Fraser Institute ties decades of income growth to productivity, warns of post-2015 slowdown
A one-percentage-point increase in labour productivity leads to nearly the same gain—0.98 percentage points—in hourly compensation, according to a new report from the Fraser Institute.
The study highlights a near lockstep relationship between productivity and real labour income from 1981 to 2024.
Yet since 2015, labour productivity in Canada has grown just 3.6 percent.
By contrast, productivity rose 4.1 percent in the year 2000 alone.
This slowdown coincides with recent stagnation in inflation-adjusted incomes, raising concerns about the sustainability of wage and benefit growth.
“Despite any claims to the contrary, the best available evidence clearly shows that gains in labour productivity explain almost all the gains in income,” said Philip Cross, senior fellow at the Fraser Institute and author of the report Higher Labour Productivity Is the Key to Faster Income Growth.
The study defines labour productivity as the ability to convert inputs—such as labour and materials—into usable goods and services.
For worker compensation to rise, workers must become more productive per hour worked.
Cross concludes that if Canadian governments want to improve incomes and living standards, policy must focus squarely on reversing the current productivity decline.
According to the Fraser Institute, inflation-adjusted income in Canada is now declining alongside lagging productivity, despite years of public debate suggesting wages have diverged from output.
The report disputes that view, arguing instead that productivity remains the main engine of compensation growth.
