Business quest to do more with fewer workers confronts productivity puzzle

Business leaders are calling for increased productivity to ride out inflation and a potential recession. But economists battle to understand why Canadian productivity has continued to sag despite a worker shortage.

As worker shortage persists, even threat of recession has not ended need to use labour more efficiently

A person is pictured inside the Enercare Centre at the Exhibition Place in Toronto on Aug. 4, 2022, during the Canadian National Exhibition’s job fair. Despite fears of recession and higher interest rates, so far Canadian businesses have continued to be hungry for workers to fill essential roles. (Sabah Rahman/CBC)

Even as the world debates whether we are or are not in a recession, a persistent shortage of workers has business leaders and economists struggling to understand one of Canada's most intractable, and some say most crucial, economic problems.

Despite the slowing effect of rising interest rates intended to fight soaring prices, employers across the country continue to complain they can't find the workers to fill empty jobs. And while many expect Canada's surging job creation will soon end as recession bites, predictions for Friday's latest jobs report suggest it hasn't happened yet. 

When the jobs numbers were released at 8:30 a.m., they showed the economy lost 31,000 jobs in July, leaving the unemployment rate unchanged at 4.9 per cent.

According to economic theory, a solution to the worker shortage beckons: Simply invest in technology and figure out how to smooth the kinks in production to increase profits without increasing the number of employees.

A productivity challenge

While the theory may sound simple, making it work in the real world is a huge challenge for businesses, governments and economists trying to make Canadians more productive. And it's not just a Canadian problem.

Last week one of the world's most influential business leaders, Google boss Sundar Pichai, announced to employees that parent company Alphabet was launching a plan called "Simplicity Sprint," to increase economic productivity.

The announcement is already generating worries that the policy hints at coming layoffs, and not just at Google where profit growth has slowed. But economists insist that boosting productivity is not about layoffs or making each employee work harder.

Google CEO Sundar Pichai has called on employees of parent company Alphabet to increase productivity under a plan titled "Simplicity Sprint." Employees worry it could signal layoffs. (Brandon Wade/Reuters)

According to reams of books and online articles, productivity is all about making yourself a better person by getting organized so you can do more in your busy life and stop all that time-wasting. But that's not how economists define it, according to Western University economics professor Audra Bowlus, who researches Canadian productivity.

"We can think about labour productivity as being kind of the amount of value added per worker," said Bowlus.

As Bowlus and others describe it, the reason productivity is so important is that it provides the foundation for national wealth and wellbeing. It also makes individual companies more profitable. In a collective sense, increasing productivity makes us richer as a country and allows average wages to rise.

Don't squeeze the workers

Experts note a true increase in economic productivity should happen without employees working longer hours or being saddled with the increased stress of doing more with less. As we've seen in sectors where that has been tried, such as Canadian emergency rooms, burnout that causes people to quit their jobs does not lead to long-term efficiency.

As Bowlus explained, boosting productivity should be understood as increasing output without increasing inputs. The idea is to do things in a more efficient way, buying or inventing cheaper machines to help with the job, or creating procedures that require fewer laborious steps.

"It can be the machines becoming more productive through technology," said Bowlus. "It can also be the workers becoming more productive through more education or enhancing their skills or just being able to work better with those machines."

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But that doesn't mean jobs are not lost in the process, said Michael Veall, an economist at McMaster University who is leading a team of researchers and working with Statistics Canada to bolster Canadian productivity.

Veall points to jobs such as ice man or elevator operator, professions eliminated by technological progress such as the invention of electricity and refrigeration, or the switch from the human skill of making elevators stop at just the right level to match the floor to automated push buttons.

Veall, who once worked in one of Canada's last remaining elevator operator jobs — he pushed the buttons and gave a spiel at the Skylon Tower in Niagara Falls — says economists debate over whether things like self-service checkouts at the grocery store should be considered labour replacement or actual enhanced productivity.

Mind the productivity gap 

But that dispute is overshadowed by a much greater debate over why Canadian progress on productivity has been so poor compared to similar countries around the world. Statistics Canada data has shown that after an extraordinary record leap in 2020 caused by the pandemic, productivity fell sharply in 2021, and continued falling at the beginning of this year, down from pre-pandemic levels.

Part of Veall's project is to find a way to distribute previously difficult-to-access data from businesses out to Canadian economists so they can try to understand where productivity happens and the effectiveness of many federal and provincial schemes meant to increase employer efficiency. Until now, much of the research has been based on foreign data.

A lot of analysis decries the gap between Canada and the U.S., suggesting Canada needs to follow the U.S. lead in tax policy and regulation. Some experts say Canadian tax laws meant to encourage small business have the opposite effect of discouraging businesses from becoming bigger, using economies of scale to become more productive. Others worry increased productivity will lead to a fall in other Canadian advantages that will contribute to a lower quality of life.

German politicians and officials on a hydraulic riser in 2012 with a sign that says the country is a good place for professional workers. Despite social measures and regulations stronger than in Canada, Europe leads in productivity. (Fabrizio Bensch/Reuters)

But Robert Gagné, director of the Centre for Productivity and Prosperity at the University of Montreal's École des hautes études commerciales, takes a fresh view by comparing productivity gains in North America with those in Europe, where social programs, taxes and regulation often exceed those in Canada.

"In Western Europe they have big productivity gains, even bigger than the U.S., much bigger in fact than the U.S. over the past 25 or 30 years," said Gagné.

Gagné and his team attribute the difference almost entirely to competition. Whereas businesses in Paris must go head to head with businesses in Berlin, Canada's relatively sparse population in a thin line just above the U.S. border means that a company in Quebec can virtually ignore a competitor nearly 4,000 kilometres away in Calgary, he said.

Productivity requires competition: expert

The HEC centre's research shows that while Europe goes out of its way to encourage competition, Canada and its provinces do the opposite, "with a culture of protecting Canadian businesses no matter what," Gagné said.

He points to the near-monopoly power of Air Canada that he says has too much influence on governments of whatever stripe in Ottawa. For example, Gagné suggests that relationship has repeatedly blocked a high-speed rail link between Quebec and Ontario that would have given the Canadian airline a run for its money.

As an alternative, he said policy makers should instead look at Canadian companies like Couche Tard (that operates many places under the name Circle K) that have no trouble competing, and leading the way, on the world stage.

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Gagné agrees the well-known shortage of workers in places like Quebec's Eastern Townships should be motivating businesses to increase productivity by investing in better machinery and methods. He said that in the service sector, now suffering from severe labour shortages, that is harder. 

"You cannot replace a maid in a hotel room by a robot," said Gagné. 

And rather than expecting individual businesses to lead the way, he said he thinks governments, especially provincial governments, should ratchet up competition between provinces. Gagné said that is what provincial leaders should be doing when they meet instead of just talking about how they can get more tax money from the federal government.

"I think they should engage in a discussion about barriers to commerce and people within the country," said Gagné. "There's more mobility and less barriers to commerce between European countries than Canadian provinces."

Follow Don on Twitter @don_pittis


Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.