Ontario’s economy has been hit hard by the Covid-19
pandemic. Seasonally adjusted monthly
employment in Ontario between February 2020 and September 2020 fell 6.3 percent
- from 7,551,900 jobs to 7,077,600 jobs.
However, as illustrated in my last post, the employment drop varied
across its CMAs. The worst hit CMAs
are Kitchener-Waterloo-Cambridge and Thunder Bay - which saw declines of 11.2
and 9.2 percent respectively while at the other end are Guelph and Brantford,
which despite early losses have now recovered and in the case of Guelph even seen
a small increase. The question of course
is what might account for this variable performance?
One’s first thought is that it is the result of the impact
of Covid-19 with cities harder hit by the virus getting a bigger employment
wallop. However, a plot of the percent
change in employment levels across Ontario’s 15 largest CMAs from February 2020
to September 2020 (Figure 1) against Covid-19 cases per million population as
of mid-October show only a slight relationship between more negative employment
growth and higher case counts.
Can the effect of Covid-19 on employment depend on a
community’s employment structure? For
example, are communities more dependent on occupations in health, social
services, education and public administration (HSEP)– which are mainly broader public sector
jobs – more insulated from employment effects of Covid-19? Figure 2 illustrates this relationship for
Ontario’s 15 largest CMAs and again there really is not much of a
relationship. Indeed, outside of Ottawa,
Kingston and Thunder Bay have the largest HSEP shares in Ontario at 42 and 37
percent respectively and they are not exactly coasting. And, if one looks at
the share of employment in food and accommodation services (not shown) it is
also a pretty flat curve. Indeed, the
employment drop across CMAs seems to be impervious to being more service intensive as well
as the specific effects of Covid-19.
However, there is one more figure that is worth considering.
Figure 3 plots the percent of employment in manufacturing against the
percentage change in employment. What is interesting here is that the relationship
is a positively sloping one – that is, on average, larger employment shares in
manufacturing seem to be associated with a smaller employment drop over the
February to September period. It is of
course by no means an ironclad relationship. Kitchener-Cambridge-Waterloo, for example has
a manufacturing employment share of 17 percent but nevertheless experienced the
largest employment drop of the 15 CMAs at 11 percent.
However, the four CMAs with the largest manufacturing
employment share are Windsor (23%), Brantford (19%), Guelph (19%) and
Kitchener-Cambridge-Waterloo (17%).
They
average 19.4 percent in manufacturing as a share of employment and their
average employment drop was 4.5 percent.
Meanwhile, the four cities with the lowest manufacturing employment
share are Thunder Bay (6%), Kingston (5%), Sudbury (3%), and Ottawa (2%). They
averaged a manufacturing employment share at approximately 4 percent, but an
average drop in employment of 7 percent.
What is it about manufacturing that may
insulate your economy more from Covid-19 related employment drops over the longer term?
Good question. Obviously, it is easier to shut down things
are deemed non-essential such as personal services and perhaps even some
broader public sector service activities.
Moreover, some of these sectors are relatively low-paying and the fairly
generous CERB payments probably more attractive than returning to work. These are very labour-intensive activities
and when hit hard can generate a lot of employment losses. On the other hand, manufacturing – especially
advanced manufacturing – is already quite capital intensive so it is relatively
more difficult to shed employment. Moreover,
once the economy reopened – it was things that were needed be they masks or
toilet paper or metal products – and production resumed as quickly as possible.
And, manufacturing is much higher paying making staying on the CERB less
attractive.
The relative robustness of employment in the Covid-19 era as
a result of manufacturing intensiveness may have global implications for economic
recovery. Economies around
the world have been hit hard with large drops in GDP and employment. However,
many countries over the last few decades have seen an evolution of their
economies away from goods production and towards services. The G-7 countries certainly are in this category. This means countries that are currently more
manufacturing intensive will likely do much better in the short to medium term
especially if they are producing goods in high demand.
This also explains China’s seemingly robust economic recovery. Given that so much of the world’s
manufacturing has relocated to China over the last two decades, they are poised
to dominate economic recovery over the next couple of years. China’s success however may be fragile.
First, their longer-term export success requires that other economies recover. Being a mercantilist means you want to expand
your national economy and power by exporting high value-added products and
importing low value-added items.
However, having your export markets devastated by Covid-19 is going to
be bad for business. Second, most other countries are about to embark on a
manufacturing repatriation program as they realize that having a mercantilist
and authoritarian country with a monopoly on goods production does place your
supply chain at risk and ultimately your national economic welfare.
