Argitis: Canada’s population advantage offset by weak productivity

Good comments on the productivity conundrum and how the current focus in increased immigration is not addressing productivity and in fact is weakening productivity. But Argitis only states the issue and offers no approaches or solutions to address the issue:

Canada’s population grew by a whopping 362,453 people in three months through Oct. 1, a quarterly gain of 0.9 per cent. That’s the fastest quarterly increase since 1957. Canada’s population is up 2.3 per cent from a year ago—double the historic annual average over the past half century.

Almost all the growth came from non-Canadians moving here, illustrating how there is no greater competitive advantage we have as a country than open immigration policies free of the hang-ups and complexities that hamper population growth elsewhere.

The latest data shows the country hit a minor milestone sometime over the summer, surpassing the 39 million mark.

Since the start of the pandemic, our population has grown by one million people.

At the current pace, Canada will hit the much bigger milestone of 40 million people no later than 2025, which would represent an increase of about 10 million people in the first quarter of the current century. That would be almost a one-third increase in population, which blows past most of Canada’s peers.

Canada’s fast population growth, however, is masking deeper economic problems around productivity and underlying competitiveness.

The same quarterly population numbers released last month to measure per-capita output reveal a disturbing trend. When factoring out population, our economy has been completely stagnant over the past four years. There’s no growth outside of immigration.

For example, while real GDP increased 0.7 per cent in the third quarter, the economy shrank by 0.2 per cent on a per capita basis. In fact, there’s been no increase in per-capita output since 2018.

I can think of no bigger threat to the consensus around immigration than Canada’s inability to increase productivity and improve living standards of people already living here. …

Theo Argitis is the managing director of Compass Rose, a public affairs firm in Ottawa.

Source: Canada’s population advantage offset by weak productivity

Manning: The link between growth and immigration: unpicking the confusion

One of the better explainers on growth, immigration and productivity (i.e., per capita not overall growth):

The new UK government with Liz Truss as PM and Kwasi Kwarteng as chancellor has told the Treasury to “focus entirely on growth” as the main objective of government policy. And it is rumoured that part of this dash for growth is to be loosening controls on immigration. As immigration restrictions have been argued to be the “greatest single class of distortions in the global economy”, that is perhaps not surprising for a government that seems ideologically committed to free markets. A more liberal immigration system is an idea that has been received favourably in some parts of the commentariat that are otherwise extremely critical of other policies such as directing tax cuts to the rich. For example, Lionel Barber, a former editor of the Financial Times, tweeted that it was good news “that Truss government plans to increase immigration to boost growth”.

Many of these commentators are people whose views I normally regard as sensible. But on the relationship between immigration and growth I think much comment is deeply confused. The root of the confusion is what we mean by ”growth”.  Growth might mean an increase in gross domestic product (GDP), the total amount of goods and services produced in the economy. Because immigration means more people and more people means a bigger economy, immigration almost certainly increases growth in this sense. But we normally think of growth as being desirable because it represents an improvement in the material standard of living in the country. Then, GDP per capita (per person) is a much better measure of growth and the relationship between immigration and growth more complicated as immigration raises GDP but also the capita bit of the formula.

The confusion over the link between growth and immigration is not new. A House of Lords reportfrom 2008 criticised the government for using the impact of immigration on GDP rather than GDP per capita in its analysis. With the benefit of hindsight, the garbled economics of immigration of the government at that time was one reason it got into trouble over immigration (the others being naïve visa design and a failure to monitor what was happening).

Before the pandemic disrupted the economy, UK GDP per capita was about £33,700. An extra immigrant will raise GDP per capita if their contribution is above this figure, reduce it if its below. Using this measure, immigration is no longer necessarily pro-growth; it depends. Assessing the contribution of migrants to GDP is critical to deciding whether more open immigration rules raise or reduce GDP per capita.

One contribution of immigration to GDP is the earnings of the migrants themselves. But their work also generates profits; labour income is about 60% of total income, meaning that 60p in earnings generates £1 in GDP on average. If a migrant’s earnings generate the same profit per pound as the average, this would mean that any single migrant earning above £20k would raise GDP per capita. The lowest visa salary thresholds are currently slightly above this level. But if the migrant has a non-working partner and child, they would have to earn over £60k to raise UK GDP per capita. Rules on rights to bring dependents, rarely discussed, make a big difference for the impact of immigration on GDP per capita.

But perhaps there are other effects on GDP per capita beyond the migrant and their employer. These effects might be positive or negative. As more immigration means faster labour force growth, some investment has to be directed to equipping the new workers with capital. If investment as a whole does not increase sufficiently, this means lower investment per worker in other jobs, which means lower GDP per capita. On the other hand, there is good evidence that higher-skilled migrants lead to more innovation, which is the underlying basis for productivity growth. Some studies also claim there are positive general effects on productivity of all migrants, not just the higher-skilled. The magnitude of the impacts in these studies are, for me, beyond what is credible. For example, some studies imply that the average immigrant is 2.5 times more productive than a Brit.

Also sowing confusion is a famous theoretical result in the economics of immigration; what is known as the ”immigration surplus” result. This says that in competitive markets, immigration of any type raises the average income of the locals as long as the skill mix of migrants and locals differs. There are two problems with the way this famous result is commonly interpreted. First, the impact works through changes in wages and prices. If, as the evidence suggests is the case, these do not change very much, if at all, with immigration, then the predicted benefits are small. More importantly, the growth measure being used is the GDP per capita of the locals only; it is as if the migrants themselves count for nothing. It is a country like the United Arab Emirates that probably comes closest to what this theoretical model would say is desirable. If the UAE is not your preferred model of the good society, don’t cite these results.

The effects of migration on GDP per capita may be more positive in the short run than in the long run. Initially, the migrants are on work permits, they have to work.  But if they settle, some will end up out of work (just like everyone else) and will eventually retire.  So settlement rules, again rarely discussed, matter for the impact of immigration on growth.

Productivity per hour worked is another measure of growth we might be interested in; the UK has a well-known problem with productivity; growth has been very weak since the financial crisis and we lag behind our competitors. ,We might want an immigration policy to raise productivity per hour worked.  That would lead to a more restrictive immigration policy than one that focused on current GDP per capita, as one now has to compare working migrants with working locals, not all locals.

So, the relationship between immigration and growth is likely to be far more complicated than widely assumed. The final migration advisory committee report produced when I was chair tried to estimate the likely impacts of different migration rules on the growth outcomes described here. Those estimates were based on assumptions that are not beyond criticism.  But the bottom line was that the impact of a well-chosen immigration policy on growth was very small unless one focused on total GDP, which is the wrong measure. For high-skilled immigrants, it is likely that GDP per capita is raised but for lower-skilled immigrants it is much more debatable. And a lot of the current discussion is about reducing restrictions on immigration to address labour shortages in sectors like agriculture and hospitality, where productivity and salaries are low.

I have discussed the impact of immigration on UK growth alone.  But perhaps we should take a global perspective. There is little doubt that immigration from lower-income countries to higher-income ones (like the UK) raises global GDP per capita even if it reduces GDP per capita in the UK. That is a strong reason to look to find ways to be open to immigration.  But we need to be aware that most of the benefits go to the migrants themselves, and that some controls are needed to avoid harm to some of the locals. Pretending there is a strong case that immigration always raises growth in the local economy may be in a good cause, but when that case is exaggerated, it runs the risk of undermining public confidence in the immigration system, something that tends to lead ultimately to more restrictive policies.


Alan Manning is Professor of Economics in the Department of Economics at LSE, and co-director of the community wellbeing programme at LSE CEP. His research generally covers labour markets, with a focus on imperfect competition (monopsony), minimum wages, job polarisation, immigration, and gender. On immigration, his interests expand beyond the economy to issues such as social housing, minority groups, and

Source: The link between growth and immigration: unpicking the confusion

Munro and Lamb: The pandemic forced Canadian business out of a tech lethargy. What happens next?

A reminder that the government’s strategy of relying on immigration to address labour shortages neglects the role that technology can and does play.

The government’s focus on addressing business demands for more immigration reduces incentives for businesses to adapt new technology and improve productivity.

This analysis by Munro and Lamb should be a wake-up call to governments:

Canadians tend to think that innovation is mainly about inventing, producing and selling new technologies and products. Largely neglected in the discourse about innovation in Canada is the critical role of technology adoption or tech-taking. Technology adoption is often viewed as a lesser form of innovation, if it is viewed as innovation at all. Yet, adopting technologies that range from data analytics software to communication and collaboration tools, e-commerce platforms, and design technologies can enhance productivity and growth. It can also generate more and better employment opportunities, and enable new and different kinds of innovation.

Why are so many Canadian firms technology adoption laggards? Why are they content with low-tech business strategies? The short answer, borrowing an observation from Peter Nicholson, is that Canadian business has been “only as innovative as it has needed to be” – and, we might add, can be. Firms across a range of sectors have been able to maintain above-average profits for decades with low-wage strategies and minimal innovation and technology adoption. Among those that have seen the need to change, many face resource, knowledge and skills constraints that prevent them from doing so.

But our longstanding low-tech, low-innovation equilibrium may be changing, as we reveal in a new report on Canada’s technology trajectories.

Not only has the pandemic forced firms in key sectors to adopt new technologies to sustain operations, but recent changes in the ways technologies are packaged and sold have improved the cost-benefit analysis facing firms. For example, the increasing adoption of cloud solutions has meant that instead of making large upfront investments in hardware or software, firms can now purchase subscriptions that are easily administered, can be scaled up or down, canceled or customized and often have readily accessible education and consulting services. Are we in the midst of a fundamental shift in Canadian firms’ attitudes about the benefits and feasibility of adopting new technologies? Or will pre-pandemic lethargy return?

Canada’s pre-pandemic tech lethargy

Prior to the pandemic, Canada was a laggard on business investments in information and communications technologies (ICT). ICT investment per job in Canada, for example, has ranged from just 54 per cent to 68 per cent of U.S. levels since the late 1990s – largely due to lower investment in software and databases and contributing to our weak productivity relative to the U.S.

On another measure of ICT investment, Canada’s performance has deteriorated absolutely and relative to peers. In 2000, ICT investment as a share of total gross fixed capital formation (GFCF) in Canada was roughly 16 per cent. By 2019, this had declined to 11 per cent – roughly six percentage points lower than investment levels in France and the U.S. Since 1995 – when Canada trailed only the U.K. and the U.S. among G7 countries for whom data were available – we have been overtaken by France and Italy and now trail four of the six countries with available data (figure 1).

Canadian firms often cite weak incentives to explain why they do not adopt technology, with many firms saying that investment is “not necessary for continued operations” or that they were “not convinced of the economic benefit” of candidate technologies. Other data aligns with this explanation. Notably, Canadian firms’ profitability has been rising over the past two decades, reducing incentives to adopt technologies to sustain revenue. Between 1997 and 2017, average annual growth of after-tax profits rose 7.6 per cent over the period. Profits as a share of GDP rose from 8.4 per cent in 1997 to 15.2 per cent by 2017, and since 2000 have exceeded that of the U.S. both before and after tax (figure 2).

At the same time, many firms recognize how technology adoption could help maintain or improve competitiveness, but they lack the capacity to make the change. This includes financial resources to purchase new technologies or technology service subscriptions; access to skills to implement, use, and maintain technologies; organizational and management cultures equipped to embrace and effectively use new technologies; and other factors. Given these weak incentives and substantial barriers, it is easy to see why business leaders might stick with existing low-tech strategies rather than shifting to an alternative.

The pandemic tech shock

The pandemic and associated restrictions sent shockwaves through Canada’s low-tech equilibrium. Key sectors recognized that lagging technology adoption was no longer an option. Implementing a range of communications, e-commerce, logistics and other technologies would be necessary for survival. 

Retail firms, for example, realized that they had to find ways to reach customers virtually or go out of business. Turn-key online sales platforms, like Canada’s own Shopify, along with government- and industry-supported digital adoption support programs, like Digital Main Street, helped move many businesses’ retail operations online. The result? From February 2020 to May 2021 retail e-commerce sales in Canada increased by over $2 billion, reaching an all-time high of more than $4.1 billion – an increase of 127 per cent relative to May 2019 (figure 3).

Similarly, non-retail firms that depend on the efforts of people to provide services, collaborate, and interact with clients and colleagues to generate value have adopted virtual platforms to enable interaction. Platforms like Google Meets, Microsoft Teams, Zoom, and myriad collaboration software. In the first quarter of 2021, when businesses were asked what technologies they adopted due to the pandemic, collaboration tools and cloud solutions were the most frequently cited.

This rose to over 50 per cent of businesses in information and cultural industries and professional, scientific, and technical services, two highly knowledge-intensive sectors. What began as a necessary change to maintain operations and sales has the potential to become a new, higher technology equilibrium for Canada.

The intangible shift

Much of the accelerated tech adoption amidst the pandemic has been facilitated by a trend that was gathering momentum before the pandemic – a shift away from more tangible kinds of technology investment, like hardware and IT systems, and toward more intangible, ICT-as-a-service investments, like cloud solutions and ready-made software. More intangible technology options help address some of the historical barriers to technology adoption, such as high cost, high skills needs, and integration with existing systems.

Cloud computing services offer a useful illustration. Instead of making large upfront investments in physical software and/or hardware, firms are now able to purchase ongoing subscriptions for services, which are easily administered and can be scaled up or down, canceled or customized depending on the effectiveness of the services and firms’ changing needs. Cloud services help de-risk and ease the purchase and use of digital technologies, overcoming one of the key barriers to technology adoption and use that have long faced Canadian firms.

And the shift is striking: Canadian firms spent $420 million on cloud services in 2006 and nearly $2.6 billion in 2014 – an annual growth rate of more than 25 per cent over the period. Contrast that to the 20 per cent annual growth in cloud service spending among firms in the U.S. over the same period. By 2017, 29 per cent of small and medium-sized enterprises (SMEs) reported using cloud computing technologies over the previous three years, which was the most frequently selected technology, above data analytics, customer relationship management software, and enterprise resource planning software, to name a few.

The embrace of cloud services prior to and during the pandemic suggests that current data and measurement probably underestimate the extent to which Canadian firms are investing in and using technology because subscription cloud services are not always reported by firms as technology investments. By how much, exactly, is not clear, though there are some signals.

Moreover, while we expect that, over time, these investments will begin to have an effect on, and show up in measurements of, productivity and growth, we are not yet seeing the results. Still, given what we know about the relationships among technology adoption, productivity and growth, it is encouraging to see technology adoption strategies emerging in the face of new constellations of incentives and capabilities.

What’s next for technology diffusion in Canada? 

What does the future hold for technology adoption in Canada? Early indicators suggest that many Canadian firms may stick with the technologies they adopted during the pandemic and add more. Retail firms have learned that e-commerce can complement and expand in-person sales, and many employers have seen how remote work and collaboration can improve talent recruitment and retention. Moreover, the intangible shift has reduced the cost of technologies, making long-term technology adoption options more feasible.

Still, old habits die hard. A number of managers still prefer to have their employees interact in-person and many retail firms will welcome the return to in-person, albeit smaller, markets. Those firms that try to maintain higher technology adoption patterns will need people with technical skills to implement and use new kinds of technologies – and these skills may be scarce in the years ahead. Access to digital infrastructure (such as sufficient broadband) remains spotty in rural and remote areas, and cybersecurity continues to be a challenge for many firms. Even with new incentives to maintain or increase technology adoption, barriers will remain.

If governments and large anchor firms can find ways to help small and medium firms overcome labour and infrastructure challenges, Canada might shift to a higher technology adoption trajectory and reap the innovation and productivity benefits it generates. The financial, technical, and infrastructure support provided by programs like Digital Main Street, the Canada Digital Adoption Program, and the Universal Broadband Fund are promising signs that governments are willing to do their part. What remains to be seen is whether Canadian businesses are ready to leave behind the low-wage, low-technology equilibrium and embrace a higher technology, higher productivity, and higher wage and well-being future.

Source: The pandemic forced Canadian business out of a tech lethargy. What happens next?

It’s time to stop talking about productivity

Interesting suggestion on how to reframe the productivity discussions and debates. But the government focus on immigration as a major driver of economic growth (total not per capita GDP) highlights the lack of focus on productivity and increased incomes:

Should Canada take steps to boost its long-term productivity growth, including measures to accelerate the substitution of capital for labour and to increase the pace of upskilling?

Translated from policy-ese: would you like a $13,500 raise?

A lot of the debate over increasing productivity and competitiveness resembles that first sentence, and sounds like a note from the boss telling you to stop lollygagging. Canadians could be forgiven for tuning out of a debate that seems to centre on why they should work harder to plump up corporate profits.

But what if the productivity debate were framed around individual prosperity — the question being whether you want a low-wage or a high-wage economy?

A speech by former federal finance minister Bill Morneau last week hinted at that approach. After some familiar bemoaning of the lack of urgency about fixing our lack of competitiveness, Mr. Morneau pivoted to a frame of individual prosperity. “Let me put it another way,” he said in a speech Wednesday evening to the C.D. Howe Institute. “If we had maintained our rate of productivity growth from 2000 on, the average annual income for a Canadian worker would have been about $13,500 higher in 2019.”

To be sure, there’s nothing to guarantee that the benefits of higher productivity flow to workers. Some of that extra income will take the form of higher profits — and rightly so, if businesses are to expected to invest heavily in robots and other forms of automation.

But Mr. Morneau’s words brought to mind a recent tour I had of a printing plant in southern Manitoba owned by Friesens Corp. Like many companies in Manitoba and elsewhere in Canada, Friesens has had to contend with an ongoing labour shortage. Unlike many, the company is automating parts of its production lines. One result: the back-breaking job of lifting and stacking is now performed by robots, not humans. It’s safer, cheaper — and has freed up those humans for more technically demanding work. And their wages are higher, too.

So, a suggestion for Mr. Morneau, or anyone else looking to pontificate on the need for a focus on higher productivity: Don’t. Instead, talk about the choice between low-paid grunt work, and better paid, more interesting jobs.

Source: It’s time to stop talking about productivity

How America’s talent wars are reshaping business

In Canada, by contrast, immigration is relied upon to meet labour force requirements. One of the consequences, unforeseen or not, was reduced pressure to improve productivity and innovation:

Dcl logistics, like so many American firms, had a problem last year. Its business, fulfilling orders of goods sold online, faced surging demand. But competition for warehouse workers was fierce, wages were rising and staff turnover was high. So dcl made two changes. It bought robots to pick items off shelves and place them in boxes. And it reduced its reliance on part-time workers by hiring more full-time staff. “What we save in having temp employees, we lose in productivity,” explains Dave Tu, dcl’s president. Full-time payroll has doubled in the past year, to 280.Listen to this story

As American companies enter another year of uncertainty, the workforce has become bosses’ principal concern. Chief executives cite worker shortages as the greatest threat to their businesses in 2022, according to a survey by the Conference Board, a research organisation. On January 28th the Labour Department reported that firms had spent 4% more on wages and benefits in the fourth quarter, year on year, a rise not seen in 20 years. Paycheques of everyone from McDonald’s burger-flippers to Citi group bankers are growing fatter. This goes some way to explaining why profit margins in the s&p 500 index of large companies, which have defied gravity in the pandemic, are starting to decline. On February 2nd Meta spooked investors by reporting a dip in profits, due in part to a rise in employee-related costs as it moves from Facebook and its sister social networks into the virtual-reality metaverse.

At the same time, firms of all sizes and sectors are testing new ways to recruit, train and deploy staff. Some of these strategies will be temporary. Others may reshape American business.

The current jobs market looks extra ordinary by historical standards. December saw 10.9m job openings, up by more than 60% from December 2019. Just six workers were available for every ten open jobs (see chart 1). Predictably, many seem comfortable abandoning old positions to seek better ones. This is evident among those who clean bedsheets and stock shelves, as well as those building spreadsheets and selling stocks. In November 4.5m workers quit their jobs, a record. Even if rising wages and an ebbing pandemic lure some of them back to work, the fight for staff may endure.

For decades American firms slurped from a deepening pool of labour, as more women entered the workforce and globalisation greatly expanded the ranks of potential hires. That expansion has now mostly run its course, says Andrew Schwedel of Bain, a consultancy. Simultaneously, other trends have conspired to make the labour pool shallower than it might have been. Men continue to slump out of the job market: the share of men aged 25 to 54 either working or looking for work was 88% at the end of last year, down from 97% in the 1950s. Immigration, which plunged during Donald Trump’s nativist presidency, has sunk further, to less than a quarter of the level in 2016. And covid-19 may have prompted more than 2.4m baby boomers into early retirement, according to the Federal Reserve Bank of St Louis.

These trends will not reverse quickly. Boomers won’t sprint back to work en masse. With Republicans hostile to outsiders and Democrats squabbling over visas for skilled ones, a surge in immigration looks unlikely. Some men have returned to the workforce since the depths of the covid recession in 2020, but the male participation rate has plateaued below pre-pandemic levels. A tight labour market may persist.

But base pay is rising, too. Bank of America says it will raise its minimum wage to $25 by 2025. In September Walmart, America’s largest private employer, set its minimum wage at $12 an hour, below many states’ requirement of $13-14 but well above the federal minimum wage of $7.25. Amazon has lifted average wages in its warehouses to $18. The average hourly wage for production and nonsupervisory employees in December was 5.8% above the level a year earlier; compared with a 4.7% jump for all private-sector workers. Firms face pressure to lift them higher still. High inflation ensured that only workers in leisure and hospitality saw a real increase in hourly pay last year (see chart 2).

Raising compensation may not, on its own, be sufficient for companies to overcome the labour squeeze, however. This is where the other strategies come in, starting with changes to recruitment. To deal with the fact that, for some types of job, there simply are not enough qualified candidates to fill vacancies, many businesses are loosening hiring criteria previously deemed a prerequisite.

The share of job postings that list “no experience required” more than doubled from January 2020 to September 2021, reckons Burning Glass, an analytics firm. Easing rigid preconditions may be sensible, even without a labour shortage. A four-year degree, argues Joseph Fuller of Harvard Business School, is an unreliable guarantor of a worker’s worth. The Business Roundtable and the us Chamber of Commerce, two business groups, have urged companies to ease requirements that job applicants have a four-year university degree, advising them to value workers’ skills instead.

Another way to deal with a shortage of qualified staff is for firms to impart the qualifications themselves. In September, the most recent month for which Burning Glass has data, the share of job postings that offer training was more than 30% higher than in January 2020. New providers of training are proliferating, from university-run “bootcamps” to short-term programmes by specialists such as General Assembly and big employers themselves. Employers in Buffalo have hired General Assembly to run data-training schemes for local workers who are broadly able but who lack specific tech skills. Google, a technology giant, says it will consider workers who earn its online certificate in data analytics, for example, to be equivalent to a worker with a four-year degree.

Besides revamping recruitment and training, companies are modifying how their workers work. Some positions are objectively bad, with low pay, unpredictable scheduling and little opportunity for growth. Zeynep Ton of the mit Sloan School of Management contends that making low-wage jobs more appealing improves retention and productivity, which supports profits in the long term. As interesting as Walmart’s pay increases, she argues, are the retail behemoth’s management changes. Last year it said that two-thirds of the more than 565,000 hourly workers in its stores would work full time, up from about half in 2016. They would have predictable schedules week to week and more structured mentorship. Other companies may take note. Many of the complaints raised by labour organisers at Starbucks and Amazon have as much to do with safety and stress on the job as they do wages or benefits.

Companies that cannot find enough workers are trying to do with fewer of them. Sometimes that means trimming services. Many hotel chains, including Hilton, have made daily housekeeping optional. “We’ve been very thoughtful and cautious about what positions we fill,” Darren Woods, boss of ExxonMobil, told the oil giant’s investors on February 1st.

Increasingly, this also involves investments in automation. Orders of robots last year surpassed the pre-pandemic high in both volume and value, according to the Association for Advancing Automation. ups, a shipping firm, is boosting productivity with more automated bagging and labelling; new electronic tags will eliminate millions of manual scans each day.

New business models are pushing things along. Consider McEntire Produce in Columbia, South Carolina. Each year more than 45,000 tonnes of sliced lettuce, tomatoes and onions move through its factory. Workers pack them in bags, place bags in boxes and stack boxes on pallets destined for fast-food restaurants. McEntire has raised wages, but staff turnover remains high. Even as worker costs have climbed, the upfront expense of automation has sunk. So the firm plans to install new robots to box and stack. It will lease these from a new company called Formic, which offers robots at an hourly rate that is less than half the cost of a McEntire worker doing the same job. By 2025 McEntire wants to automate 60% of its volume, with robots handling the back-breaking work and workers performing tasks that require more skill. One new position, introduced in the past year, looks permanent: a manager whose sole job is to listen to and support staff so they do not quit. 

Both workers and employers are adapting. For the most part, they are doing so outside the construct of collective bargaining. Despite a flurry of activity—Starbucks baristas in Buffalo and Amazon workers in Alabama will hold union votes in February—unions remain weak. Last year 10.3% of American workers were unionised, matching the record low of 2019. Within the private sector, the unionisation rate is just 6.1%. Strikes and pickets will be a headache for some bosses. But it is quits that could cause them sleepless nights.

Pay as they go

Companies’ most straightforward tactic to deal with worker shortages is to raise pay. If firms are to part with cash, they prefer the inducements to be one-off rather than recurring and sticky, as with higher wages. That explains a proliferation of fat bonuses. Before the Christmas rush Amazon began offering workers a $3,000 sign-on sweetener. Compensation for lawyers at America’s top 50 firms rose by 16.5% last year, in part thanks to bonuses, according to a survey by Citigroup and Hildebrandt, a consultancy. In January Bank of America said it would give staff $1bn in restricted stock, which vests over time.

Source: How America’s talent wars are reshaping business

Immigration is not a cure-all for Canada’s economic woes

A useful and needed reminder that Canada has been relying too much on immigration for overall economic growth rather than addressing some of the fundamental challenges related to productivity:

Jock Finlayson is the executive vice-president and chief policy officer of the Business Council of British Columbia. David Williams, DPhil, is the council’s vice-president of policy.

Immigration inflows to Canada have fallen off a cliff since the COVID-19 pandemic. In the second quarter of 2020, permanent resident arrivals were down by two-thirds from a year ago. Temporary work permits issued to foreign workers were down by half. And permits for international students were about 80-per-cent lower.

By contrast, prior to the pandemic, net temporary immigration was a record 191,000 and permanent immigration reached 341,000 last year – the highest since 1911-13. As a result, Canada’s population increased by a record 550,000 people last year, with much of that growth concentrated in the gateway metropolitan areas of Toronto, Vancouver and Montreal.

The immigration slump has set off alarm bells in some quarters. The concern is that without a prompt return to turbocharged immigration levels, Canada’s economy is in jeopardy. In our view, these concerns are exaggerated and overlook the humble arithmetic of economic growth.

Growth in gross domestic product (GDP) comes from two sources: increases in “labour inputs” (more workers and/or more hours of work); and increases in “labour productivity” (more GDP per employee or per hour of work) because of investments in capital, skills, technologies and economies of scale. Canadian policy discussions overwhelmingly focus on boosting labour inputs, while paying scant attention to the drivers of productivity. This is a remarkably unbalanced approach.

Canada’s economy stumbled into 2020 with a national growth strategy that was yielding low unemployment – and flushed gateway city real estate markets – but little or no gains in GDP per capita, productivity and real wages. Canada could scarcely manage topline GDP growth of 2 per cent without overheating and prompting higher interest rates from the Bank of Canada. That’s hardly impressive for an economy operating near full employment.

In the five years to 2019, fully four-fifths of Canada’s GDP growth was because of increases in aggregate working hours as the labour force steadily expanded. During the same period, labour productivity – which largely determines average real wages and living standards in the long run – made its smallest contribution to GDP growth since the 1980s. On a per worker basis, business investment was weaker last year than in 2008. Putting all the pieces together, GDP per capita inched ahead by a paltry 0.3 per cent per annum over the five years to 2019.

In other words, Canada’s economy was growing mostly because it was adding more people (especially in the big cities). But owing to weak investment and feeble productivity growth, the economy wasn’t getting much “better” in terms of making the average Canadian more prosperous.

There are benefits from immigration – a larger pool of workers and skills, more domestic customers and densification of the big cities. But research from leading Canadian economists generally finds that immigration numbers have an overall neutral effect on real wages, employment rates, labour productivity and GDP per capita. In addition, immigration has only a small impact on the age structure of the population. That’s because annual immigration flows are dwarfed by the existing population, and also because newcomers age along with everyone else.

Canada is on a long road to recovery from the COVID-19 recession. In the coming years, policy makers should focus on spurring labour demand, restoring full employment and improving competitiveness. This will require creating better conditions for investment and technology adoption, for Canadian companies to scale up and innovate, and for the work force to upskill and reskill in the face of digital transformation and automation trends. These are the surest paths to economic growth and prosperity – on a per capita basis, for both urban and regional communities, and over the short and the long term.