This post originally appeared in the Fraser Institute Blog.
Ontario’s future as dynamic economy in doubt—if employment trends
continue
— June 22, 2024
As Canada’s largest province both
economically and in terms of population, Ontario is a key driver of Canadian
prosperity. Its economic strength manifests itself via job creation and Ontario
has nearly 40 per cent of the country’s employment. Since 2010, Ontario’s total
employment has grown by more than 21 per cent while the rest of Canada (ROC)
has expanded by about 18 per cent. While Ontario’s employment growth mirrors
that of the rest of the country, it does exhibit some interesting differences
in terms of public, private and self-employment shares of total employment and
their performance over time.
The first chart below plots
public-sector employment as a share of total employment for Ontario and the
rest of Canada for the period 2010 to 2023. Overall, Ontario is somewhat less
reliant on public sector employment but there is a difference in trends over
time. From 2010 to 2019, Ontario was marked by a slight decline in the
public-sector share of employment as it went from 19 to 18 per cent. At the
same time, the rest of the country stayed at about 20 per cent. Since 2019,
both Ontario and the ROC have seen a jump in public-sector employment to nearly
20 per cent for Ontario and 22 per cent for the ROC with a levelling off after
2022.
The second chart shows Ontario
consistently above the ROC when it comes to private sector employment shares
reflecting Ontario’s continuing role as a centre for Canadian manufacturing and
finance especially in the Greater Toronto Hamilton Area (GTHA). Moreover, since
2010 that share has grown from under 66 per cent to 67 per cent with that
growth continuing after the post pandemic employment rebound. The rest of the
country has been somewhat more moribund in this regard as its private sector
employment share is no higher than in 2014.
The third chart is more concerning
given the trends revealed for Ontario and the rest of Canada. First, Ontario’s
self-employment share was relatively stable between 2010 and 2020 at an average
just above 15 per cent. Over the same period, the ROC saw a decline that by
2020 brought the share to below 15 per cent. Indeed, over the 2010 to 2020
period, the ROC went from slightly above Ontario to below when it came to the
self-employment share. When the pandemic hit, the self-employment share in both
Ontario and the ROC took a steep dive from which neither has yet to recover.
This represents a remarkable free-fall that does not bode well for the future.
What are the implications of these
trends?
While the long-term increase in total
private sector employment is reassuring, the rise in public sector employment
and drop in self-employment is not. To start, a drop in self-employment means a
drop in the number of small businesses and ultimately a decline in
entrepreneurship. The shock and restrictions of the pandemic were invariably a
factor as many smaller and family or individually run businesses decided to
pack up shop for good. While some of these individuals may have gravitated
towards public-sector employment it is more likely given the aging labour force
that they simply have decided to retire from the labour force permanently.
This is a national trend but in a
province that is the economic engine of the country , it foreshadows a decline
in innovation and future economic growth. Small businesses are the backbone for
developing entrepreneurship and innovation and they also provide opportunities
for financial independence aside from traditional employers in both the private
and public sector. Moreover, while the self-employed themselves may only
account for 14 per cent of employment, they in turn are responsible for a large
chunk of the remaining private-sector employment.
In terms of other takeaways, another
interesting item to note is that for Ontario, the period of declining
public-sector employment shares occurred under the McGuinty-Wynne governments
while the increase since 2019 has been under the Ford government. While the
pandemic is inevitably a factor in the post-2019 public-employment surge, as it
recedes into the past there seems to be no movement towards the public-sector
share shrinking. Indeed, if one looks at the public-sector salary disclosure
lists, during the McGuinty-Wynne era spanning 2003 to 2018 the list added
130,981 salaries over $100,000 to the broader public sector. Since 2018—a much
shorter time period—nearly 150,000 salaries have been added to the list.
More public-sector employment is not
better for long-term economic growth. Ontario’s future as an innovative and
dynamic economy may be in peril if these trends continue.
Author:
Livio Di Matteo
