Saving Ontario

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.

Now a lower dollar will indeed provide some stimulus for Canadian exports – including those from Ontario.  As well, there will be stimulus from Canadian consumer spending as consumers – including those from Ontario - pay sharply lower prices for gasoline freeing up money for other things.  Ontario may indeed be this year’s economic growth leader amongst Canada’s provinces now that the bar has been lowered by the collapse of the resource boom.  However, I find the expectation that manufacturing is expected to lead the charge somewhat disconcerting given the long-term slide in Ontario manufacturing.

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 21^st 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.

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Comments

[Mark]

Isn't a more relevant figure economic output and not jobs created?

[Livio Di Matteo]

Mark:
As a share of GDP, manufacturing went from 17.6 percent in 1991 to 20.3 percent in 2000 and then to 12.8 percent in 2013.

[Joseph Savon]

How much of decline in Fig 3 is due to increased "productivity" i.e. longer working hours, replacement of workers by robots?
How will we know if & when Canada has been "saved"? increased GDP? lower unemployment? lower Gini?
It would be great fun if WCI could provide links to .csv files of all chart data, allowing everyone to find therein evidence for What It Really Tells Us :)

[Glenn]

"Isn't a more relevant figure economic output and not jobs created?"

I have the same issues when commenting on the manufacturing "renaissance" reported as ongoing in the United States. Whatever gains we are seeing in the dollar-denominated output from the sector, are not translating into gains to employment. The issue becomes, what metric should we target? Income? GDP? Total employment?

As a matter of state policy, at least, the focus tends to be on the latter. I suspect the politics are similar in Canada. Which makes the heavy use of scarce state subsidy dollars to attract low-employment, big-dollar manufacturing centers all the more confusing.

[Mark]

I see the GDP data goes back to 1997. Understandable to use employment and it seems to tell a similar story.

Even though mfg. is a much smaller share of the Ontario economy, in absolute terms it is about 7% larger than the size of the oil and gas sector in Alberta. It's big.

I don't think the implication is that Ontario is expecting to back to the 1997-2000 days of 7.8% annual growth in mfg, but the lower dollar, lower oil and faster US growth might help Ontario mfg. pick up from the 2010-13 annual 1% rate. An uptick of growth even to the 2-3% range would be really helpful for the provincial economy.

The quote attributed to Wynne at the top of this post is actually the Globe. After reviewing the two quotes of what she actually said, I'm not sure what is objectionable to spin it around and suggest that she "should be more concerned about saving Ontario rather than hoping that a resurgent Ontario manufacturing will now save Canada." which isn't at all what she was implying.

[Matt]

Good article thank you and HAppy New Year!

[johnberk]

Can't it be attributed to the technological unemployment? Would you have some data on that? It seems to me that employees are moving into services, but now with all the technical advances, it starts to decrease as well. Although it gives space to the new industry of homemade high quality stuff that goes from ceramics to beers. So what would be the right response? And do we even need a response? Wouldn't it be more fun if people did what they actually like? Or am I biased by my marxist ideals?

[Antonio de Sousa]

@johnberk
My dad worked as a bricklayer, steelworker and a auto-worker until age 65. I also had the privilege to work in an auto assembly plant to pay for my education. It was a nice lesson, I did well in school because I didn't want to spend another hour in that plant than I needed too.

Can't generalize, but manufacturing jobs are hard, so while we may decry technology making some hard jobs obsolete I'm sure people definitely want to do what they like. Don't have to be a marxist to believe that, just human.

The question is, do we want the outcomes or the process? what I mean does it matter where the source of our wealth comes from? What is so special about manufacturing? If we really think about it, its not the fact that we have manufacturing that makes it valuable, we need an environment that fosters R&D and innovation in conjunction with manufacturing otherwise we are no better off than Mexico. (Not picking on Mexico, I'm sure they want to move up the value chain as well)

[The Keystone Garter]

I'm generally happy with the level of microfinance available in Canada. One of the strength of our checkerboard of Provinces is different grant and loan subsidies can compete against eachother. I was disappointed to learn a yr or two ago that a circa 2006 Federal Aboriginal Grant of 90% a startup's cost was cancelled. But now I see AB and Ontario have excellence microfinance options. Alot of the employment on that chart is "embedded employment" from the vehicle production value chain that has lost semiskilled vehicle plants to the USA south and to India. etc. They employees were being paid as skilled workers before the USA recesssion and the Deep South is happy to take $15/hr wages. It is too bad Dion's Green Bonds weren't funded. Now that the dollar is cheaper, I wonder what new manufacturing companies can be relocated to Canada? I'd like to see the gvmt commission a study of how much Bombardier's airplanes would cost to refit fro airforce army and JTF2 (like USA Marines) roles. We have a cost advantage and the USA may be willing to accept us as a supplier to reduce their deficit. I am particularly impressed that their low fuel upcoming CSeries batch of planes anticipates carbon pricing. This demonstrates wise manufacturing acuman that the Ontario auto industry should emulate.

[Hus]

Generally I will say that it does save you money.