Working Harder for Less: More People But Less Capital Is No Recipe For Prosperity

Business investment in Canada has been so weak since 2015 that capital per worker has been falling – part of an ominous pattern of stagnating productivity and living standards. A longstanding gap between investment per available worker in Canada compared to the United States and other OECD countries narrowed from the late 1990s through the early 2010s, but has since widened to a chasm. In 2023, Canadian workers will likely receive only 65 cents of new capital for every dollar received by their counterparts in the OECD as a whole, and 58 cents for every dollar received by their counterparts in the United States. Productivity and investment are mutually reinforcing. Productivity growth creates opportunities and competitive threats that spur businesses to invest. Investment increases productivity by equipping workers with better tools. Investment per worker that is lower in Canada than abroad tells us that businesses see less opportunity in Canada, and prefigures weaker growth in Canadian earnings and living standards than elsewhere. If pro-growth policies cannot boost business investment enough to raise capital per worker and increase productivity, higher immigration may accelerate Canada’s evolution to an economy producing labour-intensive goods and services, with low productivity and low living standards.