Canada is facing a productivity emergency.
At least those are the words the Bank of Canada’s deputy governor, Carolyn Rogers, used to describe the state of labour productivity in a speech earlier this year. Whereas Canada’s productivity used to be about 88 per cent that of the United States’, it was just 71 per cent as of 2022 — and sank another 1.8 per cent in 2023.
What this means is that our economy produces less per hour worked than the United States, and indeed many of its G7 peers. Only Italy has observed a larger fall in productivity relative to the US since the 1980s.
Productivity is among the most important measures of a country’s economic health; it is directly linked to the standard of living citizens enjoy. So we all have a vested interest in seeing Canada’s productivity levels rebound.
For this to happen, Canada needs to address a foundational problem that often does not get the attention it deserves. That is, too much of the country’s top technical talent — who play a key role in spurring innovation and entrepreneurship — leaves Canada, often for higher paying jobs in the US. This problem, commonly referred to as “brain drain,” has been around for decades. Given Canada’s growing productivity crisis, we can and must do more to address it.
One 2018 study found that one in four STEM graduates from the University of Waterloo, the University of British Columbia and the University of Toronto leave the country, with the majority (81 per cent) opting to work in the United States. Software engineers appeared to have the highest propensity to leave, with 66 per cent of the sampled group taking up posts outside of Canada.
Similarly, in 2020, students in the University of Waterloo’s prestigious software engineering program crunched the numbers on their class’s employment outcomes. They found that a staggering 84 per cent of the graduating class planned to work in the US.
And who could blame them?
The pay gap between Canada and the US is substantial for many corporate professions, especially in tech. A novice software engineer at a FAANG company — Meta (formerly Facebook), Amazon, Apple, Netflix and Alphabet/Google — will earn, on average, CAD$154,562 in Canada, according to levels.fyi, a crowd-sourced data platform with 1.5 million users. South of the border, that figure rises to CAD$238,479, and is often even higher in cities like New York and San Francisco.
With so much top tech talent leaving the country, it can be difficult for Canadian companies to staff high-tech roles at home. As a management consultant in Toronto, I frequently hear from tech leaders about the hiring obstacles they face. Often, what Canadian businesses can afford to pay for high-tech roles does not stack up to what a candidate could earn by moving a few hours south to the US.
What can Canada do to ease the effects of tech talent “brain drain” and improve productivity?
The government, to its credit, has taken some of the right steps to address this problem, like committing to invest $2.4 billion in AI in Budget 2024. The investment is largely aimed at building out the country’s computing infrastructure, on which new AI research and start-ups would rely.
Additionally, the government can, and does, rely on immigration to bolster the country’s labour force. Parliament has set aggressive immigration targets for the coming years, the bulk of which will be made up of economic migrants. These are newcomers to Canada who have skills that could fill gaps in the Canadian labour force. Software engineering has been the most common occupation among this group of migrants since 2015.
But there are myriad reasons why immigration is no panacea. For one, migrant underemployment is all too common in Canada. Fewer than 50 per cent of Canadian immigrants with STEM degrees end up with jobs in STEM fields. And, as of 2021, more than a quarter of all immigrants (aged 25-64) with a bachelor’s degree have taken up jobs in Canada that only require a high school diploma.
So the government can and should do more to aid migrants with their transition into the Canadian workforce. Here, a good start would be removing barriers for migrants to qualify for professional designations — in engineering, but also medicine, accounting and law. These designations usually fall under the jurisdiction of the provinces, and many are already taking steps to reduce barriers for newcomers.
Universities also have a role to play in boosting productivity. They can, for example, raise the baseline technical proficiency of graduates by adding core technology modules, even for non-STEM degrees. They can also look to build out co-op programs that help students find jobs in Canada.
Businesses, too, can help their employees build technical competencies that boost innovation and raise productivity. They might, for instance, create communities of practice around certain technical skills or programming languages, which give people a forum to learn and experiment.
Ultimately, there is no quick fix for Canada’s “brain drain” problem or its lagging rate of productivity. But in general, the more the government, academic institutions and businesses can do to foster tech talent in Canada — and keep it here — the brighter our economic future will be.
