New research from economist and SCP Fellow Gillian Petit, PhD, JD, explains why GDP per capita is a poor measure of economic performance and economic well-being. Using changes in GDP per capita as evidence of either improving or deteriorating economic well-being is poor economics, poor public policy and poor reasoning.
Main messages
- The statistic “GDP per capita” has been used by some Canadian commentators as a summary measure to make sweeping claims about the state of the Canadian economy. However, this is misleading. Canada’s GDP per capita should not be used as if it were the sole indicator of economic well-being.
- Many conclude that low growth in GDP per capita over the past decade suggests that Canada’s economic growth has been low. But that is untrue. Canada’s economic growth has been on par or ahead of peer countries. Growth in GDP per capita, however, has been decreased by a high growth in temporary residents, like temporary foreign workers and international students. This is an arithmetic quirk of GDP per capita.
- This paper estimates what our GDP per capita growth would have been if Canada’s intake of temporary residents was more in line with recent historical norms. It also estimates the impact on GDP per capita growth in the coming years as a result simply of lowering our intake of temporary residents. Under both scenarios, Canada’s GDP per capita growth would have looked—and will look—very much like our peers.
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Blame the denominator, not the economy
Over the last couple of years, there have been countless articles warning of Canada’s poor economic performance. The mic drop has increasingly been Canada’s poor performance relative to peer countries on “GDP per capita,” with growth rankings used to draw a variety of sweeping, negative conclusions about Canada’s economy. SCP CEO Matthew Mendelsohn and Policy Director Dan Skilleter draw on economist and SCP Fellow Dr. Gillian Petit's new research to explain why GDP per capita is a deeply flawed measurement for evaluating rich countries - and is easily influenced by a variety of factors having little to do with economic performance or economic well-being.
Non-Permanent Residents and their impact on GDP per capita | Summary
New research by economist and SCP Fellow Gillian Petit estimates what Canada’s GDP per capita would have been over the past decade if Canada had kept our temporary resident numbers stable. She also estimates the expected impact on GDP per capita in the coming years due strictly to planned reductions in Canada's intake of non-permanent residents. Among key findings: Canada’s GDP per capita is misleading and should not be used as if it were the sole indicator of economic well-being. Plus, if we had maintained our temporary resident numbers at two percent of the population in recent years, Canada’s GDP per capita would look much more like our peer countries: a little bit ahead of countries like Germany, the United Kingdom and Australia and a little bit lower than countries like Belgium, Sweden and France.
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