America is booming. Canada lags. So why aren’t Americans happier?

Paul Beaudry is a professor at the Vancouver School of Economics at the University of British Columbia and a former deputy governor at the Bank of Canada.

David Green is a professor in the Vancouver School of Economics at the University of British Columbia and an international fellow at the Institute for Fiscal Studies in London.

The U.S. economy is seen by many as the envy of the developed world. It has high income per capita, low unemployment and strong productivity growth. In Canada, a lot of attention has been paid to our poor productivity performance relative to the United States.

Since 2000, according to Statistics Canada, labour productivity in the U.S. has outstripped that in Canada by more than 15 per cent, which is a large and consequential difference. Strong productivity is a necessary condition for good wages, increased opportunities and a solid government fiscal position, among other benefits.

So it seems that we should be doing everything we can to adopt the U.S. model. However, many Americans seem dissatisfied with their economy, often more so than in Canada. For example, a recent Gallup poll finds that only 16 per cent of Americans consider their economic conditions good or excellent, while a similar Leger poll for Canada suggests 33 per cent of Canadians would describe their economy as good or very good. One potential reason is that better productivity growth does not necessarily translate to better earnings for most people.

When we compare the growth of wages in Canada versus the U.S. since the early 2000s, only the top 10 per cent of wage earners in the U.S. have been doing significantly better than their Canadian counterparts. The gains from productivity growth in the U.S. have not only been distributed more unequally than in Canada, but they have not even allowed most American workers to experience higher wage growth than in Canada. Aiming for higher productivity growth is a warranted objective, but ensuring that it benefits the majority of the population is just as important.

To look at how earnings have been changing in the U.S. versus Canada, we focused on what people actually take home in their paycheques – average weekly wages for paid employees. To make the comparison, we deflated nominal wages in both countries by the consumer price index to get real wages.

Real weekly wages are measured before taxes and transfers and therefore provide a picture of what the labour market has been delivering to workers. In both countries, we examined earnings for 10 groups (deciles), with the first group corresponding to the lowest 10 per cent of earners and the tenth group the highest 10 per cent. In each of these deciles, we computed the growth rate in mean weekly wages between 2001 and 2024.

One of the first points that jumps out from looking at earnings growth across the various deciles is that the lowest growth in both countries occurs in the fifth decile. That decile includes the median worker – the worker whose earnings are exactly in the middle. This fits with the widespread feeling that average workers have been losing out in both countries relative to other groups.

In the U.S., the earnings growth for this group was below 0.5-per-cent a year between 2001 and 2024, while in Canada it was closer to 0.75 per cent. In both cases, these are slow rates of growth but it is noteworthy that the growth has been almost 50-per-cent more for this group in Canada.

But even more striking to us is that wage growth in Canada has been superior to that in the U.S. across most of the distribution. This is particularly the case in the lower deciles. The wage growth in the lowest decile has been more than twice as high in Canada than in the U.S., and substantially higher than the growth in the middle of the Canadian distribution.

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In contrast, the low end of the distribution in the U.S. has been doing only marginally better than those at the median, which can explain why they share their malaise.

The big exception is the 10^th decile, where American workers have done substantially better. This decile includes professionals such as engineers, lawyers and tech workers. The growth in earnings for this group has been reasonable in Canada. But in the U.S., this group has benefitted much more. Over the entire period, they experienced earnings growth above 50 per cent - five times the median worker. In Canada, 10th decile workers have done about twice as well as the median worker at around 30 per cent versus 15 per cent.

The Canadian advantage for typical workers is also evident in employment. The amount of employment taken as a ratio to the population is higher in Canada at 64 per cent compared to 60 per cent in the U.S. The lower U.S. employment rate reflects that many workers have stopped looking for work there, especially less educated men.

Altogether, these patterns may help us to understand the greater economic dissatisfaction in the U.S. than Canada despite higher U.S. productivity growth. If the added growth goes almost exclusively to the very top earners, leaving lacklustre wage and employment growth for the rest, it’s not hard to imagine a sense of frustration and even distrust in economic and political institutions by the majority. Despite lower productivity growth in Canada, a large proportion of our workers have been doing better, leaving high earners in Canada as the ones who may most envy the U.S. experience.

This in no way implies that low Canadian productivity growth is not a problem. Productivity growth is essential for sustained improvements to living standards. But we need to find policies that both promote growth and distribute its benefits more widely than in the U.S. if we want to minimize the frustration and resentment so evident there.

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