Canadian firms keep hearing that productivity underpins living standards, yet the numbers show Canada slipping farther behind its main trading partner. Labour productivity, the value of goods and services produced per hour worked, rose 0.9 per cent in the third quarter of 2025, Statistics Canada says. That up-tick followed a weak first half and could not mask a long slide that predates the pandemic.
Over the past 20 years Canadian productivity grew roughly one-third as fast as U.S. output, widening a gap that now equals about C$18,000 in lost income per worker, according to a new Fraser Institute paper. The divergence hurts profit margins, restrains wage growth and crimps Ottawa’s tax base. In boardrooms, it has become the competitiveness issue no one can ignore.
Slower growth, stubborn costs
The statistical edge the United States enjoys has deepened since 2017, when U.S. firms accelerated investment in advanced machinery, software and research. Canadian businesses went the other way. Capital spending per worker is now about two-thirds of the U.S. level, leaving less modern equipment on factory floors and slower diffusion of digital tools into service jobs.
In real time, that shows up as lower output per hour and thinner margins that force companies to choose between higher prices or lower profits. StatCan’s latest release confirms the pattern: despite the third-quarter rebound, productivity has posted outright declines in five of the last eight quarters. A sustained recovery will need more than quarterly noise.
Costs outside the plant matter too. Energy and logistics bottlenecks, long regulatory reviews and a rising public-sector wage bill weigh on private investment plans. Linamar executive chair Linda Hasenfratz told MPs that one remedy is to shift talent toward value-generating roles, arguing,
“Reduce government and not-for-profit sector workers and get them into revenue-generating businesses,” Hasenfratz said. Her comments echo concerns from manufacturers who face annual price-cut demands from global customers yet must absorb domestic cost inflation.
Investing to move the needle
Policy makers are not standing still. November’s federal budget carved out billions for clean power grids, housing supply and digital infrastructure. Bank of Canada governor Tiff Macklem welcomed the direction but warned results hinge on follow-through, saying, “These things are pointing in the right direction, but it’s going to come down to execution,” Macklem told MPs. Ottawa is also reviewing tax treatment for intellectual-property spending, hoping to nudge firms toward research that scales fast and pays export dividends.
Business leaders know capital is only part of the answer. Training remains uneven, with apprenticeship completions still below pre-pandemic peaks, and management practices lag global best practice surveys.
Economists point to trade fragmentation risk, stiffer competition for skilled immigrants and aging demographics as fresh headwinds. Yet the upside is clear. BMO estimates that matching U.S. productivity growth over the next decade would raise Canada’s potential output by almost one percentage point a year, enough to pay for aging-related health costs without higher taxes.
Closing the productivity gap will demand sharper incentives for private investment, faster project approvals and a renewed focus on skills. The alternative is a slow drift toward middling growth, limited fiscal room and frustrated workers. Business may be reluctant to talk about it, but the widening gap is already shaping investment, wage and policy decisions across the country.
