Canadian GDP Per Capita Is Still Down, May I Indicate Drop In Living Standards: Stat Can MAY 25 2022 Canada's economy is booming, and there's a good chance you're not feeling any of the benefits. A new study by Statistics Canada (Stat Can) on gross domestic product (GDP) per gapjtg might shed some light on why. The agency found GDP recovered from the recession but not when measured on a per capa basis. Lingering pandemic issues are attributed as the cause, which is definitely a contributor. However, it's not the only reason. Canada's real GDP per capita began contracting way before 2020. What The Heck Is Real GDP Per Capita? Real GDP is the value of goods and services produced in a country, adjusted for inflation. It's sometimes summed up as economic output. It's used to benchmark how an economy is doing at the aggregate level. Rising GDP means output is growing in aggregate measured at the national level. Falling numbers mean it's shrinking, and typically associated with recessions. Pretty easy so far, right? The problem with real GDP is it'sjust an aggregate, meaning it's only good as a d*ck measuring contest for world leaders. It's not even adjusted for population, giving us a high level number with limited meaning. Knowing your country has higher output than Monaco doesn't really mean much, does it? If real GDP isn't adjusted per capita it's much more difficult to determine what it means for people. How can you tell if productivity is rising or a country just added more people? Real GDP per capita solves this by simply dividing the output by the country's population. By adjusting it to a per capita number we now have a benchmark that can be used domestically. Rising real GDP per capita is often associated with an improved quality of life. After all, if more money is flowing around the same number of people, the odds of collecting some are higher. When it fails, it can signal an eroding quality of life. Economies may be trying to conceal this by ramping up immigration quotas. Stat Can explains it very concisely, \"GDP per gapjtg of a country is often used for assessing the standard of living." Canada's GDP Per Capita Hasn't Recovered To PW Levels Canada's real GDP has recovered from the recession, but the real GDP per capita hasn't. The analysis shows from 2020 to 2021, GDP per capita contracted an average of 1.3% per year. It still has yet to reach pre2020 numbers. They compared this to the longterm average of 1.2% per year from 1981 to 2019 and 1.0% from 2010 to 2019. Growth has been tapering since the 805, and it seems to be worsening. The agency attributes the decline to the drop in employment and work intensity. Fewer hours worked, especially in hospitality and tourism, are easy to understand. They see these resolving in time and returning to normal in the not so distant future. There's a problem with that take the issue predates 2020 and is expected to last much longer. Canadians Have Been Seeing Their Quality of Life Decline Since 2018 The study used annual and long-term data to make a point about short-term analysis. For instance, using 1981 to 2019 and 2010 to 2019 wasn't my choice of time frame, but the two used in the analysis. There's limited benefit in using those for insights. The normalization of dual income households in the 805 was likely a one-time event. Ditto with the internet in the 905, rapidly increasing productivity. There's limited use in assuming another technological breakthrough will come every decade. Instead, it makes more sense to take a more granular view and consider more recent data points. Let's look at quarterly real GDP growth per gapjtwa and unpack pre2020 data. It begins to fall on a quarterly basis in Q4 2018 and continues into 2020. The only exception is Q2 2019 but other than that, it's clear it began contracting pre-2020. There's no denying the pandemic's impact dwarfs the issue in retrospect, but it's still an issue that will persist after. Unless Canadians had a premonition over a year before the first case, there's a bigger problem. Not understanding where the problem came from prevents a proper response. Percent -12.5 -10.0 -5.0 10.0 7.5 2.5 2.5 5.0 7.5 Q1 2000 Q4 2000 Q3 2001 Q2 2002 Source: Statistics Canada; Better Dwelling. Q1 2003 Q4 2003 The quarterly change of real GDP per capita for Canada. Q3 2004 Canadian Real GDP Per Capita Change Q2 2005 Q1 2006 Q4 2006 Q3 2007 Q2 2008 Q1 2009 Q4 2009 Q3 2010 Q2 2011 Q1 2012 Q4 2012 Q3 2013 Q2 2014 Q1 2015 Q4 2015 Q3 2016 Q2 2017 Q1 2018 Q4 2018 Q3 2019 Q2 2020 Q1 2021 Q4 2021Canadians Forecast To See Their Peers Pass Them In Quality of Life Gains Canadian households are about to get left behind due to ignoring this issue. The OECD, a co- operative of advanced economies, forecasts Canada at the bottom of growth for the next 40 years. An average ofjust 0.7% annual growth is expected from 2020 to 2030 putting Canada in last spot. On a more long-term basis, annual growth is seen atjust 0.8% from 2030 to 2060, tied in last again. We'll save you from reading another analysis on this issue. Especially if you've read our piece on how it will impact future immigration. However. for those that aren't aware, Canada will occupy the rank Greece held in the 20005. The reasons why this is happening are a little outside the scope of today's piece but to sum it up real estate. The leverage and returns divert wages from the productive economy into non productive assets. Higher leverage allows home buyers to spend more future income today. This comes at the expense of future productivity. Higher leverage also allows home buyers to absorb price increases more easily. This makes the environment ideal for investment sometimes a little too ideal. Building residential housing is now a 50% larger share of GDP than it was for the US in 2006. Canada is also seeing a drop in the share of entrepreneurs in the country. Which makes sense. Why would you invest in a risky business that makes goods and employs people? You can easily just buy real estate and the government will increase the leverage of the next generation of buyers. It's a plan that works for an economy until it doesn't. Even while it works, it usually only works for a small share of the economy. 1. The article gives one reason for some increases in the Canadian standard of living in the past, \"The normalization of dual income households in the 808.\" That means that the labour force participation has increased (it used to be a norm that one person in a household (usually, husband) would work for money while the other adult (usually, wife) would do housework (not counted in GDP), aka single income household). Then it mentions the other reason, \"Ditto with the internet in the 90s, rapidly increasing productivity.\" But how is it ditto? a. Which part of the aggregate production function is inuenced by the normalization of dual income households? (1) b. Which part of the aggregate production function is inuenced by the intemet? (1) c. Which (the normalization of dual income households or the internet) would be considered as a part of the explanation for the sustained longrun economic grth in the neoclassical growth model? Explain. (3) The article notices a Med slow-down in the Canadian standard of living increases, \"An average of just 0.7% annual growth is expected from 2020 to 2030 putting Canada in last spot. On a more longterm basis, annual growth is seen at just 0.8% from 2030 to 2060, tied in last again... The reasons why this is happening are a little outside the scope of today's piece but to sum it up real estate. The leverage and returns divert wages from the productive economy into nonproductive assets. Higher leverage allows home buyers to spend more lture income today. This comes at the expense of future productivity.\" This makes sense greater wealth induces Canadians to spend more and save less. a. If Canadians save less than people in other OECD countries, show graphically (in the per-worker production function and investment per worker diagram) how the Canadian steady state would compare to other OECD countries. (2) b. If Canadians save less than people in other OECD countries, does it mean we should expect Canada experience lower (compared to other OECD countries) rate of economic growth in the long run? Explain. (3)