OECD – Canada: Overall productivity has actually fallen since 2002

Canada has weathered the global economic crisis comparatively well but will have to become more productive to sustain its high standard of living, according to OECD’s latest Economic Survey of Canada… 

The report identifies sluggish productivity growth as the main long-term challenge facing Canada’s economy. Per capita income has increased in recent years, as more people entered the labour force and oil and other commodity prices soared, pushing up the value of the Canadian dollar. However, the amount of labour, capital and natural resources needed to produce a unit of GDP has remained largely the same over the past few decades.

Canada’s overall productivity has actually fallen since 2002, while it has grown by about 30% over the past 20 years in the United States. At the same time, income has shifted towards the resource-rich western provinces, while the regional economies of Ontario and Quebec are still adapting to increased external competition resulting from the high exchange rate.

“Canada is blessed with abundant natural resources. But it needs to do more to develop other sectors of the economy if it is to maintain a high level of employment and an equitable distribution of the fruits of growth,” said Peter Jarrett, one of the authors of the study and the head of the Canada division at the OECD Economics Department.

The OECD identifies two key priorities for meeting this long-term challenge:

First, Canada needs to boost innovation. Canada has world-class research institutions and provides strong public support to business investment in research and development (R&D). However, the business sector devotes only about 1% of GDP to R&D, compared with 2% in the U.S. and more than 2.5% in Japan, Korea and some of the Nordic countries. Canada remains a low performer on business investment in R&D, even when the large share of natural resource production is taken into account.

Second, Canada should invest further to improve both quality and access to tertiary education, to maintain the supply of highly skilled workers as the population ages. Financial assistance to students should become more targeted and granted on a means-tested basis. This would help reduce the barriers for financially disadvantaged students and promote more socially inclusive growth.

Tertiary education should also become more flexible and facilitate lifelong learning. Canada should seek to attract more foreign students into its tertiary system and make it easier for them to work and stay in Canada after graduation. Finally, the report suggests that universities be differentiated between institutions that engage in research and those that focus primarily on teaching…

Source: Economy: Canada needs to boost innovation and human capital to sustain living standards.