Elizabeth Babcock says it takes almost three weeks to do a task her U.S. peers can finish in one day.
A project coordinator at a large international information company in Toronto, Babcock says she enters data by hand because she doesn’t have the automated documentation software used by her counterparts across the border.
“It’s hard enough to do your job when you don’t have the tools to do your work to the best of your abilities,” Babcock said, declining to name her employer out of concern about retribution. The difficulty is “made more clear when people are doing the same job as you in a different country who do have the technology.”
Canadians such as Babcock have fallen behind their U.S. peers in productivity in part because employers for years have spent less on worker training and equipment. Workers may end up paying the price if companies switch their focus to regaining competitiveness by spending on new equipment and slowing the pace of hiring.
“There will be this pressure to raise productivity,” said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto in an Aug. 20 telephone interview. This means there will still be “hiring, but maybe not as aggressively as in the past.”
Worker output per hour has stagnated. Canada’s labor productivity fell 0.9 percent in the first quarter from a year earlier, while the U.S. measure gained 1.2 percent, Statistics Canada said June 7. The agency’s productivity index was 102.0 at the start of this year, compared with 100.6 at the end of 2005. Unit labor costs expressed in U.S. dollars have risen to 120.0 from 86.1 over that time.
“We have priced ourselves out of the North American market,” said David Dodge, who has spent much of his career studying productivity as a former Bank of Canada governor and top finance department official. “We don’t seem to get the mileage out of our information and communication technology that the Americans do.”
Finance Minister Jim Flaherty has touted the country’s labor market, saying the country has recovered jobs lost in the global recession faster than any other Group of Seven country, including the U.S. That advantage has been reduced, with employment growth slowing to an average of 6,000 a month so far this year from 25,900 last year, Statistics Canada figures show.
Canada’s unemployment rate was 7.2 percent in July, with the U.S. at 7.4 percent. The gap has narrowed from a peak of 2.2 points in November 2010. “It’s inevitable” that Canada’s jobless rate will move higher than the U.S., Doug Porter, chief economist at BMO Capital Markets in Toronto, said in an Aug. 23 telephone interview. “Job gains are going to be tough to come by,” Porter said.
Canadian workers had just half as much machinery and information and communications equipment as their American counterparts in 2010, Bank of Canada Senior Deputy Governor Tiff Macklem said in an October 2012 speech. The Conference Board of Canada in 2011 found that spending for on-the-job training had dropped 40 percent since peaking in 1993.
Canadian business investment on machinery and equipment fell 0.5 percent in the second quarter, Statistics Canada reported today, after spending was little changed in the previous period. Industrial machinery and equipment spending fell 1.2 percent, while outlays on computers and peripherals dropped 2.3 percent.
There’s no shortage of theories about why Canadian investment and productivity have lagged, including complacency drawn from the country’s reliance on easy commodity riches.
Bosses with less training than their U.S. peers aren’t inclined to build their employees’ long-term skills and instead focus on short-term tasks such as using a particular tool, said Douglas Williamson, head of the Beacon Group consulting company.
“We have had it very good for very long, and developed bad habits,” said Williamson, author of “Straight Talk on Leadership - Solving Canada’s Business Crisis.”
Commodity-producing firms have had less incentive to boost productivity. A surge in prices that followed the 2008 financial crisis led companies to reap profits by boosting production even with a loss of efficiency, said Philip Cross, researcher at the Macdonald-Laurier Institute and Statistics Canada’s former head of economic analysis.
“If the best way to make a buck is investing in a low productivity area of the economy, that’s what you do,” Cross said. “Who cares what the price of labor is in Alberta if you are getting $100 per barrel for oil?” The western province of Alberta is home to most of Canada’s oil deposits -- the world’s third largest -- most of it in the oil sands.
Cross also said Canada’s productivity “stinks to high heaven,” and is more of a concern for the country’s manufacturers.
Factory payrolls have declined by 23 percent to 1.74 million over the last decade because of competition from emerging markets and the Canadian dollar’s 30 percent appreciation against the U.S. dollar.
There is fading enthusiasm for investment that Bank of Canada Governor Stephen Poloz says must take over from debt-fueled consumer spending to drive growth and make Canada more competitive. The bank’s last quarterly business survey showed 35 percent of executives planned more spending on machinery and equipment while 26 percent were cutting back, close to the least optimistic balance since a 2009 recession.
Finance Minister Jim Flaherty has encouraged companies to boost their competitiveness, offering C$1.4 billion of investment-tax credits and C$500 million in grants to train workers in a March budget.
The best tonic for Canada would be a rebound in foreign demand, says Avery Shenfeld, chief economist at CIBC World Markets in Toronto.
“We will need to see better global growth to spur capital spending and more robust hiring along with it,” he said. “But it’s difficult to attract that capital spending during a period where there have been doubts about demand.”
Some of the lack of investment in workers is chronic, said Babcock, who says she’s fought for two years to get equipment her U.S. colleagues now take for granted.
“Because the Canadian market is so much smaller than the U.S. market, the investment to get the tools here seems like a big investment with not as much of a payout,” she said.