(Not) Keeping up with the Joneses: Canada's Economy Trails Peer Countries over the Current Business Cycle

October 7, 2019
David Williams

2 Minute Brief:

How has Canada’s economy performed over the current business cycle compared to peer countries (the “Joneses”)? Is Canada keeping up with the Joneses?

The answer is clearly no: Canada’s economy is not keeping up with the Joneses. Canadians have seen the largest deterioration in living standards relative to peer countries over 2007 to 2018, according to OECD data. This is primarily because peer countries have increased their productivity by more than Canada.

An economy that can deliver rising GDP per person is able to provide a rising tide of economic prosperity and opportunity for its citizens. This is especially true for a country like Canada given its relatively well-balanced distribution of income. However, relative to peer countries, Canada’s tide is going out (like Italy and Japan), not in (like Germany, New Zealand, Australia and France). In fact, Canada’s real GDP per person has barely grown at all in recent years.

Arguably, Canadian policy-makers have been focused on improving already high rates of labour utilization (e.g. raising labour force participation and reducing unemployment). However, labour utilization has delivered no gains whatsoever in relative living standards over the current business cycle.

Meanwhile, there has been insufficient attention to structural reforms that would spur productivity growth, such as tax reform, regulatory modernization, reducing internal trade barriers and intensifying product market competition. Raising productivity growth needs to be policy-makers’ paramount focus if they wish to see Canadians’ standard of living improve over time.

As the October 21 federal election approaches, perhaps it’s time to ask policy-makers if they have any ideas on how to turn this uninspiring arithmetic around.


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