Thank you so much for inviting me to speak to your committee.
I know previous witnesses have presented the challenges about Canada's productivity. As an economist, I think of productivity as how much is being produced per hour worked, or how capital and labour combined with factors like technological progress, economies of scale and organizational innovation produce goods and services.
It's well known that Canada's productivity performance has deteriorated, and our country has failed to keep up with most of our trading partners. Over the past 40 years, the gap between what Canada produces per hour and what the U.S. achieves has gone from about 88% to something like 71%.
There are many reasons for this underperformance, from the relative lack of investment in machinery and equipment per worker to a mismatch between workers and jobs and slow adoption of a technology. The composition of our economy, which relies on small and medium-sized enterprises, may also have contributed to this lower productivity. High levels of taxation, a complicated system to access government incentives and regulatory hurdles are some of the often-cited impediments to business investment.
We know there's not one policy or one change that's going to transform our economy, so I wanted to speak to a couple of areas we've looked at that we think will make an impactful contribution to transitioning to a more productive economy. Of course, this is critically important as it will boost wages and living standards for all Canadians.
First, as we know, interprovincial trade barriers take many forms, including geographical obstacles, limited infrastructure, export controls, different technical standards and various regulatory and administrative burdens. While these barriers impact industries in different ways, they nonetheless pose real costs for Canadian companies, costs that make it onerous, if not completely unprofitable, to do business across our country and achieve economies of scale.
Our analysis suggests that if we could completely phase out interprovincial trade barriers over the next five years, that could generate an additional $881 billion in economic output by 2040 and create over 100,000 new jobs in the process. Clearly, the longer we wait and leave these trade barriers in place, the more money we leave on the table as a country.
Our building ambitions, from homes to national infrastructure, are a key element, we think, to improving productivity. Affordability challenges act as an impediment to attracting labour in Canada in places where we need it most. The government's plans to construct more homes and build sorely needed infrastructure are table stakes if Canada is going to become a more efficient economy and attract capital investment.
Based on our understanding of the government's plans, our modelling estimates that just with the status quo, Canada would require as many as half a million workers to join the construction industry if these ambitions are going to be realized. This will require a multipronged approach, including a nationwide hiring campaign that leans heavily on immigration targeted to the trades. We know current pathways through express entry and provincial nominee programs exist, but the scale of the challenge requires increasing intakes considerably and fixing credential recognition bottlenecks. The objective should be to get newly arrived skilled workers into work sites within weeks, not years.
In addition, women and under-represented groups should be encouraged to pursue careers in the trades. Women make up only about 13% of the construction workforce. Another option is to shorten the long lag between apprenticeship and journeyman status by funding accelerated programs at colleges that fast-track new entrants into high-demand skills.
Finally, artificial intelligence is reshaping labour markets by automating routine tasks. Even without further advancements in AI technology, our research suggests AI adoption could add almost $300 billion to Canada's real GDP cumulatively over the next 10 years.
While this would boost our economy and has the potential to improve productivity, there's also potential for some negative impact on labour markets. Automating tasks once performed by middle-skill workers, such as clerical, accounting and some customer service roles, can lead to a hollowing out of mid-income jobs. It's essential that governments design learning and development strategies that both re-skill workers displaced by the recent economic shocks and AI, and upskill workers to better leverage new technologies.
I'd be happy to take any questions you have about these topics.