Canadians’ standard of living continues to decline when compared to US
Canadians’ standard of living continues to decline when compared to US

Canadians’ standard of living has steadily declined, a trend that is unprecedented when compared to other developed nations since the post-war era.

The Bank of Montreal (BMO) study reviewed Canada’s GDP and its variations on hours worked per capita, to assess productivity and standard of living. Analysts found that Canada has been lagging behind other developed economies for decades, especially when compared to the United States.

Over the past five years, Canada’s business sector has seen an average decline of 0.3% whereas the U.S. has seen a gain of 1.7%

“What is new is that productivity has actually reversed itself over the last five years, has declined, taking real GDP per capita with it on a downward trajectory.” said Douglas Porter, chief economist of BMO.

According to Porter, the sustained decline in recent years has been without precedent since the post-war period.

“GDP per hour worked is the fundamental element of the standard of living,” said Porter. “So the recent decline in productivity is clear evidence that Canadians on average are worse off than before the pandemic — it’s not just a perception.” 

Canadian productivity has dwindled to a growth rate of just 0.5% over the last two decades, a point below the U.S. average.

According to the Organization for Economic Co-operation and Development (OECD), higher productivity is a requirement of long-term improvement in living standards and Canada continues to slip down the rankings behind other OECD countries. 

“Low productivity growth since 2015 has led to widening gaps in GDP per capita between Canada and better-performing economies,” said Porter.

In combination with mass immigration, real GDP per capita has dropped over the past year and is lower than it was in 2017.

“Having kept pace with the United States on this measure for 25 years, Canada has been far behind since 2015,” added Porter.

Part of the problem is that economic activity continues to move towards sectors that have limited productivity gains, like public services.

Additionally, there has been a lack of investment in non-residential structures, machinery, equipment and intellectual property since 2015. 

“The relatively low level of investment by businesses and, therefore, that of foreign direct investment are as much a symptom as a cause of the challenges facing Canada,” said Porter. “This weakness was only truly exposed when capital spending in the resources sector collapsed after the oil price collapse in 2015.”

Other contributing factors are a lack of competition within industries, a lower entrepreneurial spirit and a large public sector with high-income taxes.  

Interprovincial barriers also play a role as well as low investment by businesses, especially in technology. 

“The OECD predicts that Canada will rank last among the organization’s members for real GDP per capita growth until 2060,” TD economist Marc Ercolao told Le Devoir.

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