Report from C.D. Howe Institute says Canada's long-standing investment gap with other advanced economies has widened again
Canada’s weak business investment is eroding the tools available to workers, undermining productivity and future wage growth, according to a new report from the C.D. Howe Institute.
Business investment has been so weak since 2015 that capital per member of the workforce is now falling, "undermining growth in labour productivity and compensation,” say authors Mawakina Bafale, research officer, and William B.P. Robson, president and CEO of the C.D. Howe Institute,
The report finds that Canada’s long‑standing investment gap with other advanced economies has widened again after briefly narrowing in the 2000s and early 2010s. Based on Organisation for Economic Co‑operation and Development (OECD) projections, “Canadian workers will likely receive only 70 cents of new capital for every dollar received by their counterparts in the OECD as a whole and 55 cents for every dollar received by US workers” in 2025, according to the C.D. Howe Institute.
Canadian employers are investing less money per worker compared to 15 years ago, according to a previous report from Statistics Canada (StatCan).
Canada’s capital stock
The authors of Canada’s Investment Crisis: Shrinking Capital Undermines Competitiveness and Wages focus on “built” business capital – including non‑residential buildings, engineering structures, machinery and equipment, and intellectual property (IP) products – and its link to productivity and wages. They note that “Canada’s capital stock in the business sector has grown so little since 2015 that capital per member of Canada’s labour force has been falling,” even as the labour force has expanded rapidly through permanent and temporary immigration.
By the third quarter of 2025, per‑worker levels of all major capital categories were below their late‑2015 peaks. The study reports that:
- IP products per available worker were down 4 per cent
- engineering construction 6 per cent
- non‑residential buildings 12 per cent
- machinery and equipment 20 per cent
Overall, “the latest figures show the average member of Canada’s labour force had 9 per cent less capital to work with than in 2015,” the authors state.
Canada’s economy showed some life in the third quarter of 2025, as real gross domestic product (GDP) rose 0.6 per cent, Statistics Canada said
Canada vs. U.S. investment
The C.D. Howe Institute report links Canada’s weak investment to a growing risk that the economy will tilt toward more labour‑intensive, lower value‑added activities relative to the United States and other OECD countries.
“Since living standards are higher in capital‑intensive countries, Canada must confront the risk that low business investment and fast workforce growth are leading Canada down a labour‑intensive path,” the authors warn.
International comparisons in the report show Canada lagging both the United States and other OECD economies on investment per available worker. The authors calculate that, across all types of business investment, the gap with the United States has widened markedly since the mid‑2010s and after the COVID‑19 pandemic, with American workers benefiting from much higher annual investment in machinery, equipment and IP.
On the output side, the C.D. Howe Institute notes that Canadian productivity performance has similarly slipped. By 2024, Canada generated about $143,000 of output per available worker, compared with almost $200,000 in the United States. Other OECD countries, which Canada once outperformed, now produce more per worker than Canada on average, the report finds.
Domestic policies, external shocks
Bafale and Robson attribute Canada’s relative underperformance to a combination of domestic policies and external shocks. They cite a more hostile regulatory environment for the fossil fuel sector since 2015, a long‑standing bias in the financial system toward residential construction, rising government consumption that may crowd out private investment, and a range of tax distortions that affect where and how companies invest.
The report argues that U.S. tax reforms in 2017 “undid Canada’s business tax advantage” by sharply reducing the U.S. federal corporate income tax rate and introducing faster write‑offs for machinery and equipment. Subsequent research, the authors note, shows a stronger post‑reform investment response among U.S. firms than comparable companies in Canada.
In response, the C.D. Howe Institute calls for a re‑orientation of Canadian economic policy toward investment and productivity growth. Recommended measures include more predictable and efficient regulation, reductions in the most distortionary tax rates, potential temporary investment tax credits and better‑targeted support for intellectual property and innovation.
“The risk that Canadian workers will become increasingly concentrated in lower‑value activities relative to their US and international peers should prompt Canadian policymakers to take action,” the report concludes. It argues that Canada’s “persistently weak business investment, relative to its historical performance and that of OECD economies, threatens long‑term prosperity and competitiveness,” and says reversing that trend will require “more effective tax and regulatory policies, and a fundamental reorientation of economic policy toward sustained, long‑term growth.”
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