Ontario's Dynamic Economy in Doubt

 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

Thunder Bay House Prices in the Lead

 Teranet and the National Bank of Canada have released their latest Composite Price Index covering the April 2024 to May 2024 period covering the country's 11 largest CMAs and the index rose "by 0.5% from April to May, after remaining stable the previous month. In May, seven of the 11 CMAs included in the index recorded growth: Halifax (+1.5%), Hamilton (+1.1%), Calgary (+1.0%), Vancouver (+1.0%), Victoria (+0.8%), Toronto (+0.5%) and Quebec City (+0.4%). Conversely, decreases were recorded in Edmonton (-0.7%), Winnipeg (-0.6%) and Ottawa-Gatineau (-0.2%), while prices remained stable in Montreal during the month. On the other hand, increases were observed in fifteen of the 20 CMAs not included in the composite index for which data are available in May. The strongest monthly gains were seen in Saint John (+8.8%) and Lethbridge (+2.1%). Conversely, the biggest declines were in Guelph (-3.0% after a 5.8% rise the previous month) and Sudbury (-2.9%)."

The interesting result here is for Thunder Bay.  Monthly prices between April and May 2024 rose by 2.5 percent but what is more remarkable is the year over year increase for Thunder Bay which puts it at the highest amongst the 14 Ontario CMAs in the Teranet data.   As the accompanying figure shows, Thunder Bay registered a May 2023 to May 2024 increase of 10.42 percent, followed by Brantford at 8.99 percent and then Windsor at 7.82 percent.  Near the bottom are St. Catharines-Niagara, London and Guelph at 1.6 to 0.9 percent annual increases.  The strong showing in Thunder Bay is a function of a number of factors including recent growth in population.  However, population has been growing across Ontario so one wonders if part of the increase is also a function of the fact that Thunder Bay house prices are amongst the most affordable not only in Ontario but Canada as a whole attracting buyers from away.

 

 

All in all, good news for current owners of property in Thunder Bay.  Perhaps a bit more problematic for those in Thunder Bay who wish to get into the market.

The Growing North

 As a followup to my last post dealing with dealing with Canada's growing population based on the Statistics Canada population estimates for sub-provincial areas as of July 1st, 2023, this post focuses on northern Ontario Census Metropolitan Areas (CMAs) and Census Agglomerations (CAs).  It turns out that the era of declining or stagnant population in northern Ontario urban centers has come to an end.  The period from 2001 to 2015 was essentially one of stagnant and even declining population.  From 2001 to 2015, Ontario's population  grew by 15 percent and its CMAs by 18 percent.  However, during this period, Thunder Bay, Elliot Lake, Timmins, Sault Ste. Marie, and Kenora all saw declining populations.  Only Greater Sudbury saw an increase during this entire period and it was just under 3 percent.  Fast forward to the period since 2015 and there has been quite the reversal.

The accompanying figure ranks northern Ontario's CMAs and CAs by their population growth from 2022 to 2023 but includes alongside the growth rate from 2015 to 2023 as well as the accompanying growth rates for all of Ontario, Ontario's CMAs and Ontario's CAs.  The results show that from 2022 to 2023, Sault Ste. Marie and Timmins grew the fastest at a population growth rate of nearly 4 percent, followed by North Bay at 3.8 percent, then Greater Sudbury at 2.8 percent, Elliot Lake at 1.6 percent, then Thunder Bay at 1.4 percent and finally Kenora at 0.4 percent.  The Sault, Timmins and North Bay all grew faster than both Ontario as a whole as well as either its total CMA population or total CA population.  

The results are not as impressive but still quite robust for the entire period from 2015 to 2023.  Here, North Bay, Sudbury and Elliot Lake have been growing at rates below Ontario as a whole but still well above 8 percent while Ontario as a whole grew 14 percent.  The remaining CMAs and CAs ranged from 0.8 percent (Kenora) to 4.9 percent (Sault Ste. Marie).  Overall, while population growth in northern urban centers has picked up, growth has been more robust in the Northeast than the Northwest. While the percent increases place the Sault as the top recent performer, in absolute numbers, Greater Sudbury grew the most from 2022 to 2023 hitting a population of 185, 230 by adding nearly 5,000 people to its population in one year. Greater Sudbury seems well on its way to hitting the Mayor's population target of 200,000 and indeed has already exceeded a recent Ministry of Finance projection of its population hitting 183,871 by 2042.  Next came the Sault which added 3,158 and then North Bay adding 2,924.  Overall, good news after decades of seeing little to no growth.

Canada's Growing Population: Urban Perspective

 Statistics Canada has released its population estimates for sub-provincial areas as of July 1, 2023 and they show rapid growth in population in Canada as well as all of its Census Metropolitan Areas (CMAs).  As noted by statistics Canada: "On July 1, 2023, the combined population of Canada's 41 census metropolitan areas (CMAs) reached 29,814,146 people. The population growth experienced in CMAs (+3.5%) from July 1, 2022, to July 1, 2023, outpaced that of Canada as a whole (+2.9%). In comparison, census agglomerations (CAs) saw a population growth rate of 2.0%, while areas outside CMAs and CAs grew at a combined rate of 1.1%. These differences are a sign that Canada continues to get more urbanized, as the proportion of Canadians living in a CMA reached almost three in four (74.4%) on July 1, 2023. However, it should be noted that the population growth rate for areas outside CMAs and CAs was at its highest in over 20 years and that 2022/2023 was the third consecutive year in which these regions grew faster than 1.0%."

Naturally, those of us in Northern Ontario have been wondering how much our population has grown and the results show that Thunder Bay and Sudbury have also experienced growth.  In 2023, Greater Sudbury reached an estimated population of  185,230 - up from 180,271 the year previous for an increase of 2.8 percent. Indeed, Sudbury is pretty close to meetings its projected population of 188,510 by 20151 several decades ahead of schedule.  Meanwhile, Thunder Bay - which has been marked by a debate over missing tens of thousands of people in its population tallies - is also up and its CMA appears to have topped 130,000 for the first time coming in at 130,752 for an increase of 1.4 percent over the year previous.  Half of Thunder Bay's population growth since 2001 appears to have occurred in just one year which is remarkable.  Thunder Bay's population has been growing and the estimates do show a much larger number than the official 2021 Census tally but the estimates have always been larger than the census tally.  In 2021 for example, the census tally for the Thunder Bay CMA was 123,258 while the July 1st population estimate by Statistics Canada was 128,040.

As much as Thunder Bay has grown over the last year - adding nearly 2,000 people in one year according to the estimates - its population growth rate for 2022 to 2023 was nevertheless still the lowest of all Canadian CMAs as illustrated in the accompanying figure.  The estimates suggest that the official census headcount based on individuals filling out the census does  underestimate actual population but one is looking at something in the range of about 5,000 people - maybe 10,000 if one wants to be generous about it.  That is still a substantial difference this is due to transient elements of the population less likely to fill out census documents including students as well as Indigenous peoples.  However, it is likely not the tens of thousands that some have argued in the past. One estimate that there are 15 percent more people than the official census count would put our population at over 140,000. 

 

So, Thunder Bay is growing and that is good.  But, it is not growing as much as we think in terms of population and indeed relative to everyone else, it seems to have the slowest growth rate.

Canada and Ireland: The Great Divergence

 

Having returned from a great visit to Ireland, I have been reflecting on the Irish economy and economic miracle that have seen Ireland become a country with one of the highest per capita incomes in the world as measured by per capita GDP.  With its membership in the EU and access to the European market, it has pursued an economic strategy which is largely rooted in attracting large foreign multinational firms which has not only boosted activity in finance, research, and digital services but also in manufacturing.  Information technology and pharmaceuticals have been particularly important sectors. While much is made of the Irish corporate tax advantage, there is also a highly educated population which provides Ireland with human capital strength.

 

Ireland is a much smaller country than Canada with a population of only 5 million, but it has some interesting similarities.  It is a bilingual country – Irish and English – and it has seen substantial immigration in recent years to the point where nearly 20 percent of its population is foreign-born.  This of course represents a remarkable reversal from Ireland’s past as a source of migrants. And with rapid economic growth and substantial immigration, like Canada, it has not been building enough homes and housing prices and rents have grown substantially creating some tension.

 

However, despite these similar aspects including housing issues between Canada and Ireland, there is one key difference.  Ireland’s per capita GDP has soared well past Canada’s.  Indeed, as the accompanying figure illustrates, the cross-over year marking the start of this divergence was 1998 and even with the setback of the 2008-09 financial crisis, Ireland recovered and has powered its way to a real per capita GDP that is nearly twice that of Canada’s now.  Since 1998, real per capita GDP in Ireland has grown 173 percent whereas in Canada it only increased by 30 percent.  And unemployment rates remain quite low even with robust immigration and population growth.

 

 

 

It is true that Ireland’s performance has been truly exceptional and probably represents an outlier rather than the norm. And it is not only doing better than Canada but a lot of other places. Still, given that Canada has many similarities with Ireland in terms of immigration levels and population diversity, high human capital, and access to a large foreign market (the US), why we seem to have similar problems (such as infrastructure and housing deficits) but not the rapid economic growth that went with it is indeed an important and perplexing question.  With our own highly educated population, why have we not been able to leverage growth and attract investment? What is holding Canada back given the many obvious advantages we seem to possess?