ERGETE FEREDE
BRITISH COLUMBIA – If Canadian governments reduced their debt relative to the size of the economy (GDP) over five years back to pre-pandemic levels, this would increase productivity and boost incomes for average workers by $2,100 a year, according to a new study published by the Fraser Institute, an independent non-partisan Canadian think-tank.
Labour productivity is a much of the output, namely the value of goods and services produced per hour of labour (work) in an economy. It is a broad measure of how well an economy can transform inputs like labour and raw materials into useable outputs.
“Labour productivity plays a crucial role in improving living standards and powering economic growth, but government deficits and debt in Canada are a detriment to productivity, and in turn are making life worse for Canadians,” said Ergete Ferede, senior fellow at the Fraser Institute and author of The Impact of Government Debt on Labour Productivity in Canada.
The study finds Canada’s burden of general government gross debt represented about 107 per cent of the national economy in 2023 (the latest year of comparable data)— ranking 7th highest for debt relative to the size of the economy among a group of 38 advanced countries.
But, if Canadian governments gradually reduced debt relative to the size of the economy, labour productivity would increase by about 1.6 per cent, which could boost the annual income of an average employee working 40 hours a week by approximately $2,100 (adjusted for inflation).
“Deficits and debt have many costs, including a less productive workforce and lower wages for Canadians than they otherwise would enjoy,” Ferede explained. “Governments in Canada should curb their dependency on deficit-financed spending so Canadians can enjoy higher labour productivity and higher living standards.”
Ergete Ferede, Senior Fellow Fraser Institute
