Rising labour costs, weak output put new pressure on Canadian workplaces
For HR leaders already juggling wage pressures and tight margins, the latest productivity numbers offer little comfort.
Statistics Canada (StatCan) reports that “the labour productivity of Canadian businesses edged down 0.1% in the fourth quarter as hours worked declined at a slower pace than real gross domestic product (-0.2%).”
The fourth-quarter decrease was the second productivity decline in the last nine quarters, suggesting momentum is fragile rather than firmly improving.
Unit labour costs climb as compensation rises faster than output
For employers, the bigger immediate concern is cost. As productivity slipped, hourly compensation rose, and StatCan reports that “the 0.5% rise in hourly compensation resulted in a 0.7% growth in unit labour costs to businesses. This was the fastest pace of quarterly growth since the first quarter of 2024.”
Higher unit labour costs mean each unit of output is more expensive to produce, putting pressure on margins and limiting room for wage growth without corresponding efficiency gains.
What the split means for staffing, skills and technology
The sector breakdown matters for HR planning. Goodsproducing businesses saw productivity fall 0.9% in the quarter after a strong third quarter, with manufacturing and construction the main drags.
In contrast, servicesproducing businesses posted a 0.4% productivity gain, led by information and cultural industries.
That split underscores very different realities for HR teams in plant and sitebased operations versus knowledgebased service sectors when it comes to staffing, skills and technology adoption.
Hours worked dipped only slightly overall, edging down 0.1% following a 0.2% decline in the third quarter. StatCan notes that “the third quarter decrease was the first decline in hours worked (-0.2%) since the second quarter of 2020 (-19.7%) at the onset of the COVID-19 pandemic.”
For HR, that signals a labour market that is cooling at the margins but still relatively tight, rather than one where output declines are mainly being driven by largescale cuts to work hours.
Four decades of lagging U.S. productivity growth
A Fraser Institute study, Canada’s Productivity Performance: An Historical Perspective, 1981–2024, stresses that “the growth in Canada of the real value of output produced per work hour—labour productivity growth—has trailed growth in the United States for at least four decades.”
The study links this gap in part to Canada’s “relatively weak investment in productivity-enhancing business assets, most notably investments in information and communications technology (ICT) assets.”
The same study posits that “major restructuring of Canada’s business and personal taxes—particularly eliminating the capital-gains tax,” would improve innovation and growth in crucial technology sector businesses while also encouraging investment in “productivity-enhancing assets.”
