Labour productivity, hourly compensation and unit labour cost, second quarter 2025

Productivity declines in the second quarter, after little change in the first quarter

Labour productivity of Canadian businesses declined 1.0% in the second quarter. This decline followed a nearly flat variation in the first quarter, which had followed a strong increase of 1.2% in the fourth quarter of 2024. The last time productivity declined so sharply was in the fourth quarter of 2022 (-1.1%).

Chart 1: Business output declines for the first time in seven quarters, while growth in hours worked slows

With uncertainty surrounding international trade, businesses reduced their output for the first time in seven quarters in the second quarter of 2025. At the same time, hours worked continued to increase but at half the pace of the previous quarter.

Real gross domestic product of businesses contracted 0.7% in the second quarter, after growing 0.5% in the previous quarter. This was the first contraction since the third quarter of 2023 (-0.4%).

Manufacturing and wholesale trade are the main contributors to the decline in productivity in the business sector

Productivity in the business sector declined in the second quarter, due to decreases in 9 of the 16 industry sectors.

In the second quarter, productivity recorded significant declines in utilities (-4.0%) and wholesale trade (-2.6%). Manufacturing (-2.1%) also posted a significant decline, following a quarter of zero growth, while construction (-0.1%) posted a slight decline.

Overall, manufacturing and wholesale trade were the main contributors to the decrease in business sector productivity in the second quarter. These two sectors—which are heavily dependent on merchandise trade—were particularly affected by the uncertainty surrounding Canada's trade activities with the United States during the quarter.

Hours worked continue to grow but at a slower pace

Hours worked in the business sector grew at a slower pace in the second quarter (+0.3%) than in the first quarter (+0.6%), due to a slowdown in services-producing businesses.

In the second quarter, hours worked in services-producing businesses rose 0.3%, after increasing 0.8% in the previous quarter, while hours worked in goods-producing businesses were little changed for a second consecutive quarter.

Overall, hours worked were up in 10 of the 16 industry sectors in the second quarter, and they were virtually unchanged in three sectors: manufacturing, professional services and other business services.

As a result of the wildfires that affected certain economic regions in Western Canada as well as the west of Ontario in May, some workers lost hours of work, while others worked overtime. The net effect of the wildfires on hours worked was virtually nil in the second quarter, as overtime in a few industry sectors nearly offset the hours lost in most sectors.

Wildfires in certain economic regions of the country: Impact on hours worked, May 2025

Data on lost work hours and overtime due to the wildfires, which affected certain economic regions of the country in May 2025, are taken from questions added to the Labour Force Survey (LFS) questionnaire for the provinces of Western Canada and Ontario.

For the reference month of May, the additional questions were included in the June LFS. Data from the answers to these questions allowed Statistics Canada to adjust the estimates of hours worked that are used to calculate labour productivity.

In May, 809,000 hours of work were lost in the business sector, while 802,000 overtime hours were worked. As a result, for the second quarter, the net effect was a slight loss of 7,000 hours of work.

Unit labour costs rebound slightly

In the second quarter, hourly compensation (-0.5%) decreased for the first time since the first quarter of 2021 (-0.5%). As productivity declined 1.0% in the second quarter of 2025, this led to a slight rebound (+0.5%) in unit labour costs of businesses. Along with productivity, hourly compensation and unit labour costs changed little in the first quarter.

Unit labour costs represent the labour costs required to produce one unit of output.

Learn more about labour productivity

To learn more about productivity, the factors that influence it and why it matters for Canadians, listen to the Eh Sayers podcast episode, "Why economists are sounding the alarm on productivity."

Table 1: Business sector: Labour productivity and related variables for Canada – Seasonally adjusted 

Table 2: Labour productivity and related measures, by business sector industry, seasonally adjusted, second quarter 2025