strategic Innovation Fund's clean technology and manufacturing streams, the Canada Digital Adoption Programme, the federal investment tax credits for clean technology and manufacturing introduced in 2023 and 2024, the Pan-Canadian Artificial Intelligence Strategy, the Canadian Sovereign AI Compute Strategy, the Industrial Research Assistance Programme, and SR&ED tax credits. The Competition Act amendments of 2022 and 2023 broadened the scope of competition enforcement. Provincial industrial-policy programmes through Investissement Québec, Invest Ontario, and Alberta's Investment and Growth Fund complement federal efforts.
Why this matters for your test
The productivity gap shapes whether Canadian wages and living standards keep pace with the United States. Recognising the 75 per cent gap and the Bank of Canada's 'emergency' framing gives candidates two specific anchors.
Source: Statistics Canada; OECD; Bank of Canada
