StatCan report shows that stronger competition is generally associated with faster productivity growth
For HR professionals, the way companies compete directly shapes how much room there is to raise wages, invest in skills and grow headcount — and a new Statistics Canada study says weakening competition is dragging down that productivity engine.
In The Impact of Competition Intensity on Labour Productivity Growth in Canada report, StatCan economist Hassan Faryaar and Department of Finance Canada co‑authors Carlos Rosell and Nina Stegnjaic use firm‑level data from 2000 to 2019 to link competition and labour productivity (LP) growth.
Using two behavioural measures of competition — the price‑cost margin (PCM) and the Boone indicator — the authors find a clear pattern. Regression results show that higher values of the PCM and Boone indicator are associated with lower LP growth at both the firm and industry levels. “Higher values of these indicators exhibit a monotonic negative effect on firm‑ and industry‑level LP growth,” they write.
The logic is straightforward. A higher PCM means firms are charging more above their costs, signalling stronger pricing power. A higher Boone indicator (less negative profit elasticity) means profits are less sensitive to cost differences between firms. Together, they describe markets where companies can maintain profits without relentlessly improving efficiency.
For HR, that environment tends to reduce the urgency to redesign work, automate routine tasks, build new capabilities or aggressively upgrade management practices — all the levers that typically underpin sustainable gains in productivity and pay.
Canada has seen a slump in labour productivity over the past few years, according to previous reports.
Concentration’s “sweet spot” — and its limits
The structural picture is more nuanced. The StatCan study finds that the Herfindahl–Hirschman Index (HHI), a standard measure of market concentration, has an inverted‑U relationship with productivity.
At the industry level, LP growth is weakest at very low and very high concentration and strongest at moderate levels. StatCan and the authors report that productivity peaks “around an HHI of 0.53.” At the firm level, however, LP growth peaks at a much lower HHI of 0.12 and “turns negative as concentration rises.”
In other words, some consolidation can support productivity — for example, by allowing firms to reach efficient scale — but as markets become too concentrated, individual firms’ productivity growth deteriorates.
For HR professionals in highly concentrated sectors, that should raise a flag. Growth in output per worker may depend less on continuous improvement inside firms and more on market shake‑outs and mergers, which often translate into restructuring, redeployments and difficult workforce transitions.
The authors stress that these are “conditional correlations rather than causal estimates,” but argue the patterns are consistent with economic theory and earlier empirical work.
Frontier firms take the biggest productivity hit
The study’s most sobering result for high‑performing employers is about “frontier” firms — those in the top 10th percentile of productivity within their industry.
Comparing these leaders with all other firms (laggards), the paper finds that weakening competition is “negatively correlated with the LP growth of leaders and laggards, but productivity leaders fare worse.” Leaders show lower baseline productivity growth than laggards and “experience sharper declines when competitive pressure weakens.”
When rivalry softens, frontier firms appear to ease off on the innovation, efficiency and investment efforts that put them ahead in the first place. Over time, that loss of dynamism can slow wage growth, shrink career opportunities and reduce the appetite for ambitious workforce transformation projects.
For HR executives in top‑tier organisations, the message is that strong current performance is no guarantee of continued productivity gains if the market becomes too comfortable — internal cultures and incentives must deliberately keep the organisation “restless” even when profits are healthy.
The StatCan paper sits against a backdrop of recent amendments to Canada’s Competition Act and growing concern in Ottawa about weak productivity. The authors argue their results “underscore the importance of policies that reinvigorate competitive pressure — particularly among leading firms — while supporting laggards in catching up.”
How to boost productivity?
Artificial intelligence can play a big role in boosting Canaca’s productivity, according to previous reports.
SAP research — Future Outlook: Forecast and Possibilities for the Future of Work, released in October 2025 — shows that people are saving an average of 75 minutes a day at work with AI, and employees expect the technology to make them nearly three times more productive over the next five years.
“The largest productivity gains from AI adoption are likely to materialise faster than previously expected, particularly in financial and professional services where work is highly knowledge‑intensive and process‑driven,” said Gregory Daco, chief economist at EY, in an article by the World Economic Forum.
“In these sectors, AI is already compressing research, analysis, compliance, drafting, and workflow cycles. At the aggregate level, EY‑Parthenon estimates that AI could lift economy‑wide labour productivity by 1.5% to 3% over the next decade, with the largest contributions coming from tech, finance, consulting, legal, and accounting.”
To sustain and boost productivity, employers need to begin by measuring it effectively, advises Teramind, a workforce analytics and employee activity monitoring firm.
“A fully functioning productivity program involves much more than just tracking hours worked or tasks completed: it requires policy, practice, patience, and accurate data,” the company noted. “Importantly, measuring employee productivity is not a one‑size‑fits‑all process. It’s a flexible approach tailored to each company’s unique needs and goals, reassuring that it can be adapted to any business.”
And HR can help boost Canada's productivity, according to one expert.
