The Confederation building on Parliament Hill in February. Over the past decade, 33.4 per cent of all new employment has been in the public sector.Sean Kilpatrick/The Canadian Press
The number of Canadians working in the public sector has been a hot topic since the COVID-19 pandemic took hold, as the public sector has accounted for a disproportionately large share of net job gains compared with its share of total employment.
Over the past decade, 33.4 per cent of all new employment has been in the public sector. Today, public employees make up 21.7 per cent of the national work force, one of the highest levels in more than three decades, excluding a brief spike early in the pandemic.
Notably, this figure does not include contractors hired by government agencies; if they were counted, the share may approach a quarter of the labour force.
Is this a warning sign or simply evidence of a larger public role in today’s economy? Outside health care, where an aging baby-boomer population has increased demand, the public sector’s mandate has not necessarily expanded faster than population growth.
This contrasts sharply with the 1960s through the 1980s, when the public sector was larger mainly because major utilities and transportation companies, including Air Canada and CN Rail, were Crown corporations that employed tens of thousands of people.
When public-sector employment grows much faster than the private sector, two concerns arise. The first is fiscal: Government revenues depend on taxes from the private economy.
If nearly one-quarter of workers are in the public sector, a smaller private work force must fund a larger public one, in addition to existing programs. This imbalance strains budgets from Ottawa to provincial capitals, as seen in recent deficits in federal budgets.
The second concern is efficiency. Large organizations without competitive pressure tend to operate at higher costs because they lack incentives to innovate or control expenses, a concept known as X-inefficiency. Public agencies, which typically face very limited competition and diffuse oversight, are especially vulnerable to such inefficiencies.
Since public-sector employment has grown so quickly, Canadians can reasonably question whether the government work force is becoming less efficient.
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Two long-term trends make the issue more pressing. First, an aging population means a smaller share of Canadians will be in the labour market. If a growing portion of them are employed in the public sector, the tax burden on the private sector intensifies.
Second, the artificial intelligence revolution is likely to reshape private-sector employment far more rapidly than public-sector operations. Bureaucratic structures tend to adopt new technologies slowly, making the public sector less adaptable and potentially less efficient relative to an AI-accelerating private economy.
All this suggests Canadians should monitor the scale and the efficiency of the public sector more closely.
And, while in this context, Prime Minister Mark Carney’s public staffing reductions are much-needed, and sustained fiscal discipline and closer productivity monitoring will be essential as demographics and AI reshape the economy.
Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform with over 1,000 guides, tools, calculators and reports, including daily mortgage rates and the Canada housing market report.