Here is an entertaining story to ring in the New Year. Apparently, Ontario Premier Kathleen Wynne in an interview in her Queen’s Park office says that Ontario is “ready to shield Canada from the economic tsunami caused by declining oil prices and a sinking dollar.” According to the Premier, Ontario’s manufacturing heartland is gearing up to take advantage of cheaper gasoline and a weak loonie to help buffer Canada’s economy during this time of volatility. After years of being an economic laggard, Ontario is now going to step up and save the Canadian economy during its time of distress. No doubt, this will be the highlight of the meeting that Ontario’s premier is finally getting with Prime Minister Harper this evening.
Premier Wynne’s optimism is undoubtedly founded in evidence like that in Figure 1 below which shows total manufacturing employment in Ontario over the period 1988 to 2013 (taken from Ontario Employment By Industry Data Tables in assorted Ontario Economic Outlook and Fiscal Reviews). After plunging by almost 25 percent between 1989 and 1993 as a result of the recession, manufacturing employment in Ontario recovered and grew steadily from 1993 to 2004 returning that year to just above the level it was at prior to 1990. Between 1993 and 2004, Ontario manufacturing employment grew by 34 percent – 282,000 jobs in manufacturing. However, the period since 2004 has seen a steep decline with a leveling off after 2009. Interestingly enough, the big drop in 21st century Ontario manufacturing employment occurs between 2004 and 2009 – a drop of 28 percent. Since 2009, manufacturing employment has been relatively stable. Much of the decline in Ontari0 manufacturing occurred before the Great Recession.
Figure 2 plots Ontario manufacturing employment against the value of the Canadian dollar over the same period. Again, this plot is a source of optimism as it shows total Ontario manufacturing employment moving closely with the value of the Canadian dollar with the rebound from 1993 to 2004 corresponding to the depreciation of the Canadian dollar. However, it would be premature to start celebrating the return of Ontario’s economic virility given the fall in oil prices and the depreciation of the Canadian dollar.
As Figure 3 shows, as a share of total employment, manufacturing in Ontario has seen a long-term decline that slows down but does not significantly reverse during a drop in the value of the dollar.
From 21.2 percent of total employment in 1988, manufacturing’s share of Ontario employment has declined to 11.3 percent by 2013. The current decline in the value of the Canadian dollar may indeed restore some manufacturing jobs but it will not reverse the structural change that has led to the relative decline of manufacturing not just in Ontario but in many other countries (see this and this or this). Premier Wynne should be more concerned about saving Ontario rather than hoping that a resurgent Ontario manufacturing will now save Canada.