Three Policies to Improve Productivity Growth in Canada

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that the only sustainable way to increase living standards in the long run is through
productivity growth.

With the retirement of the baby boom cohorts in coming years, net labour force
and employment growth in Canada will vanish and all economic growth and GDP per
capita growth will come from productivity growth (Tables 1 and 2 and Charts 1 and 2).
Strong productivity growth is key to the financing of higher health and pension costs
associated with the growing proportion of the population 65 and over. Indeed, if labour
productivity growth equals or exceeds 2.0 per cent per year over the next 50 years, any
financial burden arising from the aging baby boom cohorts becomes much easier to
manage. Real incomes will be significantly higher, generating greater tax revenues to pay
for additional health and pension costs for seniors.¹⁷ On the other hand, with productivity
growth significantly lower than this rate of growth, sustainability problems for social
programs may emerge. In short, the message that Canadians must hear is that
productivity growth is vital to their economic destiny.

¹⁷ The long-term labour productivity base case assumption (real-wage differential assumption) used by the
Chief Actuary of Canada for the Canada Pension Plan is 1.2 per cent per year, with the pessimistic high-
cost case 0.5 per cent and the optimistic low-cost case 2.0 per cent. With the higher productivity growth,
the future financial position of the CPP is much improved. In 2050, the ratio of CPP assets to expenditures
is 9.4 compared to 6.3 in the base case scenario. In 2075, the ratio is 13.7 compared to 6.9 in the base case.
See Office of the Chief Actuary (2004:Table 71) and Sharpe (2006a).

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