Canada's GDP Per Capita Continues To Fall
At it’s worst - the last 10 years were a wash. At its best, Canada’s recent population growth hasn’t yet translated into economic prosperity. The trend shown in the chart above, however clearly shows that Canada is struggling on how to remain prosperous in this modern, rapidly changing world. Known predominantly as a resource and energy extracting country, Canada hasn’t adapted to the industries of the future. Yes, resource and energy are sectors that can lead to some prosperity, but the rapid growth potential is limited by natural resources and the very long cycles of projects. In contrast, domains like technology, robotics, AI and other software have greater propensity for growth. And that’s where Canada is lacking.
GDP vs. GDP/Capita
Gross Domestic Product (GDP) is a measure of all the goods and services that a nation outputs - calculated in current dollars. To account for inflation, we make use of a price deflator to compare in constant prices. This is called the Real GDP. One of the major pitfalls of simply comparing Real GDP over time is that it does not take into account population growth or decline. As you increase the population, the GDP will likely go up simply based on having a larger number of people contributing to the economy. To account for this, we can divide the GDP or Real GDP by the population to give us GDP/Capita or Real GDP/Capita.
Why Is GDP/Capita Important?
GDP/Capita is a good indicator of living standards. A country that produces more can afford to invest more in infrastructure, social nets, healthcare, education and research and development. It is not guaranteed that it’ll do that but it has the opportunity to do so. What GDP/Capita is not good at is assessing whether these resources are shared (wealth inequality) and anything relating to the impact of how that wealth was generated (IP vs one time resource extraction)
As with other examples we’ve covered before, such as GERD, every metric has its strengths and weaknesses. It’s crucial not to use any one metric as a definitive measure. For example, focusing on preventing consecutive terms of GDP decline (a.k.a. recession) has led to an unprecedented surge in immigration levels, which has shifted public opinion on this once widely supported policy.
Immigration Impact On GDP/Capita
In the short term, it is common that an increase in population leads to a decrease in GDP/Capita. The same thing would happen in the case of a large sudden increase in births. For immigration, newcomers often find jobs, though not always; many are underemployed or work in lower-paying roles. Unlike natural births, immigration has two key factors that ideally should mitigate this decrease. First, most immigrants are adults ready to work immediately and often arrive with job offers in hand, whereas children born today take over 20 years to contribute to GDP meaningfully. Second, immigration allows for selectivity. While we can’t limit natural births, we can set criteria for immigration, ideally admitting individuals with above-average productivity or those who enable higher productivity in others.
How to Improve GDP/Capita
Fixing this crisis is no small task. As per Weimin Wang of Stats Canada , there are three ways to increase GDP/Capita: (1) Increase productivity per worker, (2) Increase numbers of hours worked per person, (3) Increase the ratio of employment to population. Of those, productivity is being actively discussed in economics and media circles. Many top Canadian CEOs and Economists have spoken out on it such as Bank of Canada governor Tiff Macklem and Wealthsimple CEO Michael Katchen. Canada's productivity crisis will be the topic of an upcoming deep-dive here on Grizviz.