Canada’s Lagging Productivity: The Case of a Well-Educated Workforce Lacking the Much-Needed Physical Capital

Productivity growth is a key determinant of our economic well- being and depends critically on investment in human and physical capital. Canada’s Lagging Productivity: The Case of a Well-Educated Workforce Lacking the Much-Needed Physical Capital focuses on human capital, how it has interacted with physical capital in Canada, and how this interaction has affected Canada’s productivity growth record.

International empirical evidence confirms economic theory, which suggests that as the quality of the labour force improves, the economy should become more capital intensive. But since the early 1980s, both productivity growth and capital intensity in Canada have slowed relative to the 1960s and 1970s, despite a steady improvement in the country’s labour force quality.

The paper concludes that the quality of the labour force has not been a constraint on capital investment in Canada. Therefore, we must look elsewhere to explain the growth slowdown in capital investment and productivity.