Canadians did not see much improvement in living standards last year, especially when compared to their counterparts in many peer countries (Figure 1). GDP per person, not total GDP, is a key measure of living standards for the average citizen. In Canada, real GDP per person grew by only 0.4% in 2018. This was well below the United States (2.2%), the OECD average (1.7%), all other G7 countries, and Australia, another resource-based economy.

Figure 1

Canada trailed peer countries last year in improving living standards

Real GDP per person, annual growth, 2018

Source: OECD.stat.

How has Canada performed since 2007?

Taking a longer-term view, most advanced countries have achieved only slow improvements in living standards since the end of the last business cycle in 2007 (Figure 2). In terms of the compound annual growth rate of real GDP per person over 2007-2017, Canada ranks below the OECD and G7 averages, but above the Euro area average. Germany, Australia, United States and Japan all outpaced Canada, while the United Kingdom, France and Italy have lagged. Italians have seen their standard of living deteriorate in absolute terms since 2007, with real GDP per person falling by 0.8% per annum (this has contributed to political instability in that country).

Figure 2

Canada has lagged peer countries on improving living standards since 2007

Real GDP per person, compound annual growth rate, 2007-2017

Source: Statistics Canada.

Real GDP per person is composed of labour productivity(real GDP per hour worked) and labour utilization (hours worked per head of population). Canada has averaged growth in real GDP per person of just 0.5% per annum since 2007, made up of 0.9% per annum growth in labour productivity and a 0.4% per annum decline in labour utilization.

Figure 2 shows that many advanced countries have seen similarly modest gains in productivity, often offset by declining labour utilization. The latter is due to some combination of lower labour force participation (e.g. due to ageing populations and a rise in the number of discouraged workers after the last recession), higher unemployment rates or lower average annual working hours per worker.

What does this mean for the long term?

It will take a very long time to make material gains in living standards at the current pace. Figure 3 shows the time that will be required to double real GDP per person for Canada and peer countries, assuming the compound annual growth rates achieved during 2007-2017 are sustained.

Again, Canada ranks toward the back of the pack. On recent trends, it will take 133 years to double Canadian real incomes per person. That works out to 4.4 generations, assuming a generation is 30 years. Germany and Australia would double their standard of living in around 2½ generations, while the U.S. would achieve this in about 3½ generations. The average time across OECD countries would be 3 generations.

Figure 3

Canadian living standards are improving more slowly than for many peer countries

Time required to double real GDP per person assuming 2007-2017 compound annual growth rates

Source: OECD.stat.

Conclusion

Prior to 2007, mostly due to growth in productivity, Canadian incomes were doubling in about 38 years (i.e. a little over one generation). Canadians were accustomed to seeing their children reach adulthood and earning about twice the real income of their parents. At present growth rates, Canada will not achieve a doubling of average real incomes for 133 years, or not until our great-great or great-great-great grandchildren reach adulthood.

Canada ranks towards the back of the pack among peer countries on growth in real GDP per person in 2018 and since 2007. Like most advanced countries, Canada needs to pursue structural policy reforms to invigorate its productivity performance. For example, the last comprehensive review of the Canadian tax system was in the 1960s. Strong gains in productivity are needed to materially improve the average standard of living and to offset the effects of an ageing Canadian population.

A future blog will compare labour productivity among the Canadian provinces.