Shattering the outdated ideology that Canada is the land of economic “milk and honey”

BY SIMONE J. SMITH

Across the world, Canada is viewed as a popular destination for immigrants due to its reputation for being a welcoming and diverse country with strong economic opportunities and social benefits. However, opinions about the attractiveness of a country for immigration have changed over time due to various factors, one that we are going to highlight this week. This shift in perceptions about Canada as a desirable destination has been influenced by changes in immigration policies, economic conditions, and global events. Our focus this week is shattering the outdated ideology that Canada is the land of “milk and honey,” and helping Canadians, and those who want to come to Canada face the unpleasant reality that Canada identifies more as “clabbered milk and vinegar.”

Past generations of young Canadians entering the workforce could look forward to support that would help them lift their real incomes over their working lives. That’s no longer the case. If the most recent OECD’s long-range projections prove correct, young people entering the workforce today will not get much support at all. Rather, they face a long period of stagnating average real incomes that will last most of their working lives. That’s right people; on average, Canadian living standards and our quality of life relative to other countries is set to decline as other countries make their economies more productive.

The OECD Economic Policy Papers series is designed to make available to the public selected studies on structural and macro-economic policy issues of current interest. The Papers are produced in the context of the work carried out on the two regular OECD titles: OECD Economic Outlook and Going for Growth. Let’s take a look at predictions of our bleak economic future.

Canada’s real GDP per capita grew by 0.8% per annum over 2007-2020, ranking us in the third quartile among advanced countries. In other words, we were towards the back of the pack but not at the very bottom. Unfortunately, that’s about to change – and not for the better. Other countries are predicted to move ahead of us in making their economies more productive while Canada’s economy stagnates.

The OECD report offers insights on whether Canadians can look forward to meaningful gains in average living standards in the decades to come. The OECD predicts Canada can at best achieve real per capita GDP growth of only 0.7% per annum over 2020-2030. These findings are sobering, this places Canada dead last among advanced countries.

The same OECD report projects Canada will also post the worst economic performance among advanced countries over 2030-2060, with real per capita GDP advancing by just 0.8% per annum. In other words, Canada will be dead last not only for the next decade, but also for the three decades after that.

Real per capita GDP, or real GDP per capita, is a measure of the average economic output per person in a specific region, country, or entity. It is calculated by taking the real Gross Domestic Product (GDP) of a country and dividing it by the population. The term “real” is used to adjust for inflation, providing a more accurate reflection of the actual purchasing power and standard of living.

Real GDP is adjusted for inflation to account for changes in the overall price level over time. This allows for a more meaningful comparison of economic output and living standards across different periods.

Real per capita GDP is a key indicator used to assess and compare the economic well-being of different countries, or regions. A higher real per capita GDP generally suggests a higher standard of living, as it indicates a larger economic output per person. It is important to note that real per capita GDP alone may not capture the full picture of an economy’s health, as it does not consider income distribution, inequality, or other socio-economic factors.

What’s driving the current real per capita GDP that Canada is experiencing? Growth in real per capita GDP is the sum of:

• Labour Productivity: growth in output per hour worked.
• Labour Utilization: growth in hours worked per head of population.

Of the two components, productivity growth is the more important determinant of future living standards, because it is limited only by the pace of technological change and the ability of businesses and workers to adapt to it. In contrast, labour utilization growth has a natural ceiling based on demographics, labour force participation, and there being only so many hours people can or will work per year.

The recent report found that Canada’s prospects for real per capita GDP growth over 2020-2030 is poor because of feeble expected growth in output per hour worked (labour productivity), and a slight drag from hours worked per head of population (labour utilization). These are not optimal conditions for a productive economy.

It is time for Canada’s political class to rethink their priorities and take steps in creating the conditions to improve our productive economy. This will require some hard thinking and expertise about how to raise labour productivity growth and real wage growth through: higher business investment per worker (businesses invest more capital, resources, and technology per individual worker in their operations), faster innovation adoption (the speed at which new ideas, technologies, products, or practices are accepted and implemented by individuals, organizations, or societies), and adjusting the incentives (and disincentives) facing Canadian companies aspiring to operate at scale.