Last week, Pierre Cléroux of the Business Development Bank of Canada wrote here that for the first time in 15 years of making economic outlook presentations, he’s getting unprompted questions about productivity. It seems Canadians are having an “Aha!” moment about productivity, thanks to U.S. President Donald Trump’s tariff attack on their bottom lines.

Liberal Leader Mark Carney sells himself as someone who “understands how the economy works” (though someone who truly appreciated the mystery of markets would never make such a claim). Doubtless he figures he also understands productivity.

In a way, we all should. It’s not that hard. As Adam Smith writes on the first page of “The Wealth of Nations,” if your people don’t produce very much year over year, they’re not going to live well. If they produce more, they can live better.

The hard part is figuring out how to produce more.

Output per worker hour in all Canadian industries was $63.60 in 2023. That’s in 2017 dollars. Updating it with the Bank of Canada inflation calculator (which isn’t actually the right index to use but is the handiest), that’s $79.93. Eighty bucks, give or take.

On average, workers can’t be paid the whole $80. They weren’t the only ones producing it. They’ve got to share with the people running whatever operation they work for and also those supplying the capital they worked with. But, over time, how much they produce is a big part of how much they’re paid.

That $80 is an average for the entire economy. It varies a lot across the myriad activities that make up the Canadian economy. The highest private-sector average is in “mining and oil and gas extraction,” where it’s $267.31. The lowest is in accommodation and food services, only $31.80.

That suggests an easy way to increase average productivity: get people out of accommodation and food services and into oil and gas. Their output per hour will rise more than eight-fold!

Just kidding. Though not altogether. If you’re truly concerned about productivity, you shouldn’t shut down the sector of your economy where it’s highest, as Ottawa has been trying to do with oil and gas. Move a derrick operator to an espresso machine and his or her output and income collapse. Canadian consumers and our trading partners, not the federal government, should decide how much of everything we produce.

Why is productivity in oil and gas so much higher than in accommodation and food services? The output has higher market value. Workers are using much more capital. And they may have more, and more specialized, skills and knowledge (though cordon bleu chefs are hardly skill slouches).

Should we somehow contrive to raise the price of restaurant food so the value of cooks’ and servers’ output goes up? Or make production much more capital-intensive (deliver meals to tables with robots, say, or airport-style luggage conveyor belts?) Or require much more training of restaurant workers (whether they need it or not)?

Actually, some restaurants have been upping their capital use by having customers order by phone or touchscreen. So low-productivity sectors can benefit from more capital, when it makes sense for them.

In every sector of the economy (maybe even government), people can make productivity improvements. How? I haven’t a clue. And neither does Mark Carney. But the Canadians who work in those sectors certainly do.

People who want to do better understand they may have to change jobs. Or acquire new skills. At the mention of skills, governments start salivating: skills programs! Oh, joy! In fact, the 2019 federal budget fessed up to how Ottawa already had 106-plus skills programs offered across 30 departments. The budget said they were going to be streamlined. Maybe they have been. Suffice to say that if skills programs were the answer to our skills problem, it would have been solved long ago.

Canadians are capable people. They can find out for themselves what upgrades higher-paying jobs require. Governments need to let upgrades be worth their while by not over-taxing the extra money self-improvers earn. And by not making it harder for them to get into that new job. Lining up with unions and their job-protectionist agendas, as is now in vogue in almost all political parties, is a time-dishonoured way of gumming up labour markets.

Should governments provide free training? No, actually. We want people to get training if it’s going to be worth it to them. But if it costs more to re-skill than workers will gain from it, what’s the point? If the would-be up-skiller has to pay, he or she takes the costs of the new training into account, so benefits get weighed against costs.

On the other side of the labour market, individual employers, not me or Mark Carney, know what will increase productivity in their operations. No doubt one or two will make changes for what they perceive to be the good of the country or to attract media attention. But most are mainly interested in their bottom lines. Tax that bottom line more and you reduce employers’ incentive to make productivity-enhancing changes.

To raise productivity, we don’t need Mark Carney and his retread cabinet making their best but completely uninformed guesses about what changes Canadian businesses should make. We need them to reduce taxes, get out of the way and let Canadians and Canadian businesses get on with it.

Financial Post

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