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Manufacturing employment: trends and issues.

Manufacturing employment in Canada is experiencing a recession particularly in the central Canadian heartland of Ontario where the auto and forestry sector have both been hit hard.

Average annual monthly manufacturing numbers show that Canada has seen approximately 186,000 manufacturing jobs disappear with total manufacturing employment dropping from about 2.3-million in 2002 to 2.1-million jobs in 2007. The bulk of this devastation is in Ontario, which traditionally accounts for half of Canadian manufacturing employment. Since 2000, Ontario has lost 130,000 manufacturing jobs--a decline of 13 percent. In percentage terms, the devastation has been worse in Thunder Bay and Greater Sudbury, which have seen declines of 21 and 19 percent in manufacturing employment respectively.

Northwestern Ontario as a whole has seen a drop of 15 percent in manufacturing employment levels while the drop in the Northeast has been about 9 percent.

The economic factors driving the manufacturing recession are simple. First, the slowing United States economy and dropping demand for housing has affected Ontario particularly hard given over 80 percent of Ontario exports go to the United States. This is particularly the case for forest products, which is Northwestern Ontario's manufacturing base. Second, international competition for manufacturing is fiercer as lower cost producers in electronic products, newsprint, steel and automobiles spring up in Asia and South America. Third, there is the rising Canadian dollar, which makes our products more expensive on international markets.

However, in the case of Ontario, there is one more key factor energy costs. Ontario's traditional industrial advantage was rooted in cheap electricity rates, but that advantage has disappeared as Ontario's rates are now among the highest in North America. The disadvantage comes to the fore when Ontario is compared with Manitoba, which has electricity prices that are approximately half of those in Ontario.

Appreciating the differential effect of energy prices on manufacturing employment does not require advanced economic training. Since 2000, Manitoba has seen a 1 percent increase in its manufacturing employment whereas Ontario has experienced a 13 percent decline. The differences with Ontario are particularly stark when selected sub sectors are examined. In pulp and paper, for example, electricity costs typically account for about 30 percent of costs. Between 2002 and 2005, employment in pulp and paper declined by 11 percent in Ontario--with most of the declines in Northern Ontario. Meanwhile, in Manitoba, it rose by 12 percent. In wood product manufacturing such as sawmills, Ontario saw an 8 percent employment decline while Manitoba saw almost a 15 percent increase. Put another way, while the last few years have seen thousands of jobs disappear in adjacent northwestern Ontario's forest products industry, Manitoba's forest sector has added nearly 1,000 jobs!

Manitoba has not escaped unscathed from the forces affecting manufacturing, as there has been slower overall growth in manufacturing employment over the last seven years rising only from approximately 69,800 jobs to 70,400 jobs.


Manitoba, however, is fortunate to have a fairly diversified manufacturing sector as opposed to Ontario's manufacturing mono cultures of forest products in the north and automobiles in the south.

Along with forest products and light equipment manufacturing, Manitoba's agricultural sector has also supported a food processing industry, which helps stabilize its manufacturing sector.

Manitoba, like Ontario, faces a higher Canadian dollar, international competition and even has higher tax rates than Ontario yet this evidence suggests the manufacturing employment decline is not inevitable. Manitoba appears to have obtained a significant competitive advantage in the short-term from its more affordable hydro-electricity.

In adjacent northwestern Ontario, which has a surplus of cheaply produced power over and above its own needs, the lack of a regional power authority and a made-in southern-Ontario electricity pricing policy has devastated the region's manufacturing base. Northwestern Ontarians and indeed all of Ontario need only look at Manitoba to see what cost-effective electricity prices can accomplish.

Livio Di Matteo is Professor of Economics at the Thunder Bay campus of Lakehead University.
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Author:Di Matteo, Livio
Publication:Northern Ontario Business
Geographic Code:1CANA
Date:Jul 1, 2007
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