Canada’s Overreliance on Temporary Workforce Highlights Need for More Innovation

Canada's Overreliance on Temporary Workforce Highlights Need for More Innovation

Canadian companies are currently facing a significant innovation challenge. Experts have identified two major issues: a lack of fresh business investment and an excessive dependence on temporary workers. This scenario is causing concern among economists and innovation specialists, as they believe it could lead to a decline in Canada’s overall wealth and prosperity if not addressed.

Canada’s economic growth has been somewhat stagnant recently. The country has managed to maintain its growth primarily due to the contribution of immigrants and temporary residents. Canada’s economic performance, especially its real gross domestic product (GDP), would be much weaker without their input. Unfortunately, there’s been a noticeable decline when looking at GDP on a per-person basis.

Ben Bergen, the president of the Council of Canadian Innovators, stresses the importance of per capita GDP. He explains that it’s a critical indicator of a nation’s wealth, impacting everything from individual prosperity to funding essential services like healthcare.

The Shift from Innovation to Hiring

A key concern is the shift in focus from investing in research and development (R&D) to simply hiring more employees, especially temporary workers. This trend is partly a result of the Bank of Canada’s strategy to control inflation by raising interest rates, which has inadvertently led to a decrease in per capita GDP. This decline reflects the country’s lack of innovation, as businesses are not investing enough in efficiency and productivity.

Canada is falling behind other countries in terms of business investment. This is a change from earlier times, especially when the energy sector was booming at the beginning of the century. However, investment has decreased significantly since then, particularly in the last decade due to falling gas prices.

This decrease in investment has led companies to rely more on hiring temporary workers instead of focusing on long-term, productivity-enhancing innovations. This approach might boost output in the short term, but it fails to enhance overall profitability and incomes in Canada.

The Impact of Relying on Immigration

The heavy reliance on immigration to stimulate business activity has its downsides. For instance, it leads to a ‘population trap’, where rapid population growth consumes all available capital, leaving little for improving quality of life. This situation has also contributed to a housing crisis, exacerbated by the inability of developers to build homes quickly enough to meet the demand and improve housing affordability.

Maintaining a high level of non-permanent resident admissions could continue to pressure inflation and further deteriorate housing affordability. There’s a challenging balance between fulfilling the labor needs of businesses and generating sufficient per capita revenue for spending on healthcare, infrastructure, and other essential services.

Why Aren’t Canadian Companies Investing More?

It’s not entirely the fault of Canadian companies that they’re not investing more. High borrowing and input costs make investment expensive and risky, leading businesses to prefer hiring temporary labor for short-term needs rather than making long-term investments.

Bergen argues that Canada’s lack of R&D spending is not because Canadian companies are averse to risk. Instead, it’s due to ineffective investment promotion methods, such as tax credits and regulatory frameworks. The Canadian government has also slowly adapted to the global economy’s focus on intellectual property (IP) ownership.