Is Canada in a Recession?

A recession is usually marked by a number of consecutive declining indices, such as GDP, employment rates, income levels, production, and confidence. According to these factors, a homegrown Canadian recession is unlikely. However, the Bank of Canada has recently issued a warning about a productivity problem that needs immediate attention.

What is Productivity?

Productivity is the efficiency with which a country can turn labour, resources/materials, energy, and capital into the goods and services we consume or export to other countries. Higher productivity means more output is produced with the same or less amount of input. Several measurements can help capture an idea of an economy’s productivity, the main one being gross domestic product (GDP) per hour worked.

According to the International Labour Organization, the GDP per hour worked in Canada is $57 USD, tied for 20th with Taiwan and Israel globally.

Canada’s productivity growth of .01% in 2024 is behind Iceland a growth rate of 1.5% and $58 USD of GDP per hour worked.

For perspective, aside from tax havens such as Ireland and Luxemburg, the top of the list includes Norway at $93 USD per hour worked, and the USA sits at 10th with $70 USD per hour worked.

Side note: GDP alone is not a sufficient measurement for productivity as it doesn’t consider population size. For example, BC’s GDP is approximately $300 million with a population of 5 million. The GDP of Nova Scotia is about $40 million with a population of 1 million.

Why is Productivity Important?

In his TED Talk, How to Build a Business that Lasts 100 Years, Reeves reveals that companies are failing younger than ever. During the 1970s, the average lifespan of a US public company was approximately 60 years, whereas today it is closer to 30 years. There is also a 32% probability that a new company today will not live to see its 5th anniversary. Now, with inflation on the rise and no landing in sight, a shrinking workforce, and disruptive technologies, business leaders face greater headwinds than ever.

In Reeves’ research, he notes that biological systems have evolved to prioritize resilience and continuity rather than efficiency, which can be an effective model for businesses during high-consequence environments. The principles of Biological Thinking were derived from a study where they were observed as critical factors in successful societies, systems, and businesses throughout history.

For context, let’s look at the biology of the human immune system. Our blood carries multiple varieties of cells that can identify and attack potentially dangerous foreign bodies. If one type of cell is unable to function, another can step in and take its place. This type of diversity can be applied to an organizational structure as well, having multiple suppliers, for example, in case one is unable to fulfill its quota due to unforeseen production or supply-chain disruptions.

Canada’s Economy and Productivity

One contributing factor to Canada’s lack of productivity could be the recent rise in public-sector employment and the negligible rise in private-sector employment. Employment is good, but the public sector generally doesn’t have to be productive. It receives income through taxes rather than consumer spending, so if a government service isn’t providing value, it can still continue to operate without contributing to the economy.

Canada also has approximately 30% of its workforce in unions, compared to only 10% in the United States. Unions hold more negotiation power and can demand higher salaries without providing an equivalent increase in productivity. So while salaries go up, the GDP per hour worked stays the same, therefore decreasing an organization’s productivity. Unions are of course necessary to maintain fair working conditions, but they can abuse their power, as can companies who don’t face enough competition in the job market.

The private sector, on the other hand, relies on consumer spending for revenue. If a private company isn’t providing value, it will not survive. Therefore, the private sector must create value, positively contributing to GDP and productivity.

On top of that, private sector organizations face significant competition (in a balanced economy), further driving productivity. Some economists claim that Canadian regulators have done a poor job of maintaining competition and many markets are dominated by a few key players. Without competition, companies are less inclined to create value and be productive.

Evidently, economics is a balancing act, and Canada’s productivity suggests we’re beginning to tilt…

What can SMEs do to Stay Productive and Support Canadians?

Being a small to medium-sized enterprise leader is difficult at the best of times. With all these outlying pressures, it becomes even more difficult. While we recognize that extra expenses aren’t necessarily what you’re looking for, certain investments can help you in the long run.

Side note: Many of our members have seen a tremendous ROI in their TEC memberships…food for thought.

One option is to lean in on new advancements in AI. This may require an additional hire, someone with experience using generative AI and creating prompts for desired outcomes. This tool has proven to be particularly effective in marketing and communication roles. Investing in other automated technologies such as robotic processes can replace repetitive tasks and reduce salary expenses over the long term.

By investing in employee training and development, you will empower your employees to increase their skills and efficiency. This leads to overall organizational success and employee engagement and retention. Higher engagement and retention encourage a positive culture, creating a feedback loop of increasing productivity and work satisfaction.

Incentive programs are an option as well. Items such as bonuses, stock-based compensation, and commissions are viable options. Some companies have taken this notion a step further and made employees part owners of the company through employee-owned-trusts and seen great success (not without challenges). This directly ties the success of the organization to the employees, where they can share in the benefits of productivity and feel encouraged to bring their best. Other companies found that a four-day workweek without a decrease in salary has resulted in better engagement and productivity.

While we have seen stagnating economic growth and less affordability (partially due to the carbon tax increase), a Canadian recession is unlikely. This doesn’t mean low productivity can’t cause harm, and the Bank of Canada has stated that this should be a top concern.

Thankfully, there are options for individuals to contribute to productivity in Canada. Supporting competition in the marketplace, becoming politically involved, and finding meaningful and purposeful work all lead to an engaged and productive economy. For business leaders, investing in long-term sustainability is always recommended, as well as developing your leadership skills is always beneficial.

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