In a recent speech, the Bank of Canada’s senior deputy governor highlighted the risk posed by chronically sluggish productivity growth to the country’s living standards. She also noted stalled productivity makes it harder to reduce inflation and keep it at (or close to) the Bank’s 2% target.

Productivity is conventionally defined as the value of economic output per hour of work. Over time, it’s the most important determinant of overall economic growth. In a mainly market-based economy such as Canada’s, particular attention should be paid to the productivity performance of the business sector. Unfortunately, here the news isn’t good.

Business sector productivity has flatlined in Canada, with the level of output per hour worked essentially unchanged from seven years ago. This pattern of productivity stagnation, in turn, is the principal reason why the value of economic output per person........

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