Canada faces a severe productivity emergency that demands immediate policy corrections from Prime Minister Mark Carney's government, according to recent analyses that reveal alarming declines across nearly every sector of the economy.
The Productivity Emergency Deepens
Canada's lagging productivity growth has reached crisis levels, with Bank of Canada senior deputy governor Carolyn Rogers previously declaring the situation "an emergency" that requires breaking the glass. The federal Liberal government, now in its eleventh year of power, acknowledged in its recent budget that "productivity remains weak, limiting wage gains for workers."
A Fraser Institute study published in November 2025 reveals the staggering scope of Canada's productivity failure. Since 2001, labor productivity has increased only 16.5% in Canada compared to 54.7% in the United States, with the performance gap widening significantly after 2017.
Sector-by-Sector Decline
A recent McKinsey study provides disturbing details about how the productivity crisis affects virtually all economic sectors. Canada's labor productivity underperforms the United States in multiple areas including:
- Mining, quarrying, and oil and gas extraction
- Construction and manufacturing
- Transportation and warehousing
- Retail trade and wholesale trade
- Professional, scientific, and technical services
- Finance and insurance
- Information and cultural industries
Canada demonstrates relatively higher labor productivity in just one area: agriculture, forestry, fishing and hunting. Even more concerning, McKinsey found that in most sectors where Canada already trailed the U.S., the gap widened further between 2014 and 2023.
Homemade Crisis Requires Policy Solutions
When compared to other OECD countries, Canada's situation appears equally dire. The country is "growing more slowly and from a lower base," according to McKinsey, indicating that Canada's productivity crisis stems from domestic factors rather than external global conditions.
Weak business investment represents a primary driver of Canada's poor economic outcomes. Experts argue that raising output requires increased business investment per worker, which won't materialize without reformed and reduced regulation and taxes.
The Carney government's first budget missed a critical opportunity to implement necessary tax reforms, despite analyses from multiple respected institutions including the Fraser Institute, University of Calgary, C.D. Howe Institute, and TD Economics all advocating for fixing Canada's uncompetitive tax regime to boost productivity.
Rather than reducing regulatory burdens, the federal budget empowered cabinet to determine which large natural resource and infrastructure projects qualify as being in the "national interest"—replacing predictable, transparent rules with political discretion that could further hinder investment.
While the government has proposed increased spending on artificial intelligence, many economists argue that without fundamental tax and regulatory reform, Canada's productivity decline will continue undermining wage growth and economic competitiveness for years to come.
