This article was first published by the Financial Post.
On November 5, Stephen Tapp, CEO and chief economist of the Centre for the Study of Living Standards, will deliver the fourth and final talk in The Canadian Standard of Living, Productivity and Innovation lecture series — a series of events focused on strengthening Canada’s standard of living, hosted by the Centre for International Governance Innovation and sponsored by Savvas Chamberlain.
Productivity growth has slowed across most advanced economies. In Canada, in the immediate postwar period, output per hour worked doubled in just 18 years. At the much slower pace recorded since 2000, the same feat would take over 90 years. In other words, what the economy once delivered within a generation now takes longer than most lifetimes. That sharp slowdown severely limits gains in living standards, and helps explain the growing concerns about what the economy can deliver, especially among younger Canadians.
At its core, productivity is about creating more value per hour worked. Organizing work more effectively and using better tools expands what our economy can provide. Over time, even modest productivity gains can compound into substantial improvements in earnings, economic security and funding for essential public services.
Although productivity growth has slowed in many countries, Canada’s inability to close persistent gaps with peer economies has made this a long-standing national concern. In 1965, Canada ranked second in G7 productivity levels. Our ranking slipped into the 1980s, and we have remained stuck in second-last place ever since.
Thankfully, periods of high global commodity prices shielded us from the consequences of weak productivity. From 2001 to 2014, terms of trade improvements meant that exports such as oil could buy more imports, strengthening our international purchasing power despite sluggish productivity. But the subsequent oil-price collapse in 2015 exposed our inability to rely on that mechanism over the longer term.
National averages and our tendency to fixate on gaps with the United States conceal important differences across the population. Research by James MacGee and Joel Rodrigue has found that much of the Canada-U.S. gap is concentrated among the top 10 per cent of the income distribution — which they estimate accounts for three-quarters of the GDP-per-adult gap and two-thirds of the labour productivity gap. Moreover, top income gaps are particularly pronounced among business owners and university-educated workers. These findings point to the importance of attracting top talent and creating opportunities to build and scale productive businesses here in Canada.
Today’s shifting economic and geopolitical context makes addressing our ailing productivity even more urgent. U.S. trade restrictions and associated uncertainty represent a material threat to Canada’s economy, while stunning advances in artificial intelligence are beginning to transform activities across a wide range of sectors. Canada must adapt to these two forces while staying focused on supporting younger people as they establish themselves economically.
Three policy priorities should be central to our plan to raise Canadian living standards.
First, diversify Canada’s trade networks and strengthen alliances with like-minded middle powers.
Research shows that trade enhances productivity by allowing firms to enjoy economies of scale, specialize production, invest and innovate, all while learning from international best practices. Unfortunately, Canada’s export performance in the U.S. market was weak even before the latest tariffs. Diversification therefore represents an opportunity to strengthen our domestic capacities, while reducing our acute vulnerability to arbitrary U.S. trade policy choices.
Geography will always keep the United States central to our economy. But Canadian businesses can expand their options elsewhere, particularly in services, where distance is less of a barrier, and resources, which can be sold to alternative buyers more readily than specialized manufactured products. Services and resources have been areas of strength in recent decades and should lead our diversification efforts. Governments can help by improving trade infrastructure (including adding critical pipeline capacity) and supporting more firms to realize their untapped export potential.
Second, broaden tech adoption beyond the frontier firms.
In a report titled Building an AI Nation, Joel Blit, Danielle Goldfarb, Paul Samson and I estimated that artificial intelligence could significantly improve Canada’s economic trajectory, increasing GDP by about $200 billion (4.3 per cent) by 2035 in a fast-adoption scenario. Despite Canada’s foundational role in the technology, we risk once again falling behind in commercialization.
Capturing these gains requires adoption beyond frontier firms. Governments can support workforce skills and reskilling programs as well as management training. Businesses will need to invest in better data and software, and reorganize production processes so the technology’s promise translates into better performance. Broad-based adoption is needed to spread the benefits across firms and workers.
Third, we need to restore economic hope for future generations.
A 2025 Nanos survey found that a majority (65 per cent) of Canadians expect the next generation to have lower living standards than Canadians today. This share rose from only 37 per cent in 2012, with pessimism highest among younger Canadians.
In the latest World Happiness Report, Canada ranks 25th overall (down from 6th a decade earlier), but an abysmal 71st among young people. Huang and Helliwell find that economic stressors account for nearly half of the decline in life satisfaction among younger Canadians. Unaffordable housing is the largest individual contributor, and beyond constraining the economy, it is also sapping young Canadians’ optimism about their future. Governments must expand housing supply so young Canadians can afford to live near economic opportunities.
Research by the Centre for the Study of Living Standards finds that weak hiring accounts for the vast majority of the recent rise in youth unemployment. When young people can’t gain valuable work experience, they miss opportunities to build skills and find jobs that suit their abilities. Difficulty gaining that early foothold can reduce earnings for years and have lasting consequences for health and well-being.
As such, employers and educational institutions need to expand paid work opportunities and provide clearer pathways into employment and career advancement. As AI changes work, businesses must develop future talent pipelines alongside plans to automate tasks.
A comparative study of productivity policies across 17 countries highlights the importance of coordination: investment, skills, international engagement and competition policies work best when they reinforce one another. Canada should advance these priorities together, assign clear delivery responsibilities, and independently evaluate results, with findings made public.
As economist Don Drummond has written, “Productivity growth … provides hope and choices to a society.” These three priorities can guide our efforts: diversifying trade, broadening technology adoption and ultimately restoring hope for future generations. All Canadians need to believe that the economy can deliver not only for them, but also for their children.
