Canada’s affordability crisis is really a productivity problem , which can be rectified through rising incomes brought on by productivity gains, according to the

Bank of Canada. “If we want to make things affordable, we need to raise our income,” said Bank of Canada external deputy governor Nicolas Vincent, during remarks at the Association des économistes québécois and CFA Québec, in Quebec City on Wednesday. “And the way we grow our income is by increasing productivity.”

In his speech, Vincent highlighted the depth of Canada’s productivity difficulties, noting since 2000 Canada has lagged the United States and other G7 countries. Canada’s annual labour productivity growth went from three per cent between 1962 and 1979, to just over one per cent between 2000 and 2019, to under 0.5 per cent between 2020 and 2023.

“Even modest improvements can make a big difference,” said Vincent. “To give you an idea, if our productivity growth since 2000 had been similar to that of other G7 countries, our GDP in Canada today would be about nine per cent higher, which translates to almost $7,000 per person.”

Vincent also noted that income growth driven by productivity gains comes with little to no inflationary pressures, because in a higher productivity environment, businesses can keep their prices stable even if they raise wages and increases purchasing power.

This is because what matters is unit labour costs, which means how much it cost in wages to produce a single unit of output. Using an example, Vincent said imagine a company that takes 10 hours to produce 100 units and pays its workers $40 an hour, this means the cost to produce 100 units is $400 and the unit labour cost is four dollars.

“Now, let’s say a new technology or process lets the company produce 125 units in 10 hours instead of 100,” he said. “Thanks to this gain in productivity, the company would be able to pay its workers up to $50 an hour without increasing it unit labour cost.”

Vincent also tried to dispel misconceptions about productivity, as many workers and businesses think higher productivity means working harder and longer.

“Instead, it means producing more with what we have,” he said. “It means producing better.”

This is not the first time productivity has been the subject of a speech delivered by the central bank. In 2024, Bank of Canada senior deputy governor

Carolyn Rogers sounded the alarm and called Canada’s productivity issue an emergency. Last month, Rogers once again delivered a speech on productivity with a focus on fostering more competition among industries, including the financial sector, as one potential solution.

Recent trade disruptions with Canada’s largest trade partner have only reinforced the need for Canada’s economy to be more productive, likening it to having a strong immune system against increasing global shocks.

Fostering competition is among Vincent’s recommendations to tackle the productivity problem, in addition to attracting and investing in top talent, and creating a better regulatory environment for business investment, which was also highlighted by Bank of Canada governor

Tiff Macklem in a speech in Saskatoon in September. “This is a lever we should pull,” said Vincent. “A certain level of regulation is essential, of course. But it’s fair to ask if we could regulate better.”

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Ultimately, Vincent said these solutions are outside of the Bank of Canada’s purview, but he said the central bank can continue to play a role in encouraging a national dialogue around solutions to Canada’s productivity problem.

“If we are successful, we won’t just improve our outlook during the trade conflict and this period of substantial change,” he said. “We’ll also set ourselves up for long-term gains that will benefit generations to come.”