Global Aftermath: The Economic and Fiscal Effects of COVID in Canada and the World

 

The write-up accompanying my report on COVID in Canada and the world released today by the Fraser Institute.  The full report is available here.

 

— Published on May 11, 2023 Fraser Institute

The economic and fiscal disruption and associated effects of the pandemic in Canada and around the world were severe and unprecedented. The general effects of the pandemic were to disrupt health, social, governmental, and economic systems. While the impact of the pandemic on Canada and the world was similar, variations in demographics, timing of the spread and response, and other characteristics have meant that the effects on health, the response, and the economic and fiscal impacts have varied across countries.

At 103,874 total cases per million population by June 2022, Canada performed remarkably well: incidence was the fourth lowest among the IMF Advanced Economies. Moreover, of the IMF Advanced Economies, Canada was 27^th out of 38 at 1,103 deaths per million population; Japan was the lowest at 248 total COVID-19 deaths per million population. Canada did not fare as well for crude COVID mortality: its rate of 1.1% is the second highest of the IMF Advanced Economies. As for responses to the pandemic, at 227 vaccinations per 100 population, Canada had the 7^th highest vaccine uptake rate of the IMF Advanced Economies and the 3^rd highest level of stringency in its responses to the pandemic as measured by the Oxford University’s COVID19 Government Response Tracker.

Impact on the economy

Canada’s estimated real per-capita GDP growth was negative and the country ranked 29^th out of 40 IMF Advanced Economies and had the second-worst performance of the G7 countries over the period from 2019 to 2022. Canada, during the first pandemic year, had the second worst employment drop of the IMF Advanced Economies at 5.1%, coming in just ahead of the United States. However, during the rebound in 2021, Canada had the second highest employment growth of the IMF Advanced Economies. Canada’s unemployment rate in 2020 of 9.6% was higher than the world average (9.2%), the G7 average (6.6%), and the average for the IMF Advanced Economies (6.3%). According to the International Monetary Fund’s inflation estimates for 2021, Canada was mid-ranked (19^th highest) amongst the IMF advanced economies. However, a particularly high proportion of Canada’s inflation appears to be linked to demand-side rather than supply-side factors. As well, Canada ranked 9^th out of 30 OECD comparator countries for the size of the increase in housing prices.

Overall, Canada’s performance in controlling COVID-19 incidence and vaccine uptake was good but this was accompanied by lower testing rates for COVID as well as higher crude mortality rates. In terms of economic performance, Canada did not fare well in per-capita GDP growth during the pandemic; employment growth was also low, though this did improve in 2021. Canada was also generally mid-ranked for inflation compared to the IMF Advanced Economies, though it appears to have had a higher proportion of its inflation driven by demand-side factors. Canada’s success in some aspects of dealing with COVID appears to have come at an exceptionally high price, particularly from negative short-term employment effects and weaker per-capita GDP growth.

Impact on the fiscal situation

In 2020, of 194 IMF countries, at an increase of government expenditure of 19.7%, Canada ranked 25^th highest in the world for spending. This increase of nearly 20% was well above the world average of approximately 9%, the G7 average of 13%, and the average of the IMF Advanced Economies of nearly 11%. Canada also averaged a 2.2% drop in general government revenue in 2020 according to the IMF, not as severe as the average drops for either the IMF Advanced Economies or the G7.

The world saw its negative fiscal balance widen from 3.6% in 2019 to over 10% in 2020 before starting to decline to under 8% in 2021 and to just over 5% in 2022. According to the IMF, Canada initially saw a negative fiscal balance of about 11% in 2020 from a balance of close to zero in 2019. The fiscal balance for 2020 was later revised to 11.4%, with a revised forecast of 4.7% in 2021 and 2.1% in 2022.

Globally, from 2019 to 2021, the average gross debt-to-GDP ratio rose from 57% to 67%. All together 161 out of 196 countries—nearly 80%—saw an increase in their gross debt-to-GDP ratios from 2019 to 2021. Canada saw its gross debt-to-GDP ratio increase by nearly 25 percentage points from 2019 to 2021, the 15^th largest increase in the world. It is worth noting that, of the increased government debt accumulated in Canada during the pandemic, much was incurred by the federal government rather than the provincial governments.

Canada’s fiscal response was especially large and driven mostly by the federal response. In some respects, the ability of Canada to ramp up its fiscal response in time of need reflects its long-term prudent fiscal management and resulting low debt-to-GDP ratio achieved in the decades after the federal fiscal crisis of the 1990s. At the same time, the size of the deficit and fiscal response during the pandemic should not be allowed to become a long-term feature of the public finances given the recent rise in interest rates, especially as it limits the ability and fiscal flexibility for responses to future events.

COVID19 Update for Ontario and Thunder Bay District

 Reported COVID19 cases in Ontario are falling as are hospitalizations .  The current wave of COVID19 appears to be in decline in the province as a whole with today seeing 1,593 cases reported.  As Figure 1 illustrates, the fifth wave has been the largest in terms of cases report with the first and forth waves receding into practical insignificance relatively.  Relative to the number of cases, the mortality rate from COVID has dropped during this fifth Omicron wave.  At the same time, the absolute number of deaths are the largest yet as Figure 2 illustrates, and while recent days have seen a drop in numbers, the LOWESS smooth suggests that a drop is not yet underway.  Ontario is moving into a relaxation of COVID protocols starting March 1st which makes sense given the drop in cases as well as the effective mortality rate.  From January 2020 to August 31st 2021 there were 9511 deaths and a total of 566,719 cases for an effective death rate from COVID19 of 1.7 percent.  From September 1st, 2021  to the present there were 509,679 recorded cases and 2,599 deaths for a mortality rate of 0.5 percent.  Thus, the mortality rate if you get COVID-19 based on these statistics has fallen by two-thirds. 

In the Thunder Bay District, things seem a little different in terms of cases.  As Figure 3 shows, there is no decline yet in the current wave.  Numbers are still trending up and why this is occurring is something that the local public health unit has not shed too much light on.  Some of it is definitely spread in institutional settings but the disturbing aspect is that while hospitalizations are going down in the rest of the province, they are staying pretty much level in the Thunder Bay District. On the bright side, this current wave has not generated an absolute number of deaths (Figure 4) greater than the earlier waves as is the case for Ontario as a whole.  On the other hand, there is a slow and gentle upward trend in deaths at the moment.  

 

 

Needless to say, Thunder Bay is lagging at present in its COVID19 performance and the reasons for it are unclear at least to those of us in the general public at large.  While Ontario as a whole seems ready for the relaxation of protocols effective March 1st, Thunder Bay is not.  On the other hand, it could be that Thunder Bay as a whole has become much more relaxed with respect to its attitudes towards COVID19 already thereby generating the different trend.  Perhaps, Thunder Bay is  already providing a picture of what an endemic phase to COVID19 might look like.

Ontario’s Pandemic Sees Light at the End of the Tunnel But Not for All

 

Ontario is holding out the hope of light at the end of the COVID-19 tunnel as its daily case counts hover around 400 and a post-Thanksgiving Weekend surge has not materialized.  As a result, the provincial government is beginning a lifting of capacity limits for Ontario bars, gyms and restaurants starting Monday the 25^th and has outlined a long-term plan that could see all restriction lifted by March of 2022 – including mask mandates and vaccine-certificate rules. 

 

However, the government maintains that it will pursue a cautious approach that will monitor assorted indicators that could prompt a tightening of restrictions if necessary.  That may indeed be the result given that countries such as Denmark and Finland which eased restrictions – including masking – have seen a rebound in COVID cases despite high vaccination rates. Reasonably good vaccination rate compliance and masking in public places are probably the key reason why Ontario has not seen a rebound this fall.  However, the announcement that vaccine certificate requirements may be lifted in the spring will not do anything to incentive the remaining 25 percent of Ontarians who have yet to get fully vaccinated.

 

And, while light at the end of the tunnel may be coming for many Ontarians, the contrary seems to be underway in the province’s long-term care homes.  The rather large proportion of staff in long-term care homes that have still not been fully vaccinated means that the risk of the virus being carried into homes is still high.  Even fully vaccinated residents of LTC homes are still vulnerable given their waning immunity and frailty.  As a result, the Ontario government is creating new requirements.

 

As provided in an October 1^st news release:

 

“Vaccination rates of staff in many homes are not high enough in the face of the risk posed by the Delta variant, and this is putting vulnerable residents at risk. To ensure the health and safety of staff and residents, mandating vaccination for in- home staff has now become essential, and homes are now required to meet the following requirements:

 

·      Staff, support workers, students, and volunteers will have until November 15, 2021 to show proof that they have received all required doses of a COVID-19 vaccine, or to show proof of a valid medical exemption.

·      Staff who do not have all required doses or a valid medical exemption by the deadline will not be able to enter a long- term care home to work.

·      Newly hired staff will be required to be fully vaccinated before they begin working in a home unless they have a valid medical exemption.

·      Homes will begin randomly testing fully vaccinated individuals, including staff, caregivers and visitors, to help detect possible breakthrough cases of COVID-19 as early as possible.

 

In addition to adding randomized testing of vaccinated individuals, homes will continue to regularly test individuals who are not fully vaccinated. The ministry will leverage provincial testing resources to inspect and audit these results by sending testing teams into homes to validate the results that homes have been reporting to the province. The ministry will also step up rigorous inspections of homes’ infection, prevention and control measures.”

 

The provincial government is understandably nervous about the long-term care sector given that 41 percent of the province’s COVID-19 deaths to date have been long-term care residents given such residents number about 115,000 – just barely over half of one percent of the province’s population.  There have continued to be outbreaks with 5 LTC homes in Ontario currently experiencing an outbreak – all in southern Ontario.  The government recognizes that the vaccination rates are not high enough and has mandated them by November 15th and yet it obviously does not believe it is going to happen because it is mandating additional testing requirements. Yet, what is more interesting is the response of the long-term care sector to the announcements. 

 

Take for example the Southbridge Group which has interpreted the provincial requirements as follows and applied them to all their homes across the province:

 

1. Fully vaccinated essential caregivers and visitors shall be required to do a COVID-19 rapid test once a week. Daily swab clinics will be held Monday to Sunday from 10am- 6pm.

2. Essential caregivers and visitors who have received only a single dose of the COVID-19 vaccine (i.e. partially vaccinated) shall be required to do a COVID-19 rapid test every day they attend the home up to 14 days after the day they receive their second shots. After this time, they will follow the testing frequency listed in #1 above.

3. Essential caregivers and visitors who are unvaccinated will be required to do a rapid test every day they attend the home.

 

We also ask that unvaccinated essential caregivers and visitors should limit their movement only to the room of the resident they are visiting and should refrain from going to common areas such as dinning or lounge rooms where other residents are congregated.

 

 

This is a particularly interesting interpretation of “randomized testing.” A quick search reveals that the definition of “random” as usually applied in statistics or polling is: “made, done., happening, or chosen without method or conscious decision”.  So, one might expect that 1 in every 20 visitors might be selected for testing or perhaps 1 in 10.  A test at least once a week for everyone is not random no matter what the business school graduate brainiacs at corporate head office might think.  Applying testing to both the fully vaccinated as well as the unvaccinated equally seems a bit unreasonable but acceptable if it truly is random.  Mandatory testing for the unvaccinated and random testing for the fully vaccinated seems more reasonable.  However, this application of the requirements treats everyone the same – vaccinated or unvaccinated - a one size fits all policy – that in the end is being done because so many long-term-care staff and workers and even visitors are apparently still unvaccinated.  And why 10am to 6pm only for testing?  What if a family member wants to visit in the late evening after a long day at work or early in the morning before work?

 

And what is more interesting is that the anecdotal evidence - gleaned from others who like myself who have a loved one in long-term care - suggests the application of the new provincial requirements differs across homes in Ontario and often even the same community.  Some homes are indeed testing randomly all staff and visitors, some say fully vaccinated visitors and caregivers will not be tested at all, some are testing everyone irregardless of vaccine status, some say you can now only visit in the resident’s room, while others say you can help feed the residents in the dining room.  Moreover, unlike the provincial approach to the relaxation of restrictions which ostensibly is going to be attuned to case counts and local conditions, there is no evidence that the LTC sector is using local case counts in their approach in terms of a measured approach to the new restriction requirements.  For some LTC homes, It is essentially a fortress mentality that is turning LTC homes into prisons.

 

Overall, the Southbridge rules – and likely those of other homes and providers across the province –represent a return to a much more restrictive set of rules.  This is after a gradual easing of restrictions during the summer and early fall that saw a somewhat more normal pattern of visitation.  The new requirements for many will in the end discourage visitation to the homes further accelerating the decline in the condition of residents that became apparent during the pandemic when personal visitation ceased completely.   One understands the skittishness particularly in the case of for-profit LTC homes given that their deaths rates from COVID were higher.  And yet, there must be a better way.  The long-term care sector needs to think more creatively and employ fewer one size fits all solutions and more outside the box solutions to balance resident safety with resident needs for frequent care and visitation. 

 

 

An Economic Region Approach to COVID-19 in Ontario

 

Today’s numbers show 722 COVID-19 cases for Ontario and marks five consecutive days of increases that have practically doubled the case count from 348.  Given a third wave peak of just under 5,000 daily cases in mid-April at a time when vaccination rates were quite low, the fourth wave currently underway should be relatively minor barring any unforeseen variant change.  Given that approximately two-thirds of the total population are fully vaccinated, that leaves one-third of the population more susceptible to the Delta variant.  To me, a back of the envelope calculation suggests that this fourth wave should therefore peak at about one-third of the previous third wave peak which results in about 1,600 daily cases.  However, it might be more given the economy has opened up whereas restrictions were greater during the prior waves.  However, it would be surprising to see more than 2,000 cases daily but who knows.

 

The impact of COVID-19 has affected every corner of Ontario but some parts of the province have been hit harder than others.  The typical way of looking at the numbers is by public health unit and Figure 1 presents the total cases per 100,000 population ranked by public health unit as of August 18^th, 2021.  The numbers range from highs of 7,310 per 100,000 for Peel and 5,812 for Toronto to lows of 510 for North Bay-Parry Sound and 350 for Algoma.  These are large differences and suggest there are major regional differences in COVID-19 incidence and impacts across the province.  Indeed, the health units in northern Ontario appear to be mainly in the bottom half of the rankings.

 

 

 

Another way of looking at the data is regionally, and Figure 2 presents the incidence of COVID-19 per 100,000 population by Ontario economic region while Figure 3 does it for deaths per 100,000.  The ranking shows the Toronto/GTA region at the top at 5,482 cases per 100,000 and also at the top for deaths at 89 deaths per 100,000.  The next highest regions in terms of incidence are Hamilton-Niagara (3,533 cases per 100,000) followed by Windsor-Sarnia (3,438 cases per 100,000) and then Kitchener-Waterloo-Barrie (2899 cases per 100,000).  At the bottom in terms of incidence are Stratford-Bruce (1,317 cases per 100,000), Kingston-Pembroke (1281 cases per 100,000) and the northeast (992 cases per 100,000).  This pattern largely replicates itself for deaths per 100,000 also.

 

 

 

 

 

These results suggest that more densely populated economic regions in Ontario that are also major border entry points with the USA or have a major international airport appear to have had the highest impact from COVID-19 in terms of either cases or deaths per 100,000.  One of course might wonder then if regions with higher incidence of COVID-19 or more deaths also suffered a greater economic impact.  Figure 4 ranks these economic regions in terms of the percent gain in employment from June 2020 to June 2021 as well as provides the percent employment loss from February 2020 to June 2020 alongside.  The results are interesting in that employment rebounds have been the lowest in some of the economic regions most lightly impacted by COVID-19 – namely, Stratford-Bruce, Kingston-Pembroke and the Northeast.  The northeast of course had some separate issues given the layoffs at Laurentian and the Vale strike. Hamilton-Niagara and Kitchener-Waterloo Barrie are about in the middle while Toronto is closer to the bottom third.

 

 

 

There does not appear to be a direct correlation between the severity of COVID-19’s impact in terms of incidence and mortality and the size of the economic impact as measured by either employment loss or rebound.  Why?  The economic impacts unlike pandemics of the distant past were not in terms of mortality and morbidity hitting the labour force but the direct result of lockdowns and other restrictions that were applied on a one size fits all basis province-wide.  One could make the case that based on the impact of the pandemic, the strongest lockdowns and restrictions should probably have been applied in Windsor-Sarnia, Hamilton-Niagara, Kitchener-Waterloo-Barrie and Toronto and Ottawa, while regions such as the Northwest and the Northeast – and to a lesser extent Muskoka-Kawartha, London, Kingston-Pembroke  and Stratford-Bruce(given their closer location to more affected areas) could have been less restrictive in terms of restrictions that shut down their economies.  Applying differential restrictions over larger regions as opposed to by public health unit areas could have also mitigated some of the fears of regional travel to evade restrictions.

 

Still, that is something for the political and economic powers that be to mull over. 

Is Ontario's COVID Drama Starting Anew?

 

The last few days of daily Covid-19 case counts for Ontario show a small spike.  As Figure 1 illustrates, from daily case counts just over 1,000 in early June, the numbers declined and bottomed out in mid-July where they hit a low of 114  and have since begun to move up again.  Today’s count was 325 which was down from 423 yesterday.  Whether this marks a new wave is still be seen.  There have been similar spikes from time to time over the last three months and the current one is probably a function of reopening as well as circulation of the Delta variant.  However as Figure 2 shows, the trend as depicted by a LOWESS smooth so far suggests that an upsurge is not underway.

 

 

 

 

 

 

That is not to say that we might not be in for a fourth wave but given the current rate of vaccination in Ontario and the maintenance of public masking requirements, it should not be as pronounced as the previous two waves and hospitalization rates should definitely be less.  In the end, it was always about hospital capacity being overwhelmed and Ontario’s low per capita hospital bed numbers was one of the key reasons for protracted lockdowns and social restrictions.

 

Vaccination rates are currently very good. For people aged 50 and over, the two-dose vaccination rates range from 75 percent (50-59)  to 93 percent (80+).  Seventy percent of 40-49 year-olds have received two doses and 64 percent of 30-39 year-olds.  Meanwhile, those 18-29 are at 58 percent and ages 12-17 are at 52 percent.  There is still room for improvement.  Moreover, daily vaccination rates appear to have fallen which is where the Achilles Heel of the current situation lies. In early July nearly 160,000 people a day were receiving second doses but that has fallen to below 30,000 in recent days. 

 

So, whether or not there is a pronounced 4^th wave will largely depend on the speed and severity with which the more transmissible Delta variant goes through the unvaccinated population.  Even with full vaccination status, one can still get and transmit the virus but the severity of the disease is greatly reduced. As of today, 9.343 million Ontarians are fully vaccinated – out of a total population of 14.790 million – that works out to 63 percent of the total population.  That is still a long way from needed herd immunity estimates that have ranged from 75 to 90 percent.  So, it is not over yet.

 

Despite spending hundreds of billions during COVID, we seem to have little to show for it...

 

As the pandemic moves into 2021, it’s important to reflect on how Canada is dealing with its impact. After a summer that included a semblance of normality, the fall and winter have brought a resurgence that’s taxing our ability to cope. As the second wave unfolds, various new lockdowns (with substantial rates of non-compliance) have been imposed, testing international air travellers on their return has begun nearly 10 months after the start of the pandemic, the vaccine rollout appears to be unfolding in slow motion, hospitalizations are rising and death tolls are creeping upwards.

The current sentiment seems to be that while Canada may have made a few mistakes along the way, we’ve been doing relatively well and deserve a pat on the back. Yet despite spending hundreds of billions of dollars at the federal and provincial levels with combined budget deficits approaching $500 billion for 2020-21 and the largest deficit-to-GDP ratio of any developed IMF country, we seem to have little to show for it.

The virus is surging in our major cities, we lag behind in administering vaccines to the point where many spent a long time in freezers. And the virus still runs rampant through many long-term care homes.

One wonders if in the end, the disjointed, confused and slow response to the pandemic was partly the result of the current interpretation of Canada’s federal system by its leaders.

Federalism is a system of government where units are able to be both independent and coordinate and should accommodate regional preferences with the economies of scale and political direction of a larger country. The Canadian federation has been held up as a model for the world given our standard of living, the freedom of our population and the stability and diversity of our political system.

While Canada’s diversity has meant regional tensions between the federal and provincial governments and perpetual crises and tug of wars over jurisdiction, it’s managed to remarkably stay aloft for more than 150 years. Indeed, one pundit remarked how Canada is a “bumblebee nation” able to fly despite being aeronautically impossible. However, one wonders if the flight of the Canadian bumblebee is more attributable to luck than ability.

Given our high standard of living, we’ve come to think of ourselves as high-flyers, but it increasingly seems that we are mediocre flyers caught up in gusts of wind provided by the historic proximity to a relatively benign and wealthy southern neighbour and our abundant natural resources. Canada’s leaders seem increasingly unable to solve problems. Our governments are increasingly bureaucratic and adept at planning but not at implementation. While quite accomplished at spending large sums of money—especially at the federal level—our governments seem extraordinarily incapable of getting things done themselves or harnessing private initiative. Indeed, when it comes to the private sector, our governments are experts in imposing rules and regulations rather than incentives. When some private companies stepped up to produce masks and hand sanitizer early in the pandemic, their reward was to be bypassed by foreign suppliers when the real money was spent.

During COVID, governments across the country have issued inconsistent and contradictory statements about masks, the rules for gatherings and so on. Consequently, many Canadians increasingly don’t know what they’re supposed to do to stay safe and some may think they’re following the “rules” even when they’re not. We’re told these are unprecedented times—but obviously not unprecedented enough for politicians of all stripes who tell us to stay home while they gallop around the world demonstrating an appalling lack of leadership.

Our federal government intones that health is a provincial responsibility, but there are federal and provincial health ministries and public health agencies and federal health transfers. Health as a provincial responsibility should provide experimentation and flexibility in dealing with the pandemic. But there seems to be little learning going on given that the relative success of the Atlantic provinces has yet to rub off on other provinces.

While the discord of the U.S. experience has not marked Canadian intergovernmental relations, one cannot help but wonder how much “politics” has marked public exchanges. Take the premiers asking for more health transfers or the federal response to the provincial clamour for the federal government to provide vaccines, which was followed by the expression of federal “disappointment” over the lack of quick distribution by the provinces.

Finally, the federal government has used its spending power not to provide early testing and comprehensive quarantine facilities at international airports or ramp up domestic vaccine manufacturing and distribution, but to dispense poorly-targeted transfers. And again, Ottawa has chosen not to do more to tackle the pandemic directly by hiding behind a strict interpretation of provincial jurisdiction over health. This federal government seems to act is if health is a provincial responsibility when necessary, but not necessarily a provincial responsibility. Sadly, all Canadians will pay the price for the failure of our governments.

 

This was first published in the Fraser Institute Blog, January 8th, 2021.

Why Makings Things Matters in the Age of COVID: A Tale of Three Cities

 

The Covid-19 pandemic has come with a huge cost in terms of employment loss with the retail, food and accommodation, and travel sectors exceptionally hard hit.  The employment impact in Ontario has been substantial also with total employment falling about 13 percent from February 2020 to June of 2020.  The rebound since June has been insufficient to make up all the employment losses and as of September total employment in Ontario was still about 6 percent lower than February 2020.  The impact has also varied across major cities in Ontario with Kitchener-Waterloo, Thunder Bay and Peterborough and Hamilton hit the hardest whereas Guelph, Brantford, Oshawa and London experienced softer blows.

 

The composition of employment seems to be a factor and this post drills down a bit into the employment composition by broad industry sector – goods and services. The goods sector consists of employment in agriculture, resources, utilities and oil and gas, construction and manufacturing. Everything else ranging from wholesale and retail trade and transport, finance and real estate, health and education to food and accommodation and public administration are the services. 

 

 

 

Figure 1 plots the composition of employment across these two industry sectors for three cities in Ontario: Hamilton, Thunder Bay and Guelph. What is quite interesting is despite their industrial, agricultural and resource extraction histories, Hamilton, Guelph, and Thunder Bay, are now all remarkably service intensive - part of the trend everywhere in high income economies. Hamilton’s goods production sector accounts for 21 percent of employment whereas Thunder Bay is the lowest of the three cities at 17 percent.  However, Guelph on the other hand still has a relatively large share of employment in goods production at 27 percent. 

 

 

 

Figures 2 and 3 plot the percentage change in employment for total, goods, and service sector employment for the three cities for two periods: the onset of the pandemic between January 2020 to May 2020 and the period of employment recovery as the first wave was brought under control from May 2020 to September 2020.  The data is non-seasonally adjusted three-month average monthly employment data from Statistics Canada.  

 

 

 

From January to May, all three cities saw a drop in monthly employment, but Guelph was hit half as hard with a drop of about 6 percent compared to more than twice that for both Hamilton and Thunder Bay.  What is also interesting is the employment hit was harder in Guelph for the goods sector with a 25 percent employment drop compared to 17 percent for Thunder Bay and 13 percent for Hamilton.  However, service employment dropped about 13 percent in both Hamilton and Thunder Bay during the first wave of the pandemic, but Guelph’s was essentially stable.

 

As for the recovery period from the first wave from May to September, all three cities saw employment grow: 4 percent for Hamilton, 9 percent for Thunder Bay and 8 percent for Guelph.  The performance across sectors is more interesting.  Employment in Guelph’s goods sector rebounded robustly growing 57 percent compared to only 21 percent in Hamilton and 26 percent in Thunder Bay.  Construction was the major source of the rebound in all three cities but manufacturing reinforced the rebound in Guelph whereas in Thunder Bay manufacturing employment continued to decline even from May to September.  Services did not recover as well as goods production in all three cities with Guelph actually seeing some service sector employment losses from May to September.  For whatever reason, the service sector job losses in Guelph were delayed compared to the other two cities.

 

What explains this?  Good question but one cannot help but wonder if the CERB played a role.  On average, foods sector jobs are higher paying than service sector ones though where the service jobs are is important- for example, retail and food and accommodation versus health and education.  The CERB kicks in during the pandemic and millions took advantage of it over the summer and into the early fall.  The CERB and its income support may have provided more of a disincentive to return. Having a large goods production sector relative to service sector did not insulate against employment loss in the first wave of the pandemic but may have slowed the rebound in the presence of the CERB. 

The Importance of Manufacturing in the Age of COVID-19

 

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.

 

 

Ranking Employment Change in Ontario CMAs During COVID

 The economic impact of Covid-19 has affected output and employment in economies around the world and of course, Ontario is no exception.  However, just as the economic impact varies across countries around the world, so does it vary within countries and within regions.  Seasonally adjusted monthly employment in Ontario between February 2020 and September 2020 has fallen from 7,551,900 jobs to 7,077,600 jobs - a percentage drop in employment of 6.3 percent.  The drop was steepest from February to June - which saw a drop of 13 percent but the rebound since has recovered some but not all of the jobs lost.  

The accompanying figure plots the percentage change in employment level for the province along with its major CMAs during this eight month period of the pandemic for which Statistics Canada has released the seasonally adjusted monthly employment numbers.  The results are interesting. The worst hit CMAs are Kitchener-Waterloo-Cambridge and Thunder Bay - which saw declines of 11.2 and 9.2 percent respectively.  At the other extreme are Guelph and Brantford, which have now recovered all of their lost employment and in the case of Guelph seen a small increase.  

There is no apparent pattern to the impact of employment losses based on the impact of  COVID.  Thunder Bay had a very mild impact from Covid-19 in terms of cases and mortality (to date Thunder Bay District is at a total of 114 cases and one death - one of the lowest rates in the province given a population of about 140,000) and yet it had the second highest percentage employment losses.  Toronto and Ottawahave had higher rates incidence and mortality compared to Hamilton and yet are in the middle of the pack in terms of employment losses while Hamilton has done worse than they have  The employment losses really make little sense in terms of the impact of the virus.

 There also seems to be no obvious patterns in terms of location.The hardest hit in terms of employment losses are in northern Ontario, the Golden Horseshoe, central Ontario and eastern Ontario. The smallest hits are in central Ontario, eastern Ontario and southwestern Ontario.  Good and bad performance is spread everywhere which brings us to perhaps factors such as local response to the pandemic by employers and health authorities as well as composition of the local economy.  

Were some communities quicker to implement lock downs and shutdowns and with more stringent rules and slower return to work? The case of the two northern Ontario CMAs may be a case in point given the share share of public sector employment in those cities and yet their poorer employment performance. 

The Kitchener-Waterloo area is exceptionally dependent on students and the businesses servicing those students so maybe that is a factor.  A detailed look at the restaurant, accommodation, hospitality, recreation and cultural/entertainment shares of local employment may also yield insight into why some CMAs did so poorly relative to others given these sectors were exceptionally hard hit.  Of course, as we move into winter one grows concerned that additional impacts on these sectors may have permanent long-term effects.

Until we drill down into more detailed data, the differential impact is a bit of a puzzle.

Canadian Universities and COVID-19: Apocalypse ... Not?

 

 The academic year at Canada’s universities is well underway albeit in a mainly online/remote format.  It has been an extraordinary transition on the part of faculty and staff accomplished on fairly short notice. Developing or converting materials from a classroom lecture format to a more structured online delivery system has been very time intensive.  An online course requires substantially more time on the part of instructors for organization and development and it is also more work for the students taking the course.  Unlike a classroom environment where the instructor can tailor the pace of weekly delivery to accommodate progress and needs, the weekly online modules once set with their materials, schedules, quizzes and assignments, can move forward quite relentlessly. 

 

 Interestingly enough, universities have been pressuring their faculty for years to do more online because of the supposed flexibility it affords students and the anticipated “efficiencies” but this year’s rapid transition has revealed the mixed blessing that online university teaching is.  It turns out that doing online teaching well is a bit more complicated than simply piling everyone into Zoom lectures.  It helps to have infrastructure that does not collapse when too many users sign on.  It also helps to have supports for faculty and staff doing the teaching like proper computer equipment, but six months in everyone is pretty much still on their own at home improvising as they go along.  And it turns out Zoom lectures and Zoom office hours are about as well attended as regular classes - I will leave that to the reader to interpret as they wish.

 

Of course, much of the interest this year has focused on the apparent financial effects on universities from COVID-19.  In the spring, there was much widespread speculation that enrolment was going to collapse as domestic students stayed home and international students were unable to come back into the country and some institutions began pre-emptive action.  It turns out that this did not exactly come to pass.  Across the country, enrolments appear to be stable or even higher than anticipated at many universities and even international students have been able to register for courses online.  Even at Lakehead, overall enrolments are stable as the accompanying figure showing recent numbers to date suggests.  Indeed, the bigger long-term problem is not overall enrolment collapse but universities competing with themselves for students by expanding online enrolment and poaching students from each other.

 

 

 

With the enrolment apocalypse over for the time being, the media doom frenzy is focusing on other financial effects like “half-full” residences and “shuttered” food services and the “decline in public funding”.   However, with fewer students on campus, there are also fewer costs particularly in staffing like food services and cleaning much of which has been contracted out.  Moreover, with everyone working from home, heating, air conditioning and hydro costs are reduced.  And, as for the decline in public funding, that has been underway for some time.  Governments have wanted universities to reduce their dependence on public funding and as a result universities  have raised tuition fees, recruited more international students and branched out into research and ancillary fees for additional revenue.   

 

Essentially, our universities are really no longer publicly funded but publicly assisted and the bigger question is why some of our universities have not simply taken a leap and gone completely private?  Part of the answer is probably that governments cannot leave things well enough alone.  Even if universities went private, governments would probably continue to regulate tuition for political reasons as they do now thereby ham-stringing university operations just as they do now.

 

The other interesting development is that our governments are continually telling us they have your back and how they are there to support you  and yet despite a nearly $400 billion dollar deficit at the federal level and multi-billion dollar deficits provincially - shoveling all types of money out to individuals and businesses – still no real support package for universities.  Given that universities have held their own on enrolment, one might expect a little help to deal with fixed costs and the decline in revenues from ancillary services.  Public funding for universities peaked in 2010-11 and has declined since, a little bit of help during the pandemic is not unreasonable.

 

Yet, it appears that universities are on their own.  Governments generally do not like things they cannot fully control and recruit for their political purposes and university academics generally fall into that category.  Governments have been given carte blanche in their approach here because the public supports them.  The general public essentially perceives academics as public school teachers with a longer summer vacation. It still amazes me how many people ask me every September if I have gone back to work.  I have given up explaining what I do – it is a lost cause.   

 

At the same time, the public perception is understandable.  University employment is a good job. Academics like their work and that probably does generate envy given that many people do not enjoy their jobs.  However, what academics do is still work and just because faculty like their job should not represent an opportunity to make them miserable.  Indeed, academics are not the only ones with good jobs at a university – they are actually outnumbered by staff and administrators who also have nice jobs and working conditions because students come to the university to take courses taught by academic faculty.  Which brings me to my next point…

 

Compounding all of this is the opportunity that COVID-19 has provided to university boards and administrations.  Despite the fact that enrolment is stable or rising at many institutions in the wake of COVID, the continued doom mongering is a useful tool for extracting concessions.  Indeed, during a pandemic, one might expect a pull back from mercenary behaviour, but it appears that across the country, those university faculty associations unfortunate enough to have their contracts expire during the pandemic are facing particularly brutal demands for concessions on the part of university administrations.  Apparently, despite the theatrical performances of our prime ministerial soliloquist in chief in Ottawa, we are not all in this together. 

 

In Ontario, Its Back to School...and Back to COVID

As the September 2020 edition of Labour Day unfolds, the long summer of 2020 which for many students began in March, comes to an end in Ontario.  It is back to school at the elementary, secondary and post-secondary level and the rush to cram in as many outdoor social opportunities as possible during the good weather also comes to an end.  Like in many other parts of the world, the last few weeks have seen a relaxing of individual behaviour as also noted by pundits such as Andre Picard and the inevitable result has been a creeping up of the daily count of new cases.  The accompanying figure puts the start of the reversal of the downward trend at day 200 which coincides with about mid-August. 

While it appears the uptick in Ontario is being driven by GTA cases, as Picard himself notes, it is difficult to know exactly where or how people are being infected given the obsession of public health authorities in Canada with secrecy.  Sometimes, it would be nice to know when a case is reported in your community if it was due to international travel, inter-provincial travel, connected to a workplace or social event in an effort to personally gauge the threat level but such is not the case.  Of course, it is also difficult to know whether governments and public health agencies in Canada are being secretive or they simply do not have the capability to finely analyze and present data.  The latter possibility is even more disconcerting.

 

Back to school in Ontario will be interesting to watch unfold.  There apparently is a shortage of teachers given the anecdotal stories of retired teachers being phoned up and asked if they would like to come back this fall.  There is also a growing  shortage of school bus drivers.  And parents appear to be surprised that classes are as large as they are given that as much as one third of children will be doing their lessons online.  Of course, it is amazing how little people in general understand about resource allocation and basic economics.  Even online teaching requires teaching resources and they need to come from somewhere and given the anecdotally reported spate of sudden retirements it is no surprise that in-person classes are larger than expected.  Indeed, many JK and SK classes in particular are as large as previous years – that is to say 25 to 30 students.  It would be interesting to have more information and data about class sizes and their distribution, but provincial education ministries and school boards are as secretive as public health authorities.  If anything, the pandemic seems to have accelerated the tendency to less and less accountability on the part of government authorities when it comes to publicly available and accessible data and information. 

At the university level, the early cries of an enrollment collapse in the wake of COVID appear to have evaporated.  Overall enrollment in Ontario at the university level is holding its own and the numbers are good at both the domestic and international student level.  As of the August 2020 update, it would appear that  undergraduate confirmations are up at 107,001 from last year’s 104,635 – that is an increase of 2.2 percent and hardly the apocalyptic collapse many university administrations were articulating.  At my own university, as of this morning the total enrollment statistics showed the total enrollment down by several hundred but the system traditionally lags in presenting information which I think means that enrollment is pretty much on target.  My own first-year class is up 60 percent from last year while my upper year classes are either at the same level of enrollment or actually higher. 

It would appear that online education has actually had the effect of expanding choices for students because in person class schedules – especially at small universities with few sections - often meant there were scheduling conflicts.  I do recall in the past conversations with senior administrators chastising economics for its low undergraduate enrollment and never seeming to acknowledge the point that part of the problem was the class schedule itself given small departments and fewer sections of anything.  At Lakehead, more students seem to be opting for economics because they can actually fit it into their schedules this year. I suppose that is one proverbial silver lining to the COVID cloud.  The other is that universities – like other employers - have downloaded many of their costs onto people working at home and are saving a lot of money on their utilities and operating costs while keeping their tuition fee structure and other funding fully in place.  And unlike private employers, we are apparently not being provided with T2200  to help in the costs of any upgrading internet and computers at home to deal with larger classes.

So, it is September and once again the drama begins.  Another new school year but this time starting under conditions of a global pandemic.  Stay tuned.