If you’ve been noticing more construction in your city, it’s not because Canada’s productivity is on an uptick.
According to a new report from TD Economics, Canada’s productivity has deteriorated so much that it should be a “grave concern to all Canadians.”
“Canada’s standard of living, as measured by real GDP per person, was lower in 2023 than in 2014,” highlights the report.
The sector that has experienced the lowest productivity of any goods industry in Canada is construction.
The report adds that the decline in Canada’s construction sector has been a pattern that’s only worsened over the years, generating no productivity growth over the past four decades.
What’s going on with construction in Canada?
A few reasons are causing the drastic decline in construction productivity in the country.
The report highlights that the differences in permitting and regulations across Canada have a major role to play.
For instance, there are various construction building codes and permitting and licensing requirements making it harder for companies to oversee projects in different jurisdictions.
TD Economics
The size of construction firms can also be a hindrance.
“More than other sectors, construction is characterized by very small firms — 25% have fewer than 20 employees,” said TD. These smaller firms tend to have lower productivity levels and often don’t have the same technology as larger companies.
Smaller firms also tend to be hit with more regulations than their larger counterparts.
Canada isn’t alone in its deteriorating construction productivity; the report adds that this trend is “global in nature.”
The US’s construction productivity has been worse than Canada’s in the past 30 years and a lack of allocative efficiency with resources and tighter land-use regulations have only worsened that country’s problem.
Why you might be seeing more construction
While construction productivity is lagging, it doesn’t mean that workers aren’t putting in the hours.
TD Economics noted that in 2023, the construction sector made up 12.6% of all labour hours worked in the country, which was an increase from 8% in 1997. The hours worked in construction in Canada also outpace those in manufacturing.
TD Economics
With more resources being allocated to construction than to other sectors, this is having an increasing impact on the country’s productivity.
The report states that the “reallocation effect” and the “within-sector effect” have “subtracted 0.5 percentage points from annual productivity growth since the pandemic.”
Over the next several years, Canada’s need for construction isn’t going to magically disappear.
The housing situation in the country is dire, meaning more construction projects will be necessary, requiring even more resources.
The report suggests that Canada needs to come up with more “out-of-the-box” solutions to improve its productivity in the construction sector.
For instance, rethinking building codes, being more flexible in what kind of materials are used without compromising safety and durability, and adopting more prefabricated or modular building solutions could bring improvements.
“Focusing on improving productivity in construction sector is particularly urgent due to its growing economic importance,” concludes the report.
“If Canada does not play to win on labour productivity, it risks a continued drop in living standards, worsening wage stagnation and a dangerous deterioration in public service.”