Policy Directions to Foster Strong and Inclusive Economic Growth

Last year, Canada’s economic performance and prospects received a fresh look from researchers at the Organization for Economic Cooperation and Development (OECD), as part of a larger project on “inclusive growth.” While general living standards have improved appreciably in the last two decades, the report documents shortfalls in a few areas.

First, some good news. Canada’s overall quality of life is high by OECD standards, as are education levels and health outcomes. On inequality, Canada falls in the middle of the pack. Taxes and government transfers act to significantly dampen income inequality, including among the working-age population. Canada is unusual among OECD members in having seen little or no increase in measured inequality in the last 15 years. As for intergenerational social mobility, Canada does “quite well over a number of different dimensions, including health, earnings, social class and education, compared to other countries.” This means that children who grow up in relatively low-income households have a decent chance of accessing tertiary education and of outdistancing their parents on incomes and wealth accumulation as they mature.

But Canada’s socio-economic performance is uneven.

Women continue to score below men on job quality, earnings and career advancement. The same is true of Indigenous peoples relative to the rest of the population. The share of Canadian households who self-identify as being part of the “middle class” has declined, a trend also evident in some other countries.

Immigration plays a large role in driving Canadian population and workforce growth, so it is concerning that many newcomers are unable to find employment commensurate with their prior training and experience. Difficulties around foreign credential recognition and inadequate language skills are among the factors that make it harder for immigrants to succeed in the job market.

Finally, productivity growth in the Canadian business sector has been notably weak, in part because of the sluggish pace of technological diffusion and skill upgrading and the presence of vast numbers of very small firms. Relatedly, small business dynamism has diminished in the last decade, while Canadian businesses continue to under invest in innovation, including R&D.

To create conditions supportive of stronger and more inclusive economic growth, the OECD recommends a stepped-up focus on expanding work and career opportunities for women and aboriginals; more attention to credential recognition and labour market bridging programs for new immigrants; and an overhaul of tax and industrial support programs to provide stronger incentives for companies to grow, innovate and adopt new digital and other advanced process technologies.