Gilles Thirion
OECD Economic Surveys: Canada 2025
Abstract
The level of Canada’s labour productivity lags its peers and the current trade tensions with the United States is likely to compound it. Revamping the country’s productivity growth requires a combination of policy actions. Canada’s natural disadvantage in having dispersed and relatively small markets has to be countered by making sure regulatory barriers are as low as possible, including those restricting domestic trade and labour mobility. Fostering a more competitive environment, including in digital markets, is necessary to induce productivity enhancing investment and fully tap Canada’s innovation potential. The latter could also be better exploited through well targeted R&D support, stronger emphasis on commercialisation of innovation, and by promoting better management skills. Meanwhile policy attention should also focus on addressing the specific needs of high potential SMEs and on strengthening labour market efficiency, particularly by ensuring that immigrant’s and women’s skills are fully utilised.
Canada’s productivity has been lagging its peers for many years. Reviving Canada’s productivity has become even more critical because Canada’s productivity gap might become compounded with ongoing transformations brought about by population ageing, the green transition, shifts in global trade, and the advancement of new digital technologies, notably AI. These transformations are reshaping industries and labour markets and are presenting new policy challenges, but also opportunities to raise productivity.
This chapter starts by presenting a review of the main factors driving Canada’s labour productivity performance. The remainder of the chapter considers options i) for enhancing business-sector innovation and the adoption of new technologies; ii) strengthening innovation activities of SMEs specifically; iii) policies to increase competitive pressures on the business sector and iv) policies to enhance labour market efficiency.
While Canada's labour productivity level is close to the OECD average, it is trailing behind several comparable high-income countries (Figure 4.1). Specifically, Canada’s low labour productivity compared to the United States – despite strong economic ties and geographical proximity – has been a long-lasting concern. As of 2023, Canada’s workforce generated the equivalent of USD 74.7 in goods and services per hour worked (purchasing power parity corrected), far from the USD 97.0 generated in the United States, and the USD 89.3 in France (Figure 4.1).
GDP per hour worked, current prices and current PPPs, 2023
Note: OECD is an unweighted average.
Source: OECD Productivity Statistics database.
Canada’s low productivity level stems from a history of comparatively weak productivity growth. While the long-run average growth rate over the 2000-2023 period was close to several other G7 countries, such as Germany, the UK and France, Canada lagged behind the OECD average and top performing advanced economies (Figure 4.2, panel B), notably, the United States. Like many advanced economies, Canada has experienced a decline in productivity growth since the turn of the century. This decline, albeit significant, has been lower compared to most other countries, which reflects the fact that, between 1973 and 2000, Canada’s labour productivity growth was already one of the lowest in advanced economies, at 1.3% (Haun and Sargent, 2023[1]). This was far below other G7 countries such as Japan (3.2%), France (2.6%) and Germany (2.5%), although the US had a closer growth in productivity (1.5%). However, unlike the US, where productivity continued to grow at around its pre-2000 rate, Canada's productivity growth declined between 2000 and 2023, averaging 0.8% (Figure 4.2, Panel B).
GDP per hour worked, average annual growth
Note: In panel B, OECD is an unweighted average.
Source: OECD calculations based on OECD Productivity Statistics database.
GDP per hour worked, constant prices and PPPs, index 2000 = 100
Source: OECD Productivity Statistics database.
Since 2000 Canada’s productivity growth diverged markedly from the United States (Figure 4.3). However, it evolved in line with Euro Area economies during that period. Between 2000 and 2008, annual productivity growth in Canada averaged 1%, against 2% in the United States (Figure 4.2, Panel A). During the same period, Canada’s performance was marginally above that of the euro area, but well below the United Kingdom and Australia. Between 2008 and 2019, while Canadian productivity growth somewhat slowed, it was higher than the United Kingdom and just above that of the euro area, but slightly below that of the US and Australia. A marked growth gap with the US re-appeared from 2019 onwards, with very low average labour productivity growth rates in Canada (0.5%) in the period 2019-2023.
Canada’s labour productivity performance since 2000 has comprised both weakening multi-factor productivity (MFP) growth (Box 4.1) and a declining investment intensity, especially after 2014 (Figure 4.4). Between 2000 and 2014, the declining trend MFP growth was partly offset by higher trend capital intensity. The latter has been the largest source of labour productivity growth post 2000. However, trend capital deepening fell after the collapse of commodity prices beginning in 2014.
Labour productivity measures the output per unit of labour input, typically expressed as output per hour worked. It can be decomposed into capital intensity and multifactor productivity (MFP). Capital intensity refers to the amount of capital (e.g., machinery, equipment, and infrastructure) used per unit of labour. When capital intensity increases, workers have more or better tools to work with, which can enhance their productivity. Multifactor productivity (MFP), also known as total factor productivity (TFP), which in OECD statistics captures improvements in the composition of labour, captures the efficiency with which labour and capital inputs are used and reflects factors such as technological advancements, organisational improvements, and economies of scale.
From a structural perspective, trend developments in these measures are the most important (Figure 4.4, panel A). Labour productivity, capital intensity and MFP fluctuate over the cycle, for instance because businesses retain staff during a downturn. Similarly, capital equipment is often retained. Incentives for technological advance may be muted and vice versa when there is upturn. These cyclical developments are not of primary interest in assessing the structural productivity of an economy.
Note: In Panel A, annual change of potential real GDP per potential person employed split into the contribution of trend capital per worker growth and trend MFP growth. In Panel B, growth of capital is measured as growth in the volume of capital services (obtained by aggregating different ICT and non-ICT assets). The contribution of (non-)ICT capital growth to total capital growth is hence measured in percentage points.
Source: OECD (2024), OECD Compendium of Productivity Indicators 2024, OECD Publishing, Paris, https://doi.org/10.1787/b96cd88a-en.
Total real investment growth per worker in Canada had been relatively robust until 2014, except for the temporary slump that followed the financial crisis (Figure 4.5, Panel A). However, business investment has been generally weak overall. The extraction sector played a major role in driving business investment growth between 2000 and 2014. The size of the sector’s real investment tripled between 1999 and 2014, sharply contrasting with the weak performance of the rest of the business sector, which flatlined between the early 2000s and 2014. The end of the commodity supercycle in 2014 resulted in a sharp fall in business investment in the extractive industry. As of 2023 investment per worker in Canada was only 85% of that in 2014 (Figure 4.5, Panel B). By comparison, investment per worker increased by 21% in the US, by 13% in the euro area and by 11% in the OECD over the same period.
Note: In panel B, Euro area 17 covers OECD countries which are also in the Euro area. Business investment is defined as total investment minus investment by general government and by households and non-profit institutions serving households (NPISH). Workers are defined as total employment.
Source: Statistics Canada; and OECD Economic Outlook database.
Canada’s non-residential investment lags its peers (Figure 4.6, Panel A) due to weak investment intensity in assets that are key channels for introducing and spreading new technologies. Investment intensity in intellectual property is comparatively low (Figure 4.6, panel B). Research suggests that this may partly be due to a reliance on foreign-owned intellectual property services (Robson and Bafale, 2022[2]). In turn, this potentially reflects lack of competitiveness in commercialising intellectual property owned by Canadian firms. Investment intensity in machinery and equipment trends is also low compared with other G7 economies (Figure 4.6, Panel D). The share of investment in machinery and equipment halved over the past two decades. This is another sign of weak productivity enhancing investment. Canada has relatively high investment in economic structures (Figure 4.6, Panel C). This partly reflects large-scale plants constructed in the resource extraction sector.
Investment intensity, 2023 or latest available, 5-year average
Note: Investment intensity is measured as the gross fixed capital formation as a percentage of gross value added, in nominal terms. Non-residential investment is defined as total investment minus investment in dwellings.
Source: Calculations based on OECD National Accounts database and OECD Economic Outlook database.
4.2.1. Industry composition only explains a minor share of Canada’s weak productivity
Evidence suggests that reallocation of activity between sectors plays only a small role in Canada’s low productivity growth (Haun and Sargent, 2023[1]). The reallocation effects are estimated to have contributed 0.1 percentage point to Canadian business sector labour productivity growth between 2000 and 2022 while within sector productivity growth contributed the remaining 0.9 percentage point. The mining and oil and gas extraction industry was responsible for much of this small reallocation effects due to large swings in employment in this sector.
Similarly, the sectoral composition of Canada’s economy does not appear to explain much of the gap in the level of productivity with the United States. The Canada-US levels gap in labour productivity and MFP appears to be spread widely across sectors. Tang (2017[3]) analysed the Canada–US business sector labour productivity level gap and found that the industry composition effect was weak. Overall, changing Canada’s sector composition to match the United States would only reduce a minor part of the gap in productivity growth.
Also, the sectoral composition does not explain the difference in Canada’s business investment intensity in key innovation assets compared to other advanced OECD countries (Rosell, Dowsett and Paterson, 2023[4]). While Canada's industry composition tends to slightly favour higher investment intensity in machinery and equipment compared to the United States, it is somewhat less supportive to intellectual property investment. Canada's low capital intensity is also widespread across the economy. This is echoed in the productivity performance of the ICT and manufacturing sectors, where low investment has contributed to the recent productivity slowdown (Mollins and Saint-Amand, 2019[5]) and the growing gap with the United States over recent decades.
4.2.2. The productivity gap vis-à-vis the US is largely driven by a few industries
Weaker productivity growth in the Information and Communication Technology (ICT) industry itself and in ICT-intensive industries relative to the United States have played a major role in driving the productivity-growth gap (Figure 4.7). Lower productivity growth in the Information and Communication industries sector (including activities such as software development) contributed, on average, about 0.3 percentage point per year out of the 0.92 percentage point difference in average business productivity growth between Canada and the US in 2001-2019 (Gu and Willox, 2023[6]). Similarly, the same authors find that computer and electronic product manufacturing have contributed, on average, 0.2 percentage point per year of the difference in the aggregate productivity growth gap with the US in 2001-2019 (Figure 4.7).
Average annual contribution to the United States-Canada labour productivity gap between 2001 and 2019
Note: The underlying data measuring business productivity comes from Statistics Canada and may slightly differ from the business sector definition in OECD national accounts.
Source: (Gu and Willox, 2023[6]).
Canada’s resource sector has at times strongly influenced its productivity dynamics. In particular, the exploitation of oil sands in the early 2000s lowered the oil sector’s productivity (oil-sands production being more input intensive). However, overall, the contribution to business productivity of the mining, oil and gas sector only explains a small part of the post 2000 period gap (about 0.06 percentage point annually) with the US (Gu and Willox, 2023[6]). In the future, the Trans Mountain Expansion pipeline might result in higher oil production in Canada, with implications for aggregate labour productivity.
The weak productivity performance of the construction sector, while not identified as a specific driver of the productivity gap with the US, is another source of concern for Canada’s productivity. The construction sector, which plays an important role in the Canadian economy, has showed weak productivity performance over the past two decades.
4.2.3. Canada has a relatively large and less productive SME sector compared to the United States
Canada has a relatively high share of employment in SMEs compared to the United States but smaller compared to the OECD average (OECD, 2017[7]). According to Statistics Canada data, as of 2022 private businesses with fewer than 100 employees accounted for 47% of employment, compared to 35% for the United States (Figure 4.8). Studies have found Canada SME sector itself is less productive than that in the United States (Tang, 2017[3]). One explanation is that Canada’s SME employment is relatively more concentrated in very small (and low productivity) firms. Some research has concluded that the prevalence of smaller firms in Canada and their lower productivity explains a substantial share of the aggregate productivity-level gap between Canada and the United States (Tang, 2017[3]).
Canada’s SMEs often have rapid initial growth but struggle to scale up. The average post-entry growth in the first three years is above average (Calvino, Criscuolo and Verlhac, 2020[8]). This may reflect the ease of establishing a new business in Canada. Also, the survival rates of new firms are higher than in other countries, both in the service and manufacturing sectors. However, Canadian growth-oriented SMEs lag those in other OECD economies when it comes to scaling up. Only 2% of midsized firms grow into larger companies (Remillard and Scholz, 2020[9]), and Canada lags best performers in terms of high-growth SMEs (OECD, 2017[10]).
Distribution of private employment by firm size, 2022
Source: Statistics Canada and U.S. Bureau of Labor Statistics.
A significant number of small and medium-sized businesses in Canada may not be under pressure to invest in innovation. According to the Survey on Financing and Growth of Small and Medium enterprises (ISED, 2024[11]), many firms report a lack of incentive to invest in new technologies, either because investment is “not necessary for continued operations” or because they were “not convinced of the economic benefit” of advanced technologies (Figure 4.9). This makes factors related to low incentives the second most cited reason for not adopting advanced technologies, above the high cost of said technologies (Figure 4.9). This could be indicative of weak competitive pressures, including low exposure of many SMEs to international competition. Firms that report facing some increased degree of competition are also more likely to introduce new technologies (ISED, 2024[11]). This suggests that there is room for increasing the efficiency of business dynamics by promoting a more competitive environment.
As a corollary to having a relatively large SME sector (at least compared with the United States), Canada has relatively fewer large firms, and furthermore their productivity is comparatively low. Large employers, defined as those with more than 500 employees, account around 35% of employment in Canada, compared with nearly 50% in the United States (Figure 4.8). According to some research the relatively weak performance of Canadian large manufacturing firms has been a significant driver of the Canada–US business sector productivity gap in the manufacturing industry (Tang, 2017[3]).
Reasons for not adopting advanced technologies, 2020, % of SMEs surveyed
Source: Innovation, Science and Economic Development Canada (2024), SME Profile: Innovative enterprises in Canada.
4.2.4. Business dynamism has been weakening while market concentration has risen
Firms’ entry rates have been trending down from the early 2000s until 2019 (Figure 4.10) while exit rates only declined marginally over the same period. Firm entry and exit rates, often associated with dynamic and innovative environments, were close to a benchmark average of OECD countries in 2000-2015 (Calvino, Criscuolo and Verlhac, 2020[8]). The net implications on productivity of these trends depend on complex factors, including the types of businesses that persist and those that exit, and on the competitive environment. These trends perhaps reflect a perception of reduced opportunities for new companies to enter and expand, or new barriers to entry and competition, such as in the digital sector.
Research also points to signs of weaker competition. In a large-scale study, the Competition Bureau (2023[12]) documented an overall decline in competition intensity between 2000 and 2020. This was illustrated by rising market concentration, growing stability in which firms rank as best performers, and higher profits and markups among already successful firms. The increase in concentration in Canada has, however, been milder than in the United States (Gutiérrez and Philippon, 2017[13]; Gu, 2024[14]).
There are multiple factors related to these trends, including structural transitions, such as digitalisation, the increasing importance of intangibles and globalisation, as well as an increase in mergers and acquisitions by leading firms (Bajgar, Criscuolo and Timmis, 2021[13]). The implications on investment and productivity of higher market concentration tend to depend on specific domestic industry conditions. Rising concentration can be related to investment in intangible capital, especially innovative assets, and particularly in globalised and digital-intensive industries (Bajgar, Criscuolo and Timmis, 2021[13]). Higher market concentration can also point to growing market power, increases in barriers to entry, and a less dynamic business environment (Calvino et., al., 2020[8]).
Average entry and exit rates in Canadian industries, 2000-21
Note: The entry and exit rates are the weighted averages across North American Industry Classification System four-digit industries using employment as weights.
Source: (Gu, 2024[14]).
Some studies have concluded that Canada’s weak firm dynamics and increased concentration are indeed having a negative impact on productivity. Gu (2019[15]) suggests the decline in aggregate labour productivity growth after 2000 was partly due to lower reallocation of labour to firms with relatively higher labour productivity levels (i.e. lower creative destruction). Recent research by Statistics Canada (Gu, 2024[14]) concludes that an increase in industry concentration and a decline in firm entry rates have had a negative effect on firm investment since 2006, with larger effects among small firms. These findings appear consistent with the latest Survey of Innovation and Business Strategy (Statistics Canada, 2024[16]), which showed that Canadian businesses are reactive to changes in competition intensity. Those facing increased competition between 2020 and 2022 were reported to be significantly more likely to introduce innovations than those with fewer competitors. This suggests that the slowdown in competitive intensity may hamper innovation and affect productivity. In some of Canada’s tightly regulated sectors, such as the broadcasting and telecommunications, higher market concentration and limited competition have been associated with slower productivity growth (Gu and Lafrance, 2012[18]; Gu 2024[14]).
4.2.5. Productivity growth among Canada’s best performing firms has been slowing
Studies by Statistics Canada have attributed part of the productivity slowdown after 2000 to slower rates of innovation at Canada’s top firms. The pace of innovation among national frontier firms - defined as the top 10% of the most productive firms - has declined from a 3.4 % average annual growth between 1991-2000 to 1% between 2000 and 2015 (Gu, 2019[15]). Given that top firms represented a large share of gross output (about 30%), this contributed directly to aggregate productivity slowdown (Gu, 2019[15]).
Large and medium-sized firms accounted for nearly the entire decrease in investment per worker between 2006 and 2022, even when excluding the extraction sector. The drop in capital intensity was relatively more pronounced among foreign-controlled firms, which made up 20% of investment in 2021, but contributed to 30% of the decline (Gu, 2024[14]). While difficult to attribute to a single cause, research from Statistics Canada (Gu, 2024[14]) suggests that the decline in productivity and investment is partly due to increasing industry concentration and declining firm entry rates.
As in many OECD countries, Canada’s productivity growth slowdown since the early 2000s has been accompanied by a widening gap between high-productivity “frontier” firms and low-productivity “laggard” ones. The productivity of ‘’frontier’’ firms in the manufacturing and service sectors increased by respectively 37% and 20% from 2000 to 2018 against 26% and 13% for so-called ‘’laggards’’. This divergence – albeit moderate by international comparison - can be indicative of a decline in innovation diffusion from national frontier to non-frontier firms after 2000 (Gu, 2019[15]). The latter may be due to weaker network effects and reduced benefits from foreign technology spillovers. A lack of strong domestic technology anchor firms can have played a role too, particularly following the collapse or decline of Nortel and Research in Motion—two companies that used to drive the diffusion of innovation in the digital and communications sectors in Canada.
Source: Statistics Canada; and OECD calculations.
Foreign and Canadian multinational companies, which are larger than average, foster innovation by bringing new technologies and services and by investing in R&D. They contribute to the bulk of business investment and have higher investment per worker than other firms. Multinationals accounted for about 37% of Canada’s private-sector employment in 2023, but they made up 65% of all business investment (Figure 4.11, panel A). Canadian multinationals tend to have higher investment intensity per worker compared to foreign ones, largely due to greater spending on non-residential construction (Figure 4.11, Panel B). However, this may be largely related to their role in the extraction industry. Foreign multinationals accounted for over 40% of R&D spending by businesses in 2022, 30% of all corporate intellectual property (IP) expenditures in 2023, and more than 75% of technological services trade (Figure 4.11, panel C). They were also responsible for 30% of machinery and equipment investment in 2023.
The importance of foreign direct investment (FDI) to Canada, measured by the stock of FDI relative to gross domestic product (GDP), at about 69% of GDP as of 2022, is significantly higher than the OECD average (about 50%). It exceeds that of economies like the United States (42%) and Germany (29%). FDI is predominantly concentrated in manufacturing, and in energy and mining. Studies of the impact of FDI in Canada have found the presence of foreign controlled firms has contributed directly and indirectly to higher productivity in Canada. Foreign firms are generally more productive than domestic ones, and their presence creates spillovers to domestic companies through competition, the adoption of new technologies, and skill development (Tang and Wang, 2020[17]). Most jobs are in manufacturing, wholesale and retail trade, and services related to IT and R&D. Many are created in high-tech and knowledge-intensive activities – 25% of jobs created by greenfield FDI in the past 20 years were in software and IT (OECD, 2024[18]). Inward FDI has also supported Canada's export growth and led to inter-industry productivity gains in manufacturing, via both upstream and downstream production linkages (Tang and Wang, 2020[17]).
Weak business investment, particularly in critical assets for new technologies (see discussion further below), highlights the need for policies that create an environment favourable to business innovation and to the adoption of new technologies. This section explores policy options to strengthen business-sector innovation creation and adoption. It focuses on i) improving the efficiency of public support for R&D from basic research to commercialisation; and ii) ensuring conditions for the adoption and diffusion of clean and digital technologies while maintaining a level playing field.
4.3.1. Making R&D support more effective
Canada’s R&D investment intensity, a key driver of a country’s innovation capacity and therefore multifactor productivity growth, remains weak in aggregate terms. As of 2023, Canada’s gross domestic expenditure on R&D as a percentage of GDP was approximatively 1.8%, far below the OECD average (2.7% of GDP) and leaders such as the US (3.3%) and Korea (4.9%) (Figure 4.12). R&D investment intensity has stagnated in Canada since 2010, while it has increased in most OECD countries (by 0.3 % of GDP on average). Canada’s share of business R&D investment is particularly low. Most of Canada’s growth in industrial R&D spending in recent years reflected higher outlays by the firms that were already the best R&D performers (Statistics Canada, 2024[19]), suggesting that R&D investment has remained concentrated, possibly also due to weaker business dynamism. A relatively high share of Canada’s R&D spending is performed by higher education institutions. This suggests a greater emphasis on basic research. Canada tends to perform very well in basic research, as illustrated by its strong research impact, which plays a key role in driving breakthrough innovations with broad industrial potential (Gallini and Hollis, 2019[20]).
Low business R&D activity points to challenges in translating basic research into large scale commercial applications. This might reflect difficulties to bridge university research with business needs and to ramp up commercialisation. Canada’s promising start-ups are often acquired and developed abroad and the same goes for intellectual property products (Council of Canadian Academies, 2018[21]). Canada’s production of patents has grown considerably over the past 30 years. However, some research concludes that this growth has had only a weak impact on total factor productivity gains due to inventors’ migration and foreign ownership of patents (Cockburn, MacGarvie and McKeon, 2023[22]), reflecting a propensity to assign Canadian-invented intellectual property to foreign firms rather than retain it for further development (Gallini and Hollis, 2019[20]).
Gross domestic expenditure on R&D, 2023 or latest available
Source: OECD Main Science and Technology Indicators database.
In Canada overall government support for R&D is skewed toward indirect support and tends to favour small firms over larger ones. Canada’s largest program to support R&D activities is the Scientific Research and Experimental Development (SR&ED) program. Specifically, it provides an enhanced and refundable tax credit of 35% of current expenditures to small- and medium-sized Canadian-controlled private corporations, compared to a non-refundable tax credit of 15% for larger businesses. Nearly all provincial governments offer tax credits for R&D performed within their province. On average the combined federal-provincial investment tax credit rate on R&D performed in Canada is approximately 20% for large and non-domestically controlled firms compared to 43% for Canadian-controlled SMEs (Lester, 2022[23]). Since a key rationale for government support is that private firms do not consider the positive externalities of knowledge and technological progress in deciding on R&D spending, different tax credit rates would be justified if spillovers from small firms were greater than those from larger firms. Some research (Kim and Lester, 2019[24]) suggests that in Canada R&D spending by large firms generate significantly higher private and social rates of return than small firms. The presence of market failures, which could affect the ability of small firms to obtain financing could be a valid reason for providing support to smaller businesses. However, as discussed below, these can generally be better addressed through specific measures facilitating access to credit and risk capital.
R&D incentives should be harmonised across small and larger firms. Providing greater support to domestically controlled small business leads to distortions and is unlikely to address the specific needs of SMEs nor to be budgetary efficient. Although special benefits for smaller firms may not be a significant factor behind companies staying small, the harmonisation can still help reduce distortions and make the programmes more effective. At the same time policymakers needs to take into account that indirect public support for R&D activities performed by large firms might also subsidise investment that would have been made regardless. Another form of distortion stems from the exclusion of capital expenditures from the base for the credit. In consequence, the scheme favours labour intensive R&D over capital intensive R&D. Capital expenditure should be re-introduced in the base for the credit.
The government recently undertook consultations on a modernisation of the Scientific Research and Experimental Development (SR&ED) tax incentives. The Fall Economic Statement 2024 proposed increasing the annual expenditure limit and capital phase-out thresholds of the SR&ED programme’s enhanced credit available to small- and medium-sized Canadian-controlled private corporations, extending access to the enhanced credit to Canadian public corporations, and restoring the eligibility of capital expenditures. Canada should harmonise R&D tax credit rates, reintroduce capital expenditure in the tax credit base, simplify the application process, and use potential savings to finance better targeted innovation support. To instil business confidence and boost long term innovation and investment plans in Canada, the government should provide predictable conditions with clear orientations.
There is room to re-direct government R&D funding towards direct support instruments. Support in areas prone to market failures, such as green technology, should be pursued selectively while keeping a level playing field. In 2023, the government tabled a blueprint for a new Canadian Innovation Corporation (CIC), a new national-scale platform of business R&D support, which is planned to include the incorporation of Canada’ successful Industrial Research Assistance Program (NRC IRAP), currently managed by the National Research Council. The latter is specifically designed to help small businesses scale up their R&D efforts, and to bring new products to market. Evaluations of the program suggest that IRAP has been successful at reaching an increasing number of innovative and high-potential SME clients, notably due to highly effective frontline agents (‘’Industrial Technology Advisors’’) able to maximise the impact of the funding. Further expansion of funding to the forthcoming CIC should be considered. The Strategic Innovation Fund (SIF), created in 2017, is another relevant initiative. It supports large-scale, transformative and collaborative projects. It has helped co-finance a wide range of strategic sectors, from the automotive and aerospace industry, to biotechnology, advanced manufacturing, robotics, and clean technology. The SIF has also provided support for AI and quantum firms. As with all such targeted measures, regular appraisal can help ensure the menu of support is effective and efficient (from a fiscal spending perspective) while maintaining a level playing field.
4.3.2. Encouraging investment in clean technology while keeping a level playing field
The environmental and clean technology sector in Canada is estimated at 2.9% of GDP (Jiang, 2023[25]). It has experienced somewhat faster than average productivity growth between 2012 and 2021. Jobs in that sector have higher annual average compensation compared to the national average. The sector is defined as ‘activities related to environmental protection, the optimal allocation of natural resources and the use of goods that require less energy or resources than the industry standard’ (Jiang, 2023[25]). As such it comprises a wide range of activities, such as the production of clean energy, waste management, and electric-vehicle development and manufacture.
The shift to a green economy does not only imply the development of new clean technologies, but also its adoption. Between 2020 and 2022, the share of capital expenditures on clean technologies was about 12% (Figure 4.13). According to the Survey on Advanced Technologies, low financial returns and difficulties in accessing financial support were the main obstacles to the adoption of clean technology (Statistics Canada, 2024[26]). Targeted intervention to address financing gaps should be coupled with continued efforts to strengthen the price signal of low carbon technologies, including through taxation. Furthermore, policies need to address risks of skill shortages in emerging green sectors, including skilled trades (see discussion below).
Canadian governments have introduced various supports for the development and adoption of clean technologies, in addition to technology-neutral incentives. These include the 2023 budget’s green transition blueprint, significant investments in clean electricity, an interim sustainable jobs plan, and the CAD 3.8 billion critical minerals strategy, which focuses on minerals essential for electric vehicles and clean technologies. The Strategic Innovation Fund’s net zero accelerator initiative was expanded in 2021, with an additional CAD 5 billion provided to support investments aiming to reduce greenhouse gas emissions across the Canadian economy.
Strategic industrial initiatives should avoid distorting international competition and remain as technology-neutral as possible. Furthermore, maintaining a level playing field for all companies is essential to maintain open markets. As such, subsidies should be carefully targeted to correct specific market failures, have clear time limits, be cost-effective, transparent, and aligned with WTO regulations to foster long-term sustainability and global trade consistency (IMF, 2024[27]). The United States and the European Union have recently adopted large-scale climate policies that have profound implications for the global clean energy transition. Canada responded with a wide array of measures intending to promote adoption of low emission technologies, support domestic industries, and secure strategic investment, including for electric vehicle battery plants. These are discussed in greater details in the first chapter. Most of the support to businesses concerns new and expanded tax incentives, including refundable investment tax credits. However, such intervention should be based on clear cost-benefit-analyses, include frequent programme evaluation and should avoid a ‘race to the bottom’ with automakers that could cause global market fragmentation.
Share of capital expenditures spent on advanced technology by type of technology, 2020 to 2022
Source: Statistics Canada.
4.3.3. Reaping the productivity gains of new digital technologies
The digital intensity of Canada’s industry structure has remained below that of G7 peers, pointing to scope for deeper adoption of digital technologies. Compared to other G7 countries, Canada has the highest share of business activities with low digital intensity and the lowest share with high digital intensity (Liu, 2021[28]). Other indicators point to strengths and weaknesses. The share of Canadians with at least some basic digital skills is among the highest in the OECD. Canadian SMEs lag their OECD peers when it comes to broadband usage and cloud computing, but compare favourably regarding consumer facing digital adoption, including rates of social media presence and share of firms with a website.
Digitally intensive sectors experienced much stronger productivity growth in 2002-2019 than the rest of the economy (Figure 4.14). Similarly, the Information Communication Technology (ICT) sector has registered strong productivity growth over the past decades, and its employment has grown rapidly following the pandemic. Its size relative to Canada’s GDP increased from 3.2 % in 2000 to 5.4 % in 2022 (Barr, Foltin and Tang, 2023[29]). As of 2024 there was no sign of widespread labour shortages in the ICT sector due to the availability of a well-educated workforce, including a healthy supply of STEM graduates. Despite this growth, the sector remains relatively small, and has not contributed to aggregate productivity growth to the same degree as seen in countries such as the United States (Gu and Willox, 2023[6]).
Policies to foster adoption of digital technologies and the development of the digital industry should follow a holistic approach. Recent literature (Gal et al., 2019[30]) has highlighted the key role of complementarities of digital adoption with technical and managerial skills, strong digital infrastructures, and competitive policies.
Labour productivity growth in the digitally intensive and non-digitally intensive sectors
Source: Statistics Canada.
4.3.4. Artificial Intelligence has potential to boost productivity, but requires new investments and skills
Artificial Intelligence (AI) can help optimise supply chains and develop predictive analytics, potentially benefiting many industries. As elsewhere AI use is becoming increasingly common in Canada. A recent survey (Statistics Canada, 2024[31]) showed that as of the third quarter of 2024 over 10% of businesses made use of AI in producing goods and delivering services, with 30% in information and communication industries (Figure 4.15, panel A). Much debate around AI focuses on the risk to jobs (see Box 4.2). A corollary to this is the impact on productivity. Recent research suggests potentially large labour productivity gains, including through enhanced task efficiency and freed time allowing workers to shift to higher labour productivity occupations. These gains might be further supported by industry-specific enhancements in healthcare, government, and financial services. A study by Accenture (2024[32]) estimates that AI could enhance Canada’s labour productivity by an order of 8% by 2030. However, these estimates are surrounded by high uncertainty, notably around the share of tasks that can be effectively automated by AI. As for previous disruptive technologies, it may take longer for AI to diffuse through the economy.
High costs are seen as a constraint to AI expansion in Canada. The OECD AI survey of employers (2023[33]) shows that a lack of skills is currently the second biggest barrier to AI adoption after cost, significantly bigger than government regulation or a general reluctance to the technology (Figure 4.16). A recent OECD study (Green, 2024[34]) finds that the most demanded skills in occupations with high AI exposure are management, communication, and digital skills. Between 2012 and 2022, the demand for skills in occupations highly exposed to AI increased the most for language and social skills. To fully leverage AI's productivity potential, it is essential to develop strategies fostering a workforce that is prepared for the demands of the digital age. Collaboration between industry stakeholders, educational institutions, and government agencies should ensure an effective balance between on-the job training and the availability of appropriate education opportunities.
Key government initiatives have been put forward to advance the development and deployment of AI in Canada. These include the Pan-Canadian Artificial Intelligence Strategy, launched in 2017, and aimed at advancing AI research and talent development, which was renewed in Budget 2021 and expanded to also include support for AI commercialization and standards. In addition, the government is providing funding for key infrastructures needed for the diffusion of AI technologies. Budget 2024 announced a CAD 2.4 billion package of measures including CAD 2 billion for investment in computing capabilities and technological infrastructure for AI researchers and businesses, CAD 200 million to boost AI startups and accelerate AI adoption in critical sectors, CAD 100 million for the AI Assist Program to help small and medium-sized businesses scale up using AI, and CAD 50 million to create a new Canadian AI Safety Institute. The Artificial Intelligence and Data Act (AIDA) proposed in 2022, which seeks to regulate high-impact AI systems and prevent biased or harmful AI applications, is still pending legislative approval. Overall, the effectiveness of these policies will depend on their implementation and the ability to develop, attract, and retain AI talent, and to durably scale-up innovative AI businesses.
Source: Statistics Canada; and (Statistics Canada, 2024[31]).
Barriers to AI adoption, 2022
Notes: All employers were asked: "I’m going to list a few potential barriers to the adoption of artificial intelligence. In each case, please tell me whether it has ever been a barrier to adopting artificial intelligence in your company: High costs/Lack of skills to adopt artificial intelligence/Government regulation/Not convinced by the technology/Any other barriers not previously mentioned”.
Source: Lane, M., M. Williams and S. Broecke (2023), “The impact of AI on the workplace: Main findings from the OECD AI surveys of employers and workers”, OECD Social, Employment and Migration Working Papers, No. 288, OECD Publishing, https://doi.org/10.1787/ea0a0fe1-en.
So far, there is little evidence of decreased labour demand due to AI. Large employment effects may take time to materialise (OECD, 2023[35]), but there is evidence that AI is already changing how Canadian workers perform their jobs and what skills they require. Of the businesses who reported using AI in 2023, barely 6% reported decreases in total employment. Evidence points to some changes in the tasks performed among businesses using AI, with nearly 40% reporting some moderate or large changes (Figure 4.15, panel B).
Future implications for the labour market could be considerable because advances in Artificial Intelligence have broadened the set of skills and abilities that can be replicated by automation technologies. Therefore, AI can have broader effects for the labour force than for instance robotics, which affects typically low-skilled routine and non-cognitive jobs. Recent work from Statistics Canada (Mehdi and Morissette, 2024[36]) suggests that about 60% of employees in Canada could be exposed to AI-related job transformation, of which half concerns jobs that may be highly complementary with AI. The jobs of highly educated employees are more exposed overall. However, highly educated employees are also more likely to hold jobs that are highly complementary with AI technologies. Exposure to AI-related job transformation is higher for employees in professional, scientific and technical services, finance and insurance, and information and communication industries. However, jobs in education and health care professionals are more likely to be highly complementary with AI.
SMEs and entrepreneurs make up a sizeable proportion of Canadian economic activity and are more prevalent in Canada than in the United States. This section discusses options to improve the business environment for SMEs by improving financing conditions, better targeting SME support, and by encouraging the adoption of new technologies. It should be noted that addressing structural impediments identified elsewhere in this chapter, such as weaknesses in innovation capacity and adoption and barriers to competition is also key to raise SME’s productivity performance.
4.4.1. Reviewing the preferential small business corporate tax rate
As underscored in previous Surveys, Canada’s preferential corporate tax rate for SMEs should be discontinued. The small business tax rate aims to give incorporated, privately owned small businesses additional after-tax income for reinvestment and expansion. In practice, however, it functions like a general tax refund; there is no requirement or specific incentive for businesses to reinvest the additional income in growing their business. The programme has significant budget costs, at about 0.2% of GDP in 2021, according to the report on Federal Tax Expenditures (2024[37]). In comparison, the cost is about 50% higher than that of government spending on R&D tax credits under the SR&ED programme. However, there is little evidence that the preferential rate in Canada has an appreciable impact on the specific financing and information gaps faced by high-growth and innovative firms (IMF, 2018[38]). Furthermore, such preferences can also generate adverse incentives. Preferential small business tax schemes can act as a lid on firm size at the threshold between the preferential rate and regular rate of taxation and tend to largely benefit small mature existing firms rather than start-ups and entrepreneurship.
4.4.2. Focusing SME financing support programmes
While small business lending conditions appear generally less favourable in Canada than in other G7 economies few firms report facing difficulties to obtain credit. In addition, the percentage of collateralised is also above its peers (OECD, 2024[39]). Collateralised loans reduce riskiness for the financial sector but may also lead to potential obstacles in access to finance for smaller SMEs lacking strong tangible assets. This is particularly likely to be the case for young and innovative businesses. Overall, there is scope for better targeting SME financing programmes at young and innovative firms lacking financial track records or tangible assets.
In Canada, various programmes provide support for SME financing either indirectly through guarantees or directly through the government-owned Business Development Bank of Canada (BDC), but take-up is relatively modest (OECD, 2017[10]). Given the weaker incentives to maximise profits, the effectiveness of BDC’s financing programmes should be assessed as part of frequent reviews to assess the programme’s effectiveness. The Canada Small Business Financing Program (CSBFP) is a statutory loan-guarantee programme that aims to facilitate lending to small businesses. Over the period 2021-2023 the CSBFP has averaged CAD 1.3 billion per year in indirect financing. Recent legislative and regulatory changes to the CSBFP in 2022 expanded loan-class eligibility to include the financing of intangible assets (e.g. intellectual property) and working capital and raised loan amounts. This is expected to increase annual commitments by CAD 560 million (OECD, 2024[40]). However, there might be scope to expand take-up of the CSBFP by providing more affordable financing conditions, lowering fees, further simplifying application processes, and better communicating about availability of funding. In complement to this, the following policy could contribute to improving access to finance:
Tighter targeting on young and innovative firms that lack financial track records or tangible assets.
Subsidised loans to promote the adoption of clean technologies.
Greater competition in the financial industry. In this regard, the Federal government’s recent Banking Act establishes the legal framework for open banking will potentially boost competition by reducing barriers to entry to fintech companies and smaller banks.
Expanding credit registries and encouraging innovative approaches to assessing creditor’s borrowing capacity. For instance, alternative data and AI-driven solutions could help banks overcome biases and make better risk-adjusted lending decisions.
The Business Development Bank of Canada (BDC) plays a key role in financing SMEs
The BDC, a crown corporation, has a mandate to support Canadian entrepreneurship, with a particular focus on SMEs. It offers direct lending, growth and venture capital (VC), and advisory services:
Financing Programmes: The Small Business Programme, BDC’s largest credit financing scheme, provides loans up to CAD 100 000 to SMEs with a higher average risk profile than offered by commercial banks. BDC’s Working Capital and BDC Xpansion Loan programmes loan up to CAD 2 million, focusing on cash flow and business expansion support, respectively.
Advisory services: BDC offers various consulting and advisory services to SMEs to improve their management skills, operational efficiency, digital transformation, and growth strategies.
Venture Capital: BDC plays a key role in supporting the growth of venture capital, investing both directly and indirectly through external venture funds (OECD, 2024[40]). The Government of Canada promoted Canada’s VC ecosystem by convening public, private, and institutional financing through multiple rounds of the Venture Capital Catalyst Initiative.
Programmes supporting under-represented groups
The Government pledged about CAD 7 billion to the Women Entrepreneurship Strategy; CAD 265 million for the Black Entrepreneurship Program (BEP); and CAD 150 million to the Indigenous Growth Fund launched together with the National Aboriginal Capital Corporations Association (OECD, 2024[40]).
Promotion of export diversification
Canada’s Export Diversification Strategy supports CAD 1.1 billion investment over six years to help SMEs access new markets and increase Canada’s overseas exports by 50% by 2025.
4.4.3. Securing long term benefits from Canada’s large venture capital market
Financing via venture capital (equity financing of startup and small companies, with high growth potential) is relatively substantial in Canada. As of 2022, Canada ranked third among OECD countries in terms of volume of venture capital as a percentage of GDP (OECD, 2024[39]), behind Estonia and the United States. The Business Development Bank of Canada (BDC) plays an active role in the venture capital market, supporting the provision of risk capital to Canadian businesses through direct and indirect investments. The information and communication technology (ICT) sector has accounted for the bulk of venture capital investments. Financing deals are growing in life sciences, energy and clean technology. Recent government support measures may continue to support the cleantech sector in 2024.
Although Canada’s venture capital market is generally in good health (OECD, n.d.[41]), some studies point to potential shortages of early-stage financing, between the point where business angel finance (initial seed financing money for start-ups) dries up and venture capital deals tend to kick in (Remillard and Scholz, 2020[9]). One policy option is a national co-investment fund that would invest alongside angels to leverage their investment and expertise (Nitani and Nusrat, 2023[42]). This could be achieved by expanding existing programmes, such as the Venture Capital Catalyst Initiative and by ramping up business advisory services provided by the BDC. The BDC assists the venture capital industry through networks of business angels, incubators and accelerators. Overall, an assessment of the impact of these BDC support measures would be beneficial. BDC should consider making available the data collected on firm-level support through the Business Innovation and Growth Support initiative.
Continued support to businesses to mature beyond the venture capital stage might be beneficial. It is frequently observed that Canadian startups struggle to access the scale of funding needed to reach global competitiveness (Nitani and Nusrat, 2023[42]). They also appear to lack domestic exit opportunities, such as IPOs or acquisitions. Canadian VC funds are generally smaller, limiting the ability of firms to secure large amounts during late growth stages (Plant, 2023[43]). There is increasing but still relatively limited, involvement in the industry from large Canadian institutional investors such as pension funds, insurance companies, corporations and banks. Additional efforts to remove barriers for Canadian funds to diversify their portfolios in innovation activities is one potential way to increase the financing pool (notably from Canada’s large pensions funds) to finance late-stage firms.
Source: (OECD, 2024[39]).
4.4.4. Strengthening SME management skills
Evidence shows that the quality of management can play an important role in explaining productivity across different firms (Bloom et al., 2017[44]) and in the ability of firms to adopt technologies and benefit from digitalization (Gal et al., 2019[30]). Meanwhile poor management tends to mean less development of business models, organisational structures and working methods. The World Management Survey (Management Survey data from Scur et al 2021), suggests that quality of management of Canada’s manufacturing firms is above the OECD average, but well behind the United States. Interestingly, this survey also indicates that managers in Canada tend to have comparatively lower levels of formal education than in other countries, which may mean shortfalls in competencies, such as strategic planning, financial management, and human resources management.
Additional policy attention needs to be placed on measures that can help raise managerial skills and address the needs of young and innovative businesses, such as access to risk capital. Difficulties to scale up firms may also point to a lack of management expertise in that specific domain. Other assessments also flag scope to strengthen management skills. An OECD report on SME and Entrepreneurship in Canada suggests that while Canada has a strong pool of technology talent, persisting shortages of experienced management talent reflects a lack of key management competencies in sales, marketing, organisational design, and product management (OECD, 2017[10]). Evidence shows that, compared to the United States, the education gap is seen across nearly all industries, ranging from technology-driven sectors like information and communication industries to retail (Rosell, Dowsett and Paterson, 2023[4]). The following policy measures are complementary solutions to address gaps in management skills across Canadian SMEs:
Support the provision of management training programs (e.g. through subsidies to course fees) that cover essential skills such as financial management, strategic planning, and leadership, as well as digital competencies like data analytics and cybersecurity.
Introducing a system of national certification for management excellence.
Widening channels for firm-sponsored immigration of managerial talent.
Encouraging education providers to include management courses in STEM programmes.
Encouraging management leadership ecosystems, including through mentor networks for CEOs
Facilitate the access of women to management positions (see discussion further below)
As discussed above, much of the evidence on what drives Canada’s shortfalls in productivity growth points to a need for greater competition and business dynamism. Canada’s natural disadvantage in having dispersed and relatively small markets has to be countered by making sure regulatory barriers are as low as possible. This section considers three key issues: i) regulatory barriers to both internal and external trade; ii) ensuring telecommunications markets are competitive and thus providing the quality digital access that is essential to smooth business operations and iii) competition in the digital sector, due to the importance of providing a check against this important sector’s tendency towards monopoly.
Overall economy-wide PMR
Note: Indicator value increase in the stringency of the regulatory environment.
Source: OECD Product Market Regulation database.
4.5.1. Lowering regulatory barriers
Natural barriers to competition linked to Canada’s geography limit the exposure of businesses to competitive forces. Distances between centres of economic activity are often large resulting in regional markets that are often more isolated compared to the United States or the European Union. This places some natural limits on market size for products and for labour. It also implies that positive externalities from agglomeration for productivity and innovation (cluster effects) may be more limited (OECD, 2017[10]). However, Canada is also close to the one of the largest markets in the world, the United States, and economic centres are often close to the border, exposing it to competitive forces.
The current environment of acute trade tensions with the United States could lead to persistent negative effects on labour productivity for Canada (Bank of Canada, 2025[45]). In the short run, high trade policy uncertainty generally discourages firms from investing (Caldara et al., 2020[46]), weighing on current and future labour productivity performance by dampening the stock of investment (all else being equal). In the longer run, trade barriers are also likely to have negative implications due to distortions leading to misallocation of resources. Recent empirical research found that higher tariffs are associated with lower labour productivity (Furceri et al., 2021[47]), as it hampers trade and limits competition, and affects the pace of innovation and the opportunities to benefit from economies of scale (Dellmo, 2025[48]). These trade tensions should therefore be seen as a further incentive to strengthen the functioning of internal markets and to reduce internal trade and labour mobility obstacles.
As previous Surveys have underscored, Canada has numerous policy and regulatory barriers to competition. Regulations that, in effect, reduce the exposure of some domestic sectors to competition have long been signalled as detracting from Canada’s productivity performance. Compared to 2018, Canada’s overall score in the 2023/2024 OECD’s Product Market Regulation has remained nearly unchanged. It remains below the OECD average, due to issues that have been flagged in Surveys. Canada’s rank has deteriorated somewhat since the 2018 Product Market Regulation publication, as improvements on the regulatory front have been more muted than in many OECD countries. Canada is ranked among the bottom five countries as regards barriers to foreign investment and barriers to entry in service and network sectors are significant. Entry in professional services is still tightly regulated for many professions (see discussion further below).
Addressing longstanding barriers to internal trade
Canada’s interprovincial trade barriers have been widely reported as compromising the efficiency of resource allocation across the country, while also reducing Canada’s effective internal market size. As previous Surveys have underscored, differences in product and labour regulations and technical standards across subnational jurisdictions have long impeded interprovincial trade and labour mobility (see section on skills for a more detailed discussion on restrictions on licensed professions). The barriers also limit the scale of production, thereby potentially limiting productivity. Interprovincial regulatory differences can reinforce the challenges related to the market fragmentation arising from the often large distances between centres of economic activity. This also has general implications for Canada’s international trade competitiveness. Certain trade barriers permeate throughout nearly all economic sectors. For trade in goods, different trucking regulations across provinces increase transport costs, for instance. Non-trade barriers extend across many economic sectors, from the dairy sector to legal and accounting services.
Policy initiatives to reduce non-tariff barriers include the signing of the Canadian Free Trade Agreement (CFTA) in 2017 plus some additional agreements between subsets of provinces and territories. The CFTA builds on a previous agreement (the Agreement on Internal Trade) and includes a mechanism for reconciling regulations across provinces and territories (the Regulatory Reconciliation and Cooperation Table). Recent initiatives by the federal government include the opening of an online stakeholder portal in 2023 (to share insights on obstacles and innovations to internal trade), and the creation of the Canadian internal trade data and information Hub in 2024, which features novel data and analysis on drivers and patterns of internal trade. The main findings are discussed in Box 4.4.
Building on recommendations from previous Surveys, steps forward in removing the interprovincial barriers include:
Greater use of mutual recognition agreements between sub-sets of provinces to reconcile remaining regulatory differences, including on the recognition of (foreign) qualifications. In this regard, some welcome efforts are underway in Atlantic provinces, which entered the Atlantic Technical Safety Agreement in 2023. A pilot has been launched in September 2024 among various provinces to improve mutual recognition of regulatory requirements in the trucking sector.
Extended scope for the CFTA, notably to address agricultural supply management regimes. The CFTA should be taken further by prohibiting agricultural supply management regimes, reconciling remaining regulatory differences (possibly via mutual recognition) and expediting dispute resolution, and raising penalties for non-compliance. In July 2024, the Government of Canada announced the removal or narrowing of 17 of its CFTA exceptions. This was followed in February 2025 by the removal of an additional 20 federal exceptions in the CFTA, the majority of which were related to government procurement. These decisions reduced the number of federal exceptions to 19.
Additional resources for the CFTA and the Regulatory Reconciliation and Cooperation Table. Faster dispute resolution and higher penalties for non-compliance are important. The 2023 Survey suggested strengthening the Agreement’s dispute resolution mechanism. Progress in reconciliation agreements by the Regulatory Reconciliation and Cooperation Table need to accelerate. In this regard it is telling that the Table has not struck a new agreement since 2021.
Maintaining efforts to raise awareness through an easily accessible public database documenting internal trade barriers. Again, there has been some welcome progress in this direction, including the launch of the Canadian Internal Trade Data and Information Hub in 2024 which aims to help identify barriers. Budget 2024 announced the launch of the first ever Canadian survey on Interprovincial Trade in June 2024. This will provide further information on the obstacles faced by businesses.
The 2023 Canadian Survey on Business Conditions (Statistics Canada, 2023[49]) collected new data on internal trade and labour mobility, including information on the obstacles to interprovincial trade. The key findings are summarised as follows:
Transportation cost and availability are the most commonly cited obstacle to interprovincial trade
Over half (52.1%) of businesses that conducted interprovincial reported some obstacles. Transportation cost and availability is the most common obstacle encountered (41.3%), followed by the distance between point of origin and destination reported by 10.9% of businesses.
Large businesses are more likely to engage in interprovincial trade
Most businesses (about 65%) do not engage in interprovincial trade, essentially due to the local nature of the business.
The likelihood of conducting interprovincial trade varies by sector. Businesses in wholesale trade (62.2%) are the most likely, followed by manufacturing (51.0%) and retail trade (42.0%).
The larger the business, the more likely it was to conduct interprovincial trade. Nearly half (47.5%) of businesses with 100 or more employees engaged in interprovincial trade, compared to under one in five (17.8%) businesses with 1 to 4 employees.
Waiting times and costs involved in the certification or licensing are reported to be the main obstacles to hiring individuals from other provinces
Large businesses and businesses in the territories are most likely to hire individuals from other provinces or territory. The most frequently reported obstacle was the waiting time for candidates to be certified or licensed, followed by costs, and by the level of effort required to verify a person's certification or license with the relevant regulatory body.
Lowering foreign entry restrictions
Canada, in general, has a welcoming foreign investment environment, reflected in a relatively high stock of foreign direct investment, higher than the OECD average (the stock of FDI was about 69% of GDP in 2022 compared to the OECD average of around 51%). The sectoral ownership restrictions detract from Canada’s score in the OECD Product Market Regulation index and the FDI restrictiveness index. Canada’s poor performance in the FDI restrictiveness index reflects restrictions on foreign equity and the screening and approval processes (due to the required automatic policy review for investments above the threshold value under the Canada Investment Act). Some research (Mistura and Roulet, 2019[50]) shows that the negative impact on FDI is driven by equity restrictions, while foreign investment screening policies impact FDI to a much lesser extent.
Canada maintains strict foreign investment ownership restrictions in some key network sectors, including telecommunication and broadcasting, airline, and banking. While some of these are related to certain national security concerns, restrictions potentially limit competition in these sectors. Ownership and corporate board restrictions prevent significant foreign telecommunication, broadcasting, and aviation investment, and there are deposit acceptance limitations for foreign banks. In telecommunications, foreign interests with market share exceeding 10% are generally allowed to hold no more than 46.7% of voting equity in any facilities-based telecommunications carrier or a broadcast distribution undertaking. International evidence (Rouzet and Spinelli, 2016[51]) confirms a connection in the telecoms sector between ownership restrictions and companies’ price-cost margins, suggesting derestriction in Canada could bring consumer benefits (see discussion further below).
In March 2024, the government introduced a modernisation of the Investment Canada Act (ICA). The latter notably increases scrutiny of foreign investments from state-owned enterprises (SOEs) or entities influenced by foreign states in the Interactive Digital Media (IDM) sector. Operationally, the authorities will rely on strengthened Net Benefit Reviews under the Investment Canada Act, as well as tighter national security reviews. In implementing more stringent scrutiny, the authorities should contain risks of adverse consequence to Canada’s foreign investment climate. For instance, it should avoid systematically prolonging the investment approval process which could create uncertainty for foreign investors.
1. OECD Top 5: average of 5 best performing OECD economies 2023; OECD Bottom 5: 5 worst performing OECD economies.
Note: In panel B, indicator value increase in the stringency of the regulatory environment.
Source: OECD Services Trade Restrictiveness Index by services sector; Statistics Canada; OECD Analytical database; and OECD Product Market Regulation database.
Strategic or security concerns around foreign ownership in these sectors need to be weighed against the potential for less economically efficient or advanced incumbent businesses processes. The sector-specific restrictions imply a limit to competition by restricting market entry from foreign based firms, thereby potentially limiting foreign investment, and preventing the entry of firms operating at the global productivity frontier. Constraining entry from foreign-based competitors can also reduce investment incentives for incumbents, and potentially prevent gains from innovation spillovers from firms operating at the global productivity frontier. The gains from lifting such restrictions may be substantial. For instance, research estimates that a levelling down of Canadian FDI restrictions to average OECD levels would raise Canadian labour productivity by around 0.8% (Hejazi and Trefler, 2019[52]).
The need for restrictions on the telecom sector should be evaluated as part of the ongoing review of the sector (discussed below) and rules applying to the aviation and broadcasting sectors should also be reconsidered. The Competition Bureau has launched in July 2024 a market study to examine the airline industry which is dominated by only two companies and features comparatively high domestic airfares. These issues have been underscored in previous Surveys, but no action has been taken since 2018.
4.5.2. Ensuring access to low cost telecommunications
High quality telecommunications infrastructure is key for the adoption of digital technologies by businesses and as a platform for competition between providers. Broadband access in rural and remote communities, is below 70% (ISED, 2024[53]). This partly reflects challenges associated with increasing rural coverage in certain areas, including because of high costs. While policy efforts on this front have intensified in recent years, as of December 2023 93.5% of all households had access to high-speed broadband (50/10/unlimited), still short of the target of 98% by 2026 (ISED, 2024[53]). As of September 2024, the Canada Infrastructure Bank (CIB) has invested CAD 2 billion through its Broadband Initiative. The CIB collaborates with Canadian internet service providers to expand high-speed internet access in underserved communities, targeting Indigenous, rural, and remote regions where the high cost per household makes commercial viability challenging.
Continuing efforts to lower barriers to entry in telecoms could lower prices and increase access to fast, high-quality networks, broadly facilitating business productivity (and increasing household welfare). The authorities have been endeavouring to lower entry barriers in recent years. In 2019, the Canadian Radio and Telecommunications Commission (CRTC), the sector’s regulator, reduced the rates that the major telecoms companies can charge third-party operators. This has helped lower internet prices. In August 2024, the CRTC announced provisions that allow smaller internet competitors to use the fibre networks of large telephone companies nationwide. Implementation, expected in February 2025, is expected to lower prices and widen consumer choice. Budget 2024 includes proposals for amending the Telecommunications Act, to facilitate renewal or switch between home Internet, home phone and cell phone plans. At the same time, policies fostering competition should also consider that Canada’s high costs of infrastructure development – notably due its large territory - require large investment. As such, efforts to increase market entry (e.g. for third party operators) should be balanced against the need to ensure sufficient investment incentives for incumbent operators.
4.5.3. Ensuring sound competition policy in digital markets
Ensuring sound competition policy for big tech companies can help raise investment and ensure pressure to innovate in the sector. Digital markets can teeter toward quasi-monopolies due to barriers to entry linked to data access, abusive and exclusionary practices, and lock-in of consumers and businesses to service providers (Nicoletti, Vitale and Abate, 2023[54]). These dynamics can thwart the emergence of new entrants and their ability to challenge incumbents. OECD evidence shows that competition and easier market entry boost adoptions and leads to higher productivity spillovers (Costa et al., 2021[55]). This means that to reap the benefits of digital innovation, it is key to create market conditions that provide incentives for the adoption of digital technologies by incumbents, as well as to facilitate entry and level the playing field.
The PMR indicator on Digital Markets captures the extent to which countries have assessed commissioned market studies to assess competition in digital markets, updated their merger regime for the digital age, subjected online platforms to fair trade and contestability measures, and implemented a range of competitive measures pertaining to data use and access (Nicoletti, Vitale and Abate, 2023[54]). This indicator shows that Canada ranks below some other OECD countries, particularly those that have started policy work on measures to reduce the risk of anticompetitive behaviour arising in relation to large digital platforms (ex-ante regulation). For instance, the European Union adopted the Digital Markets Act in 2022. Updates of regulatory frameworks are still being discussed in the United States and the United Kingdom.
Canada’s review of its competition legislation has resulted in measures to increase competition, focusing on some of the key issues emerging in digital and data driven markets. The review led to significant changes aimed at modernising the Competition Act by strengthening its enforcement (see Box 4.5). Canada has also expanded its privacy laws to include consumer rights to data portability and deletion, and to increase oversight in the collection of private information. The focus of recent policy measures has mostly concentrated on improving the handling of anti-competitive behaviours (ex post regulation). There is room to consider additional emphasis on “ex ante” regulation around digital platforms. Because the specific features of digital markets favour the entrenchment of market power, ex-post interventions may not be sufficient to eliminate the advantage gained by dominant firms in the meantime. Proactive ex-ante regulations can therefore complement ex-post antitrust enforcement, preventing anti-competitive mergers, curbing entrenched dominance, and fostering an environment conducive to innovation (Nicoletti, Vitale and Abate, 2023[54]). For instance, gatekeeper regulations could mandate platforms to ensure easy data portability and interoperability requirements. Compatibility with frameworks introduced elsewhere will be important given digital markets are usually transnational.
Digital markets 2024 PMR in selected countries
Note: Indicator value increase in the stringency of the regulatory environment. Whisker for the OECD bar shows the range between the averages of the 5 best (the lower scores) and 5 worst (the higher scores) performing OECD economies.
Source: OECD Product Market Regulation database.
Revised competition legislations have granted more power to the Competition Bureau
There has been some welcome progress in policy measures on what past Surveys have identified as levers for strengthening Canada’s competition environment. Canada has implemented significant changes to its competition regime following a review of the Competition Act, which was finalised through amendments in Bills C-56 (2023) and C-59 (2024). These will potentially bring improvement in key areas of the competition framework, including the scope of the Act; enforcement methods and corrective measures; and the improvement of competition policy in increasingly digital and data-driven markets. The reforms have increased the Bureau’s ability to review and challenge mergers by introducing a presumption that mergers increasing market concentration significantly are anti-competitive unless proven otherwise by the merging parties, thereby shifting the burden of proof to businesses rather than the Competition Bureau. The reforms strengthened the authority of the Competition Bureau to launch and conduct formal market studies. Revisions have broadened the scope of what constitutes anti-competitive practices by dominant firms, especially in the context of digital platforms and e-commerce. Conducts intended to “have a selective or discriminatory response to an actual or potential competitor”, including nascent competitors are now included. Additionally, the amendment explicitly allows the Bureau to consider conducts affecting non-price variables, such as the effect on barriers to entry (including network effects), key aspects of data privacy affecting service quality, choice and consumer privacy (OECD, 2023[56]).
New regulations of online data rights can improve portability and interoperability
Canada continues to advance on issues of data rights and regulation of digital platforms. Individuals’ rights as regards online data, including portability can strengthen competition. Policies need to ensure that it is both legally and technically easy for individuals to transfer their personal data between digital products and services. A digital charter has been in place since 2019, followed by the Digital Charter Implementation act in June 2022, which aims to improve data portability and regulate the ethical use of data, including significant fines for non-compliance and standards for AI-enabled systems. The Consumer Privacy Protection Act (2022), a major change of Canada’s private sector privacy law, is now in effect. It includes provisions on data portability and rights over personal data. These could help reduce barriers to entry. Recently, the Canadian Federal Government introduced legislation to address a range of other policy issues emerging in the digital economy, including the Online Streaming Act, Online News Act, and Digital Charter Implementation Act.
4.5.4. Adressing corruption and money laundering risks
Lower levels of corruption are generally found to have positive effects on productivity performance (OECD, 2018[57]). Corruption tends to reduce productivity through its adverse effects on innovation and the diffusion of new technologies and by altering resource allocation. Canada ranks well in measures of perceived corruption, it ranked 12 out of 180 countries worldwide in 2023 (Figure 4.21, Panels A and B). However, perceived corruption in Canada has shown a deteriorating trend since the mid-2010s, although there has been a slight improvement recently (Figure 4.21, Panel C). Conflicts of interest, political finance, legislative influence, and weak enforcement of anti-bribery measures remain significant challenges (Figure 4.21, Panel D). In contrast, the level of trust in public institutions in Canada is comparable to that of the best-performing OECD countries. Canada could strengthen regulatory safeguards by enhancing internal controls and audits, improving public disclosure and transparency, and bolstering risk management practices. Canada has also undertaken important legislative reforms to enhance its foreign bribery framework, including the Remediation Agreement (RA), a non-trial resolution mechanism introduced in 2018. Despite these efforts, Canada’s enforcement of the foreign bribery offence remains low (OECD, 2023[58]). Canada should enhance its capacity to detect foreign bribery by introducing effective whistleblower protection and clarifying policies surrounding self-reporting by companies. Canadian agencies and law enforcement should also collect comprehensive data on foreign bribery, to help assess the impact of its enforcement policies and priorities.
Canada’s anti-money laundering system scores similarly to the OECD average according to a range of characteristics (Figure 4.22 , Panel B). In recent years, Canada has introduced a series of measures and investments to combat financial crime and safeguard the integrity of Canada’s financial system. Since 2019, the Government has made investments of close to CAD 379 million to strengthen compliance, data, financial intelligence, information sharing and investigative capacity to support money laundering investigations.
A major issue was until recently that Canada lacked information about the true (or “beneficial”) owners of companies. This facilitated the creation of anonymous corporate entities to obscure the origins of illicit funds (“snow washing”). To address this issue, the federal government enacted Bill C-42 in 2023, aligning Canada with international standards set by the Financial Action Task Force (FATF). This bill mandates that federally incorporated companies disclose the identities of their true owners (or “beneficial owners”) in an online registry, enhancing transparency and accountability. This is expected to facilitate information sharing among law enforcement, tax authorities, and other regulatory bodies.
Note: Panel B shows the point estimate and the margin of error. Panel D shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project. Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: Varieties of Democracy Project, V-Dem Dataset v12.
At the provincial level, money laundering through real estate transactions and other vehicles remains an issue. In 2020, British Columbia became the first province to establish a public registry for land-owning companies. Despite these advancements, ongoing efforts are required to address the complexities of money laundering across Canada (OECD, 2023[59]). Vulnerabilities also exist within the banking system. In 2024, Toronto-Dominion Bank faced a fine of CAD 9.2 million from Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC) and USD 3 billion from U.S. regulators, as well as restrictions on its expansion in the U.S. market, due to severe shortcomings in anti-money laundering practices. FINTRAC recently published a note of concern regarding the role of legal professionals in facilitating money laundering. Legal professionals, apart from British Columbia notaries, are not required to report under Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime (FINTRAC, 2024[60]).
Note: Panel A summarises the overall assessment on the exchange of information in practice from peer reviews by the Global Forum on Transparency and Exchange of Information for Tax Purposes. The figure shows results from the ongoing second round when available, otherwise first round results are displayed. Panel B shows ratings from the FATF peer reviews of each member (conducted at different times, Canada’s ratings are based on its 2016 assessment) to assess levels of implementation of the FATF Recommendations. "Investigation and prosecution¹" refers to money laundering. "Investigation and prosecution²" refers to terrorist financing.
Source: OECD Secretariat’s own calculation based on the materials from the Global Forum on Transparency and Exchange of Information for Tax Purposes; and OECD, Financial Action Task Force (FATF).
Efficient labour allocation is a key element for a productivity-friendly business environment. If the labour market does not respond to changing circumstances, such as the impact of AI (see discussion above), then shifts to new more productive activities are hampered and labour resources are stuck in sub-optimal economic activities. Furthermore, weak capacity to adjust elevates the risks of structural unemployment.
4.6.1. Canada’s increasingly educated workforce contrasts with high vacancies in low to medium skilled occupations
Canada's labour market generally performs well, as evidenced by high trend employment rates and relatively low trend unemployment rates. Canada's workforce is highly educated: it has the highest proportion of tertiary-educated workers in the OECD and has one of the highest shares of the population having at least some basic digital skills. Canada’s increases in skill levels of workers have contributed to labour productivity growth. This trend has also been reflected in significant growth in mid- and high-wage employment (Willcox and Feor, 2023[61]).
Note: in Panel A, number of job vacancies are averaged over 1-year.
Source: OECD calculations based on data from Statistics Canada.
Employed adults aged 25-65 who are not self-employed
Note: * Flemish Region only for Belgium; and England only for United Kingdom. Does not include adults who were only administered the doorstep interview due to a language barrier. A worker is classified as over-qualified (/under-qualified) when the level of their highest qualification is above (/below) the qualification level required for their job. The required qualification level is based on respondents’ answers to the question “If applying today, what would be the usual qualification, if any, that someone would need to get this type of job?”.
Source: OECD (2024), Survey of Adult Skills – Reader's Companion, OECD Skills Studies, OECD Publishing, Paris, https://doi.org/10.1787/3639d1e2-en.
There is scope for a more efficient use and allocation of labour resources. There is evidence of labour qualification mismatch (Figure 4.24), particularly among immigrants, while the talents and skills of women have remained underused. There is a contrast between an increasing supply of high-skill workers (Figure 4.23, panel B) and a concentration of vacancies in lower skilled occupations (Figure 4.23, panel A), including in retail trade, hospitality and food services, and transportation. Shortages in low skill occupations have for long accounted for the bulk of unfilled vacancies. At the same time, labour force and business surveys have highlighted persisting shortages in higher skilled occupations such as skilled trades, health care and social assistance. Employment projections by the Employment and Social Development Canada (ESDC, 2022[62]) expect these trends to persist over the next decade.
4.6.2. Lowering internal barriers to labour market mobility in the skilled trades and licensed professions
Differences in provincial certification requirements for regulated professions continue to prevent their mutual recognition, creating barriers to the interprovincial mobility of workers in these occupations. The non-recognition of qualifications concerns certain critical sectors where persistent labour shortages have been reported, as the healthcare sector, and compulsory skilled trades (those where only those with the relevant official qualifications or apprentices can legally be employed, such as electricians, plumbers and crane operators). As shown in the Product Market Regulation (PMR) indicator, professions like architects, civil engineers, and real estate agents are also highly regulated professions. Over the past decades, various policy initiatives sought to streamline mutual recognition of certain personal services and skilled trades, such as the Red Seal Program Support, while more recently the commitment to mutual recognition was reaffirmed by the Canadian Free Trade Agreement in 2017.
Policies need to enhance mutual recognition across provinces and ease access to regulated professions in general to make full use of the skill potential. Overall, there is also a generally large number of regulated professions. OECD work (2020[63]) has highlighted that regulatory approaches vary greatly across Canadian provinces. One key issue under the CFTA is that provinces maintain the right to request additional certification requirements, e.g. based on public security, safety concerns, or consumer protection grounds. Regulation of occupational entry are higher in Canada than in the US and Europe according to the latest PMR. This is generally due to the obligation to join a professional associate and to accumulate work experience before obtaining the permission to work (von Rueden and Bambalaite, 2020[63]), including for some skilled trades, lawyers, engineers. Finally, further enhancing the recognition of qualifications of foreign trained immigrants would facilitate their professional integration.
4.6.3. Reducing structural imbalance in labour supply through immigration
Better leveraging the talents of Canada’s immigrant workforce can help resolve the labour supply imbalances, and more generally improve productivity potential. Immigrants often face challenges in finding jobs that fully utilise their skills and prior experiences. In 2021, the rate of severe overqualification among those holding foreign degrees was over 25%, according to the latest census data—more than 2.5 times higher than that of native-born Canadians and twice as high as that of immigrants with Canadian degrees (Statistics Canada, 2022[64]).
Recognition of non-Canadian qualifications and credentials is a key issue. Even immigrants with foreign degrees in high-demand areas such as registered nursing or medicine faced high rates of job mismatch. For instance, according to the 2021 census, barely 36% of immigrants with a foreign bachelor's degree in nursing worked in closely related occupations, while about 41% of those with a foreign medical degree worked as doctors (Statistics Canada, 2022[64]). Actions to further streamline and accelerate the recognition of international credentials could include: continued work by the federal government and profession licensing and regulatory bodies to unify policies and regulations; the establishment of mutual qualification recognition agreements with key source countries; and better integration of foreign credential assessment and recognition into immigration application process to reduce the risk of non-recognition upon arrival. Additionally, the government should consider building on Canadian Work Experience Pilot and Foreign Credential Recognition Loans Projects, which have received positive evaluations where data was available (ESDC, 2020[65]), to better support internationally trained individuals. The authorities should also consider addressing the lack of data on the labour market outcomes of internationally trained individuals in Canada.
The Federal Skilled Trades Program, an immigration programme established in 2013 to address shortages in skilled trades, has fallen short of its objective due to strong restrictions, such as the need to have a job offer in Canada or to hold a Canadian skilled trade qualification before entry, and long application processing times (63 months in 2022). Such programme, which is part of the express entry system, should be given more prominence, and could deliver better results by simplifying the recognition of foreign certifications, reducing access conditions, and by speeding up the application process.
Governments should continue placing emphasis on skilled Canadian work experience and official language proficiency in immigration selection procedures (OECD, 2023[59]). Insufficient English and French language skills significantly impact labour market outcomes (Xu and Hou, 2023[66]). One option to strengthen language proficiency is to increase the weight given to it in the points-based evaluation for permanent residency under economic immigration programmes. Alternatively, as noted by (Finlayson and Globerman, 2023[67]), a more advanced level of proficiency in one official language could be required for entry as a skilled worker, regardless of other criteria in the points system. Research shows that immigrants with pre-landing Canadian work experience have better post-migration labour market outcomes compared to those selected directly from abroad (Xu and Hou, 2023[66]). The “two-step” immigration selection procedures in Canada allows the selection of immigrants from the pool of temporary foreign workers. The latter is considered to have helped reduce overqualification (Finlayson and Globerman, 2023[67]). This said, the two-step immigration system may carry some downsides too, such as risks of worker exploitation.
Strengthening settlement and employment services can also ensure immigrant skills are better used. For instance, expanding access to micro-credential programmes can also help immigrants quickly acquire specific skills or certifications relevant to the Canadian job market. Mentorship programmes and the provision of comprehensive labour market information can also help.
Adjusting the parameters of immigrant selection could help resolve labour market imbalances. In 2022, Immigration, Refugees and Citizenship Canada introduced new category-based selection rules to admit more permanent immigrants with specific qualifications to help address skill shortages (see also Box 2 in Chapter 1). This policy shift involves moving partly away from a purely points-based system for economic immigrants to giving higher priority to applicants with experience in specific fields such as healthcare and technology, as well as demonstrated competence in French. Including a broader range of skills, beyond just educational achievements, appears to be a promising approach to expanding the pool of available talents. However, while these new programmes can address labour shortages and help reduce the rate of overqualification among new immigrants, they also carry risks as labour market needs and demands are inherently difficult to forecast and may move quickly.
4.6.4. Better exploiting the vocational education system to address labour shortages in skilled trades
Boosting participation in vocational education and apprenticeships is key for resolving Canada’s labour market imbalances and to help strengthening productivity potential. Addressing shortages in skilled trades is also relevant for Canada’s housing supply problems and in the green transition. Between 2016 and 2021, the number of working-age apprenticeship certificate holders has stagnated or fallen in several major trades’ fields. At the same time, the unmet demand for skilled trades workers increased (Statistics Canada, 2022[64]). According to employment projections (ESDC, 2022[62]), over 1.2 million job openings are projected in skilled trades over the next decade, about 15% of the total 7.4 million expected openings.
Standardising certification and recognition of vocational training skills across provinces would enhance consistency, increase attractiveness, and facilitate labour mobility in Canada. Post-secondary vocational education, primarily through apprenticeships and college programs, is managed by provinces and territories, leading to potential issues with consistency, quality, and recognition nationwide. The federal government's support for the Red Seal Program, which provides interprovincial certification in skilled trades, has been effective in promoting labour mobility and skill recognition. The federal government, in collaboration with provinces and territories, should work to expand standardised certification programs like the Red Seal to cover a broader range of occupations.
Source: OECD Education at a Glance database.
Policies should do more to address the stigma that discourages students from pursuing vocational pathways. Public information campaigns could help by highlighting the above-average labour market outcomes and relevance of vocational qualifications. In Canada, holding a vocational upper secondary qualification is associated with higher employment rates than a general qualification at the same level among 25–34-year-old (Figure 4.25, Panel A). Young adults with vocational secondary or post-secondary non-tertiary education earn about 25% more than their peers with a general education at the same level (Figure 4.25, panel B). Moreover, apprenticeships, being paid positions, allow young tradespeople to start their careers without student debt. Changing outdated perceptions of the trades requires a comprehensive strategy to reshape the views of students and their families and adapt the education system to encourage more people to train for a career in skilled trades.
Efforts to encourage the participation of women and immigrants in skilled trades need to be accelerated. The workforce in skilled trades remains limited by the underrepresentation of women and immigrants. In 2021, only 2.4% of working-age individuals holding apprenticeship certificates in these fields were women, while immigrants, who made up 28% of the working-age population, represented just 10% of apprenticeship certificate holders in these trades (Statistics Canada, 2022[64]). See below for further discussion on women and skilled trades.
4.6.5. Strengthening lifelong learning
Building a resilient and adaptable workforce that can enhance productivity growth starts with strong basic skills. While young Canadians generally perform well in science, literacy, and numeracy, about 1 in 6 Canadians aged 16-24 have skills at or below the lowest threshold according to the result from the OECD Programme for the International Assessment of Adult Competencies (PIAAC). This is comparable to the OECD average but well behind leading OECD countries, suggesting some room for improvement.
Alongside improving skills development in schooling and higher education, governments can further promote skills via lifelong learning. While Canada performs above the OECD average in terms of alignment of training with labour market needs and coverage, there is room for improving inclusiveness in adult learning in Canada. (OECD, 2020[68])
Despite having a great need for upskilling, low-skilled workers receive less training than high-skilled workers. The gap in participation rates in lifelong learning activities between high and medium-skilled workers and low-skilled workers is 28 percentage points, among the highest across the OECD (OECD, 2020[68]). To address this gap, governments need to further encourage initiatives that combine targeted co-financing of adult education with innovative and flexible delivery methods, such as online learning. Encouraging cost-sharing among industry, workers, and government could incentivise reskilling and upskilling. Also, public information campaigns to promote adult learning can be used. Increasing outreach, particularly among low-skilled adults and in regions affected by automation (OECD, 2020[68]) and labour market information sharing could incentivise in-take of lifelong learning courses by providing timely information on the specific skills and knowledge needed in the job market.
Take up of adult learning programmes among low-income workers can be increased through well designed financial assistance programmes. In Canada there might be room to reduce the economic barriers to participation for low-income individuals (OECD, 2020[68]), including by putting more emphasis on means tested direct subsidies. The Canada Training Benefit offers a refundable tax credit for a lifetime amount of up to CAD 5 000 to offset tuition costs and related fees. Such tax credit can generate a large deadweight loss and be less appealing to credit constrained workers. Since individuals must generally wait until after the end of the tax year to claim compensation, tax incentives fail to reduce liquidity constraints which may prevent access by lower-income individuals and smaller firms. Research showed that in the Netherlands the tax deduction (aftrekpost scholingsuitgaven) was used primarily by highly skilled individuals and had a high deadweight cost. (OECD, 2017[69]).
Greater emphasis should be placed on promoting adapted lifelong learning opportunities for older workers (OECD, 2020[68]). Canadians aged 55 to 64 have relatively high literacy, numeracy, and digital skills but these skills are still much stronger among younger people. Recent research has highlighted that redesigning training to fit the needs of older workers can help increase participation in adult learning among older workers in Canada (Fang, Gunderson and Lee, 2021[70]).
4.6.6. Ensuring women’s workforce skills and talent are fully realised
Additional effort is needed to accelerate progress in bringing women into underrepresented and highly productive (so better-paid) professions. Women remain under-represented in some fields that matter for the productivity of the economy, such as science, ICT and engineering, as well as in entrepreneurship. Women are particularly underrepresented in math-intensive and typically well-paying STEM fields, such as engineering and computer science (Chan, Handler and Frenette, 2021[71]). This highlights still persistent stigmas with employing women in some occupations. The government should consider expanding programmes aiming to promote early exposure of girls to such STEM fields. Additionally, more mentorships and role model opportunities need to be offered. Various initiatives exist to encourage higher participation in STEM fields, but they have remained insufficient. These programmes should be reinforced. For example, Canada's Promoting Women in STEM Program, which is part of the federal government's Women Entrepreneurship Strategy, provides funding to encourage women to pursue education and careers in STEM fields. The programme aims to reduce gender disparities in high-paying and high-demand field through grants, scholarships, and support for organisations that offer mentorship and training.
Welcome initiatives are underway to increase the number of women in the trades. The Women in the Skilled Trades Initiative funds projects that create partnerships to recruit women, organise women-led events to attract women to the skilled trades, offer mentorship by female role models; and create a welcoming space for women training and work sites. Despite these efforts the share of women in skilled trades has remained low (about 5%). Furthermore, women in male-dominated trades tend to earn less than their male counterparts in the same trades (Frank and Frenette, 2019[72]). The government should consider expanding funding opportunities for such initiatives, while placing additional attention on developing skilled women networks and addressing stigma and workplace culture and pay discrimination issues.
Research has shown that increases in female labour force participation in Canada between 1990 and 2015 were associated with higher productivity growth. Hence, a holistic policy approach is needed to better utilise women’s skills and talents. The ‘’child penalty’’ is high in Canada, estimated at 34% 10 years after giving birth (Connolly, Fontaine and Haeck, 2023[73]). Insofar as wages and productivity are correlated, this partly indicates a shift to less productive activities after giving birth. Affordable childcare facilitates an earlier return to work and can reduce the ‘’child penalty’’ (André et al., 2023[74]). Hence the roll out of the reform to expand access to affordable childcare is critical. Promoting work-life balance and reducing inequalities in the sharing of caretaking duties can also help ensure women’s skills are utilised to their potential upon giving birth. There is still room for making parental leaves better shared, including by increasing replacement rates. While fathers have access to parental leave, uptake remains low (OECD, 2022[75]).
There is also further scope to increase representation of women in leadership positions. The share of women in management positions is lower than in best-performing countries (Figure 4.26, Panel A). Only about one-fifth (20.5%) of director positions and one-third (31.4%) of officer positions were occupied by women in 2020 (Statistics Canada, 2023[76]). Evidence suggests that companies with gender-diverse leadership teams tend to perform better, are more innovative and have higher employee engagement (Han and Noland, 2020[77]; Folkman and Zenger, 2019[78]; McKinsey & Company, 2008[79]). Canada does not have mandatory quotas or targets for female participation in boards but has some reporting requirements for listed corporations. Some countries, such as Australia and New Zealand, have achieved substantial progress with gender-diverse leadership without quotas or targets, through awareness-raising programmes, private advocacy initiatives, government-led programmes, and relevant listing rules (Denis, 2022[80]).
Canada is also characterised by a relatively high gender wage gap compared to the OECD average. The government has taken initiatives to foster pay equity and transparency, such as the 2021 Equity Pay Act and the Employment Equity Act. As of 2022, full-time working women earn, on average, only 83 cents to every dollar earned by full-time working men, compared to 89 cents on OECD average (Figure 4.26, Panel B). Gender pay gaps reflect in part differences in human capital, occupation and industry between genders. Moreover, women are more often employed in low-wage firms compared to high-wage firms within the same industry or occupation (OECD, 2021[81]). But even when controlling for these factors, an important part of the gender wage gap between similarly skilled women and men is related to pay differences within firms due to differences in tasks and responsibilities and pay differences for equal work. In Canada, within-firm wage inequality for men and women with similar skills accounts for about 60% of overall wage inequality (OECD, 2021[81]). Consequently, tackling the gender wage gap requires promoting access of women to well-paying firms and well-paying jobs within firms.
Note: In panel B, the gender wage gap is the difference between the median earnings of men and of women relative to the median earnings of men. Estimates of earnings used in the calculations generally refer to unadjusted gross earnings of full-time wage and salary workers.
Source: OECD Gender, Institutions and Development database; and OECD Earnings: Gender Wage Gap database.
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