Canada faces productivity crisis, eyes role of newcomers

Amidst a productivity "emergency," Canada rethinks immigration's impact and business investment focus

Canada faces productivity crisis, eyes role of newcomers

Canada is currently facing what has been termed a “productivity emergency,” with the federal government's recent decision to cap temporary residents sparking a significant conversation among economists.

This decision is seen as a potential catalyst for businesses to shift their focus towards technology investment rather than relying on “cheap labour” from abroad, a move that could be beneficial for Canada's lagging productivity rate, according to the Financial Post.

The urgency of addressing Canada's productivity issues was underscored by Bank of Canada senior deputy governor Carolyn Rogers, who likened the situation to an emergency requiring immediate action.

“You’ve seen those signs that say: In emergency, break glass—well, it’s time to break the glass,” she stated in a speech on March 26.

This comes against the backdrop of Canada experiencing record population growth over the past two years, primarily through temporary residents, adding more than two million people to the population.

Labour productivity, as defined by Statistics Canada, is the measure of the country’s gross domestic product (GDP) per hour worked, offering a glimpse into the efficiency of the economy.

Despite various measures, Canada’s labour productivity has only seen an increase once in the past seven quarters, and its GDP per capita has declined in five of the last six quarters.

This trend highlights a deep-rooted problem, with Canada's productivity having declined from producing 88 percent of the value generated by the United States economy per hour in 1984 to just 71 percent in 2022.

The role of newcomers in this scenario is complex. While newcomers' contribution to the economy varies based on the value they add, a Statistics Canada report from last week noted a significant increase in the number of immigrants working in professional jobs compared to Canadian-born residents between 2001 and 2021.

However, the report also indicated that the role of immigrant workers in low-skilled jobs has increased, suggesting that newcomers have to some extent backfilled Canadian-born workers in these roles, as noted by Feng Hou, one of the report’s authors.

This shift raises concerns about the economic prospects of immigrant workers employed in lower-skilled occupations that are experiencing declining employment levels. The continuation of this trend could negatively affect their contribution to economic growth.

Despite these challenges, the balance of jobs filled by newcomers changed after 2021, with the government allowing businesses to hire more workers from abroad in response to record-low job vacancy rates.

This led to an unprecedented population growth in 2022 and 2023, with Canada adding more than a million newcomers each year.

The decision to limit the number of temporary residents to five percent of the overall population has been praised by economists as a step towards addressing productivity issues and housing shortages.

However, businesses express concerns that this could disproportionately affect industries already experiencing labour shortages.

Economists and analysts argue for a focus on attracting high-skilled newcomers and investing in high-output sectors like mining and oil and gas to boost productivity. Suggestions also include improving worker skills, fostering competition, and reducing regulation.

The call for a revised approach to Canadian immigration policies highlights the need for a strategy that not only addresses immediate issues but also positions Canada for long-term economic growth and productivity enhancement.