Canadian productivity compared to the US has been falling for years, and HR faces challenges from structure, technology, and scale, say experts
Canada’s productivity problem isn’t new. It’s well documented though long-term data on weak business investment. The question facing HR leaders is not whether there is a gap, but why it persists — and what, if anything, they can do about it.
The answer, according to experts, is uncomfortable: Canada’s productivity challenge is as much organizational and cultural as it is economic.
The macro story is familiar. Canada lags the United States in output per worker, trails OECD peers in business investment, and has been slow to adopt productivity-enhancing technologies. The OECD’s 2025 economic survey of Canada points to weak capital investment, slow technology diffusion, and structural constraints across industries.
But structural explanations only go so far.
Wendy Cukier, professor of entrepreneurship and strategy at Toronto Metropolitan University, argues that the structure of Canada’s economy sets the baseline for these challenges. “Canada is a country of SMEs, and most SMEs don't have HR people or IT people,” says Cukier. “And so comparing the US, where half the companies are large organizations, to Canada, where 10 per cent are large organizations, is comparing apples to oranges.”
That reality matters. Smaller firms typically lack the scale to invest in advanced systems, specialized talent, or formal HR functions — all of which are associated with higher productivity, says Cukier. But that structure is only part of the story, as culture and organizational priorities also play a role — and not always in ways that help performance, she says.
“I think that dichotomizing productivity and performance on the one hand and culture, inclusion, and values on the other is a mistake,” she says. In some sectors, she adds, there has been “a bit of a shift away from a focus on performance, outcomes, productivity, to kind of a risk-adverse, make sure everyone feels good about themselves and don't worry so much about outcomes.”
Innovation, risk, and HR's role
If structural constraints explain part of the gap, organizational behaviour explains another, according to Jamie Bruno, Vice-President of People and Transformation at Ontario Tech University. Bruno says risk aversion is embedded in processes and policies.
“We have to find ways for processes and programs to support innovation and not to be consequential,” says Bruno. “There has to be an appetite for change, for doing things differently, and for exploring ideas that, oftentimes, our minds turn to barriers and constraints.”
In many organizations, HR systems — from performance management to compensation — reinforce stability over experimentation. That may be efficient in the short term, but it can suppress innovation, which the OECD economic report identifies as central to long-term productivity growth.
Bruno emphasizes that alignment is critical: “HR plays a fundamental role when we talk about performance management, when we talk about total compensation and incentives, or performance-based pay.”
Without that alignment, even well-intentioned strategies to boost engagement or culture may fail to translate into measurable productivity gains, he says.
Rethinking work design, not just workforce size
One of the clearest links between HR practice and productivity lies in how work itself is structured.
Canada’s weak investment record — a 2024 Fraser Institute study, The Weakness of Corporate Investment in Canada, 2001-2021, showed that business investment as a share of the economy has gone from well above the US in 2014 to below that in the US by 2021 — is often framed in terms of capital. But workforce design is just as important, according to Bruno.
“For HR leaders, I go back to job architecture and workforce design,” he says. “We’re in a space right now where bringing in people on project-based work is a huge opportunity to introduce and embed into your organization experiences and skill sets that people bring with them and, at the same time, responding to a labour force that’s more transient and wants to be transient.”
This approach challenges a longstanding bias toward rigid, full-time roles. In a fast-changing environment, static job design can limit adaptability — and by extension, productivity, says Bruno.
Cukier connects this back to a broader issue: HR’s perceived role in the organization. “I think in a lot of organizations, HR isn’t seen as a core part of the business,” she says. “And I think that the alignment between HR practices and corporate performance needs to be stronger — most HR people do what HR people do very well, but my observation is often they don't do such a good job of showing where they're adding value in terms of the bottom line.”
The productivity paradox of technology
If Canada’s productivity gap is partly about underinvestment, it’s also about under-realization of returns. Organizations are spending on AI, automation, and HR technology, yet the productivity payoff often lags.
“Some organizations are doing it really, really well and others are doing it poorly, so they're spending money on things that aren’t producing results,” says Cukier. “They're buying technology without investing in the organizational process, redesign, training, and the things that are required for success.”
Bruno echoes this point from a leadership perspective. Technology alone isn’t enough — it must be supported by vision and infrastructure, he says. “There needs to be a system behind you that supports the vision forward, and that system includes people and infrastructure — IT infrastructure, in particular,” he says. “If you have that collective momentum to move forward and a deep commitment to realizing the change that so many of us believe is going to advance the way that we do work, especially on the HR side, then you're setting yourself up for success.”
He also cautions against premature ROI expectations: “I don't think codifying or quantifying the ROI early in your AI journey ought to be the focus. I think there needs to be an environment or a setting of experimentation,” he says.
Transition, scale — and what comes next
There’s another reason productivity gains from technology may appear muted: many organizations are still in transition where there are parallel systems, pilot programs, and hesitation to fully commit, says Cukier.
“My belief is that a lot of organizations are still piloting and testing this versus that. And when they make a decision to automate, we're going to see real spikes,” she says.
She characterizes technological impact not as a smooth curve, but as “punctuated equilibrium” — long periods of limited change followed by sharp gains.
Yet again, structure matters. Smaller firms — which dominate Canada’s economy — are less likely to reach that tipping point, says Cukier. “Small businesses, for the most part, are not using AI except in very simple ways, and we just don't have the critical mass of large corporations,” she says.
A productivity problem that lands in HR
The research paints a picture that Canada’s productivity gap is driven by weak investment, slow technology adoption, and structural constraints. But for HR leaders, the problem isn’t just capital deepening or firm size. It’s also how organizations design work, reward performance, adopt technology, and balance culture with outcomes, according to Bruno and Cukier.
Or, as Cukier puts it, it’s about alignment between what HR does and what the business needs to deliver.
