Developments in Labor Productivity Growth in the Canadian Economy -6th May, 2019

Developments in Labor Productivity Growth in the Canadian Economy
One can carry out the analysis of the Canadian economy from the supply side of the economy, and there are challenges in the productivity growth of labor. Moreover, the Bank of Canada has made a projection for possible real GDP growth. Considering all the factors, the economy can sustain the GDP growth of close to 2 percent annually. That is the best for Canada to hope.

The factors

The population growth is an important factor on the supply side. Its figures were 530,000 in 2018 showing a major annual leap in four decades. The Births after excluding deaths were 103,000 persons. The major share was from immigration inflow and the addition of Canada temporary/permanent residents.

Additionally, the federal government follows a course of the increasing population by adding 1.33 million fresh Canada permanent residents in the next three years. 15 percent will be allowed among these in the humanitarian/refugee categories, as a part of economic development.

An increase in Population raises the GDP and impacts on the demand for consumer goods, as well as on public services, housing, and infrastructure. It expands the workforce also.

The aspects

The Canadian economy is expanding owing to the rising population. The Canadian economic strategy must focus on labor productivity especially on the output per hour of work. It has the dimensions of capital and skill intensity, the extent of productive use of labor and capital. Growth in labor productivity was moderate in the past decade.

Moreover, spurring productivity growth depends on creating an efficient and competitive tax system. The tax policy must promote capital formation and also attract rich talent.  Moreover, it must encourage innovation in firms and move them from staying small.

There must be a Competition policy to ensure vigorous competition and have many new entrants.  The focus must be on survival because it motivates business innovation. There are also other benefits like the movement of capital, entrepreneurial talent and skilled labor.

A better approach

Also, there is an urgent need to streamline regulatory approvals processes with a focus on modernization. This will help in capital formation. There must also be an infrastructure investment program, focusing on improvements in transport and communications. Finally, the need is on better living conditions for Canadians through pragmatic policies and a better focus.

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