The scale of disadvantage: why Canadian workers are less productive than American counterparts

A recent report from Statistics Canada, titled “The role of firm size in the Canada–U.S. labour productivity gap since 2000,” provides a detailed examination of the persistent economic divide between the two nations. The analysis reveals that the business-sector labour productivity level in Canada declined from 83% of the United States level in 2002 to 73% by 2019. This ten-percentage-point drop underscores a widening chasm that has significant implications for the Canadian labour market and the broader economy.

The findings suggest that the productivity gap is largely driven by structural differences in firm size and the relative performance of smaller enterprises. According to the research, approximately 60% of the productivity gap is attributable to two specific factors: Canada’s higher concentration of small firms and the fact that these firms are substantially less productive than their American counterparts. While small and medium-sized enterprises are often described as the backbone of the Canadian economy, the data indicates that they face unique hurdles in achieving the scale necessary for high-efficiency output.

The report identifies a "compositional" problem within the Canadian business landscape, noting that the U.S. economy appears more adept at scaling businesses into large, highly productive entities. In contrast, Canadian firms tend to remain smaller for longer periods, missing out on the economies of scale that drive aggressive productivity gains. This structural divergence creates a challenging environment for wage growth, as productivity remains the primary long-term driver of real compensation. When firms struggle to improve efficiency, their capacity to invest in talent, technology, and competitive pay structures is inherently limited.

From a labour and staffing perspective, these insights highlight a critical need for strategic intervention as the persistent productivity disadvantage among smaller firms suggests that the path to closing the gap requires more than just an increase in total hours worked. Instead, the focus must shift toward enhancing the quality of those hours through better integration of technology and more sophisticated management practices. For the Canadian workforce to remain competitive on a North American scale, businesses must find ways to overcome the limitations associated with smaller organizational sizes.

Ultimately, the Statistics Canada analysis serves as a reminder that productivity is not merely an abstract metric but a reflection of structural economic health. Addressing the gap will likely require a concerted effort to help Canadian businesses scale more effectively and adopt the high-efficiency models seen south of the border. Without such shifts, the disparity in economic performance between the two countries may continue to impact the long-term prosperity of the Canadian labour market.