Increases in labour productivity explain almost all gains in worker compensation over last 40 years in Canada

VANCOUVER—If Canada wants to increase worker compensation, then increases in labour productivity growth must be the policy focus for all governments, finds a new study published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“Despite any claims to the contrary, the best available evidence clearly shows that gains in labour productivity explain almost all the gains in income,” said Philip Cross, senior fellow at the Fraser Institute and author of Higher Labour Productivity is the Key to Faster Income Growth.

Simply put, labour productivity is the ability to convert inputs (e.g. labour, raw materials) into useable goods and services. Generally speaking, for worker compensation (wages, benefits, etc.) to increase, Canadian workers must become more productive, meaning they’re better at converting inputs into outputs for each hour worked.

In other words, growth in labour productivity drives income growth.

The study, which examines data from 1981 to 2024 (the latest year of available data), finds that a one-percentage point increase in labour productivity resulted in a 0.98-percentage point change in hourly compensation—which again, includes salaries, wages, pension benefits, etc.

So it’s not surprising that incomes (inflation-adjusted) in Canada are declining during Canada’s current productivity crisis (labour productivity in Canada has increased by a mere 3.6 per cent since 2015 compared to, for example, 4.1 per cent in 2000 alone).

“If governments in Canada want to help increase incomes and improve living standards, they must focus on policies to improve productivity,” Cross said.

Media Contact:
Philip Cross, Senior Fellow, Fraser Institute

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Mark Hasiuk, Fraser Institute
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