Three Policies to Improve Productivity Growth in Canada

Three Policies to Increase Productivity Growth in
Canada¹

Introduction

Since 2000, labour productivity growth in the Canadian economy has been weak.
Yet increased productivity growth is by far the most important determinant or driver of
increased material living standards for Canadians. It is also the most important means by
which any fiscal pressures arising from the demographic challenges associated with an
aging population can be met. From this perspective, lagging productivity growth
represents a serious economic problem facing the country that must be addressed if future
living standards of Canadians are to be maintained and continue to progress (Lynch,
2006).

The objective of this paper is to put forward three concrete policy proposals to
improve the productivity performance of the Canadian economy. The paper is divided
into three main sections. The first part discusses the context of the productivity debate.
The second section examines the optics of productivity policy in this country. The third
section, the most important, puts forward three policy proposals to improve productivity,
namely: foster the diffusion of best-practice technologies; remove provincial sales taxes
on purchases of machinery and equipment; and promote interprovincial movement of
workers by improving labour market information, removing professional barriers to
labour mobility, and establishing a tax credit for interprovincial job search.

¹ This report is an unabridged version of a paper published in J. Leonard, C. Ragan and F. St-Hilaire (eds.),
A Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being, (Montreal:
Institute for Research on Public Policy), November 2007, pp. 353-388. The author would like to thank
Chris Ragan for the invitation to prepare this paper for the Canadian Priorities Agenda project. The author
would also like to thank project organizers Chris Ragan, France St-Hilaire and Jeremy Leonard and
discussants Don Drummond and Rick Harris for their very useful comments. Finally, the author would like
to thank John Lester from Finance Canada, Robert Reichert from the National Research Council and Jean-
François Arsenault and Sharon Qiao from the Centre for the Study of Living Standards for assistance.

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