Labour Productivity Level (USD PPP)

The Canada–US labour productivity gap: the "break-the-glass" chart

If you had to pick one chart that explains the Canadian economic debate of the 2020s, this is it. Senior Deputy Governor Carolyn Rogers, in a Halifax speech on March 26, 2024, said Canada's weak labour productivity had reached "break the glass" territory — a rhetorical device that her successors have backed away from but that captured the severity of the problem better than any single statistic. This page is about that gap: how big it is, what is driving it, and what the 2025 policy response looks like.

For the definition of labour productivity (real GDP per hour worked, in constant USD PPP on this site) see the Labour Productivity Level indicator page. This page focuses on the Canada–US comparison.

The numbers

Using the OECD 2020 constant-PPP series shown above:

• Canada, 2000: about $33.44 per hour worked.
• Canada, 2024: about $75.36 per hour worked.
• United States, 2000: about $40.62 per hour worked.
• United States, 2023: about $97.05 per hour worked.

Canada's level is running roughly 22% below the United States on the most recent comparable data. That gap has been widening more or less continuously since 2000, and on Statistics Canada's 1997=100 indexing (published in the December 2025 productivity review) Canadian labour productivity sat at 73.9 in Q3 2025 — meaning the Canadian worker produced only 74% as much in 2025 as implied by the 1997 level, once compared to the US trajectory.

Tombe and others have calculated that if Canada had simply maintained parity with US productivity growth since 2015, aggregate Canadian real GDP in 2025 would be on the order of CAD $640 billion higher — roughly $15,000 per person per year in foregone real output. That is the counterfactual version of the Canada–US real GDP gap, expressed on a per-hour-worked basis.

Why the gap is what it is: firm size

The most important single explanation, published by Statistics Canada in December 2025, is firm size. The study found that firms with fewer than 100 employees — which are a much larger share of the Canadian economy than the US — are roughly 70% as productive as their US small-firm counterparts. Large Canadian firms are close to parity with large US firms, but Canada has proportionally fewer of them.

Statistics Canada attributed roughly 60% of the Canada–US productivity gap to firm-size composition alone. The headline line is that this composition effect has widened by about 26% since 2000, not narrowed.

What that means in practice: Canada's economy is more dependent on small and medium-sized enterprises, and its SMEs invest less in capital, software, and process improvements than equivalent US firms. This is not a Canada-bashing story — it is a structural observation about the composition of the private sector.

Capital per worker: the investment deficit

If firm size is the proximate explanation, capital per worker is the underlying mechanism. The C.D. Howe Institute's December 2025 analysis found that for every US dollar of capital per worker the United States invested in 2024, Canada invested roughly 55 cents. More alarmingly:

• US real business investment per worker has risen approximately 26% since 2014.
• Canadian real business investment per worker has fallen approximately 16% over the same period.

A widening gap of that magnitude compounds quickly. It is also the clearest structural reason the productivity gap has widened rather than held steady. You cannot out-work a capital deficit; you either close it or you fall further behind.

See the Canada vs US capital per worker comparison for the full investment-per-worker series.

It's ICT, not oil

A common Canadian explanation for the productivity gap is "we're a resource economy and resource extraction is less productive per hour." The OECD's 2025 Economic Survey of Canada challenged that framing: the largest contributor to the widening gap since 2000 is not resources but information and communications technology (ICT) capital deepening. The US economy has been aggressively substituting cheap compute, cloud infrastructure, and enterprise software for labour hours. Canadian firms — especially SMEs — have been slower to adopt.

Goldman Sachs' Jan Hatzius in 2025 estimated that AI adoption has boosted US measured productivity "basically zero" through 2025 on a macro level, with a longer-run potential contribution of roughly 1.5% per year once adoption deepens. If that materializes and Canada does not match it, the gap will widen faster, not slower, through the late 2020s.

Mike Moffatt's K-shaped framing

Economist Mike Moffatt has been one of the louder voices arguing that Canada's productivity problem is entangled with its housing problem — a "K-shaped" economy in which rising real estate costs divert capital and talent away from productive tradable-sector investment and toward unproductive land speculation. In this framing, high home prices and low business investment are two sides of the same capital-allocation failure. The housing-productivity loop is not universally accepted but has become a central part of the policy debate.

The 2025 Canadian policy response

Unlike the earlier part of the 2020s, Canada in 2025 has actually moved on the productivity file:

• Budget 2025 Productivity Super-Deduction (announced by Finance Minister François-Philippe Champagne in November 2025): a package of accelerated depreciation measures designed to lower the marginal effective tax rate on business investment from 15.6% to 13.2%, which would make it the lowest in the G7 for new capital.
• Bill C-5, the One Canadian Economy Act (Royal Assent June 26, 2025): legislation aimed at breaking down interprovincial trade barriers. The IMF has estimated that full internal trade liberalization could lift Canadian real GDP by roughly 7% over the long run, which would be one of the largest policy-driven productivity gains available anywhere in the advanced economies.
• Bank of Canada rhetorical shift: at the November 19, 2025 speech, senior officials shifted the framing from "break the glass" to "virtuous circle" — investment leading to productivity leading to real wages leading to more investment. Whether this reflects actual data improvement or just communication strategy is still an open debate.

What to watch in 2026

1. Quarterly business investment data from Statistics Canada. Non-residential fixed capital formation is the single best leading indicator.
2. ICT investment specifically — watch software and telecom capital expenditure, which are the bleeding edge of the productivity story in advanced economies.
3. Interprovincial trade data post-Bill C-5. Does actual interprovincial trade volume rise in response to the legislation, or do administrative barriers persist?
4. Wage-productivity gap. Canadian real wages have held up relative to productivity more than US wages have, which is flattering in the short run but unsustainable if the productivity gap keeps widening.
5. The C.D. Howe Commentary series and Statistics Canada's annual productivity review — both are the most detailed official tracking of the gap.

The stakes

Labour productivity is not an abstract macroeconomic metric. Over long periods, real wages track productivity almost one-for-one. Canada's real wages are effectively stuck because its productivity is effectively stuck, and no amount of short-run monetary or fiscal stimulus can substitute for a higher level of output per hour worked. The real GDP gap and the capital per worker gap are both downstream of this chart.

The short version: Canada is about 22% behind the US on output per hour worked, the gap is widening primarily through ICT capital deepening and small-firm composition, the 2025 policy response is the most ambitious in a decade, and the "break-the-glass" framing of March 2024 has quietly become the organizing principle of Canadian economic policy. Watch this line in 2026 to see whether the trend starts to bend.