Canada's productivity problem is a small-firm problem

In March 2024, the Bank of Canada's Senior Deputy Governor, Carolyn Rogers, told an audience in Halifax that Canada's productivity problem had become an emergency, and that it was time to break the glass.¹ Two and a half years on, the glass is mostly intact.

The problem in one number

Labour productivity is simply what an economy produces for each hour of work. It is what pays for higher wages without higher prices, and over time it is the main reason one country's living standards pull ahead of another's.

By that measure, Canada has been falling behind for a generation. Statistics Canada estimates that Canada's labour productivity, relative to that of the United States, has fallen 26 per cent since the late 1990s. Since 2015, Canadian productivity has grown about 0.8 per cent a year, against about 2 per cent in the United States.² This year's second quarter brought a welcome rise of 1.0 per cent, the best quarter since 2020,³ but one good quarter does not close a gap that took twenty-five years to open.

Most of the gap sits in small firms

The usual explanations, from investment to competition to regulation, are all part of the story. One of the clearest findings is about size. Canada has a larger share of small firms than the United States, and Canada's small firms trail its large firms by more than American small firms trail theirs. Statistics Canada found that these two facts together account for about 60 per cent of the productivity gap between the two countries in 2019.⁴

Law is no exception. Of Ontario's roughly 12,700 law firms, 9,484 are sole practices and 2,910 have between two and ten lawyers. Fewer than 320 have more than ten.⁵ When we talk about the productivity of legal services in Ontario, we are talking, overwhelmingly, about small practices.

Why small practices fall behind

It is not effort. Anyone who has run a small practice knows the hours. It is scale.

A large firm can spread the cost of better systems across hundreds of lawyers: precedent banks, a knowledge-management team, people whose whole job is checking documents, software built around its own workflows. A practice of two or five lawyers cannot. The careful reading, the checking, the summarizing and the re-keying still have to be done, and they are done in the same hours that should be going to clients, to judgment, or to home.

For most of the last thirty years, the tools that raised productivity in large organizations needed a large organization to use them.

What is different now

AI is the first broad productivity tool that does not need scale. A two-lawyer practice can have a careful first read of a hundred-page document, a summary of a file, or a first draft of a routine letter, without hiring a department to produce it.

Canadian businesses have noticed. Statistics Canada reports that 19.2 per cent of businesses used AI to produce goods or deliver services in the year to the second quarter of 2026, up from 6.1 per cent two years earlier. In professional, scientific and technical services, the industry group that includes law, 54.8 per cent plan to use it within the next year.⁶ In legal practice specifically, Clio's 2025 Legal Trends Report found that 79 per cent of legal professionals already use AI in some form, and that firms that have adopted it widely are nearly three times as likely to report revenue growth as firms that have not.⁷

Where the time turns into money

For a small practice, productivity is not an abstraction. It turns into income in three plain ways.

The guardrails that matter

None of this changes who is responsible. The Law Society of Ontario's 2024 guidance on generative AI applies the duties lawyers already have: competence, confidentiality and supervision.⁹ In practice that comes down to three habits.

Know where client documents go. A public chatbot is not the same thing as a tool that keeps a firm's files private, in Canada, and out of anyone's training data.

Keep a lawyer's judgment on every output. AI is good at a careful first read and a first draft. It is not a substitute for the lawyer's decision.

Measure. Time a task before and after. If the hours do not come back, it is not working.

How a small practice can start

Pick one task that is repetitive, high-volume and well understood: the kind of reading or checking that fills an afternoon. Try AI on your own real files for a short, defined period. Keep the lawyer's check in place. Measure the time. Then decide.

That is how productivity improves in practice: one task at a time, in firms that cannot afford to wait for the national numbers to change.

Where ParaReview fits

ParaReview exists to bring small Ontario practices the kind of productivity tools large firms build for themselves. We set it up for each practice and run it, starting with the careful first read of a real estate closing file, with client documents kept private in Canada. If you run a small practice and want to see what a week of it looks like on your own files, ask us about a pilot.

Ask about a pilotWatch the two-minute film