At the rate things are going, it will take more than 10 years to return to the standard of living that could be expected before the recent immigration boom and post-pandemic slowdown.
This observation comes from a study by two economists from Statistics Canada, the federal agency which collects major Canadian economic and social data.
Their analysis of GDP per capita – a flagship measure of the standard of living – comes in the context where several economists criticize the federal government regarding the immigration boom in Canada, mentioned in the study.
In particular, critics question the capacity of our economy to absorb the flow of immigrants in terms of housing and public services. Some also doubt that the growth of our GDP – at least in the short term – will be sufficient to maintain the same standard of living for the entire population, given its strong growth.
In fact, the two Statistics Canada researchers note that in 2023, the Canadian population grew by 3.2% – an almost record increase – or by nearly 1.3 million inhabitants. At the same time, economic activity has slowed significantly, so that GDP per capita is now at a level lower than before the pandemic, of around 2.5%.
More specifically, at the end of 2023, GDP per capita stood at $58,100 in Canada, which is $1500 less than at the end of 2019 ($59,600). The value is expressed in constant 2017 dollars, that is, deflated for the effects of inflation (as in the rest of the article).
To see the combined effects of this slowdown and immigration, the two researchers made projections of the standard of living that Canada should expect in the future. They made these projections by taking the historical growth in this standard of living over the past 40 years, or 1.1% per year.
Thus, if the standard of living of Canadians continued to follow this trend, it would reach $68,800 in 10 years, in 2033, the researchers calculate.
However, this target in 10 years is difficult to achieve, given our recent delay, according to the study. To achieve this, Canada would need to manage to grow its GDP per capita by 1.7% per year, on average, within 10 years.
“Per capita growth of this magnitude is ambitious and a clear departure from recent trends,” explain economists Carter McCormack and Weimin Wang of Statistics Canada in their analysis.
In fact, in the decade preceding the pandemic, real GDP per capita in Canada grew by less than 1.1% per year.
In addition, this expected growth of 1.7% in GDP per capita within 10 years would be higher than the strong post-pandemic growth of the United States, which resulted in an increase of 1.6% in GDP per capita. inhabitant.
Boost productivity
Citing the studies of other economists, Statistics Canada researchers note that increasing productivity is the only realistic way to achieve the expected standard of living. Labor productivity, i.e. GDP per hour worked, is also closely linked to the standard of living (GDP per capita).
Of course, the standard of living can also increase if Canadians work more or if the proportion of the population who works increases. But according to research, 93% of the increase in GDP per capita over four decades in Canada can be explained by productivity growth.
And given the aging of the population, we should expect that productivity growth will continue to be the driving force behind rising living standards in the coming years, the study argues.
Productivity, let us remember, increases in particular when organizations invest in technologies, equipment and machinery, in addition to improving their work organization.
This is actually what happened between 1991 and 2001 in Canada, when annual growth in the standard of living, or GDP per capita, reached 2.2%, a peak.
“This increase (of 2.2%) coincided with sustained improvements in labor productivity, driven by the implementation of the Canada-U.S. Free Trade Agreement and the widespread adoption of information and communications technologies,” write Statistics Canada economists.
Now, today, investment per worker in businesses is around 15% less than 15 years ago, notably due to the collapse in the price of basic products, it must be said, for example oil.
Another factor unfavorable to productivity: less competition in the Canadian economic environment, they note, particularly compared to the United States. In Canada, several industries are protected from competition for various reasons.
Statistics Canada doesn’t say it, but politicians are increasingly concerned about this slow growth in living standards and productivity. The reason is simple: a higher GDP per capita allows the government to extract more tax revenue from taxpayers and thus better finance state missions (health, education, transport, etc.).
Conversely, anemic productivity ends up undermining the quality of our public services.
We haven’t heard the last of it…
Consult the Statistics Canada study
reference: www.lapresse.ca