Ontario should compete on creativity

September 13th, 2011

Ontario has an above average concentration of clustered industries, and this should create a sizable productivity advantage. But we are not benefitting fully from this advantage.

In new research conducted by the Martin Prosperity Institute and the Institute for Competitiveness & Prosperity, we find that our clustered industries have lower creativity content – the percentage of workers in creativity-oriented occupations – than those in the peer states. Clusters with high creativity content can drive much greater productivity and prosperity than other industries. We know that creativity increases economic growth, and we know that clusters increase productivity. But no one had put the two together. So that’s exactly what we did: we combined effects of creative occupations and industry clusters.

This is the first effort, to our knowledge, to examine a regional economy through two lenses – industries and occupations. To do this, we looked at the economy from the perspective of both what workers do and what firms produce – a powerful approach to understanding our economy better. The implications for Ontario are striking.

Clustered industries are more likely to draw on creativity-oriented occupations (Exhibit B). The greater propensity to encourage creativity-oriented occupations occurs because these industries compete on productivity and value-added innovation and are more likely to be challenged to upgrade continuously by global competitors. Those in routine-oriented physical occupations are also more likely to be employed in clustered industries. This is driven largely by the need for successful North American manufacturers to achieve scale to compete effectively. Workers in routine-oriented service occupations are more likely to be employed in dispersed industries. Many of these industries are primarily local service providers, like restaurants and local banks, and they rely more on face-to-face or personal service.

Wages are dramatically higher for workers in creativity-oriented occupations in clustered industries. In fact, they are more than twice as high as those in routine-oriented occupations and about 24 percent higher than those in creativity-oriented dispersed industries (Exhibit C).

But our research indicates that our clustered industries do not have the same level of creativity-oriented occupations as those in the peer states. Ontario has a relatively high share of clustered industries that by their nature have high creativity content (e.g., financial services, education and knowledge creation, information technology) – operating with a higher percentage of workers in creativity-oriented occupations (A). This is an important advantage that Ontario can build upon.

Instead, we dissipate that advantage by operating these industries with lower creativity content than in the peer states (Exhibit D). For example, 62 percent of the workers in our information technology cluster are in creativity-oriented occupations, versus 72 percent in the peer states; in biopharmaceuticals, the Ontario cluster has 39 percent of its employment in creativity-oriented clusters, while in the peer states they account for 54 percent of employment. Of the forty-one clustered industries that we analyzed, Ontario has a lower percentage of its employees in creativity-oriented occupations in thirty-seven.

If Ontario’s creativity content in clustered industries matched that in the peer states, we would realize a 4.1 percent wage increase across clustered industries, which translates into a 1.7 percent rise across all industries.

The implication is that Ontario’s economy is not performing as well as it should. Our economy thus appears tuned to a lower level than the peer states’ economies – our clustered industries do not draw on creativity-oriented occupations as much as their counterparts in the United States. As developing economies, like China and India, improve their performance and innovation in these clustered industries, the challenge for Ontario will grow.

For Ontario to prosper, workers in creativity-oriented occupations need the skills necessary to command higher wages, and employers need more sophisticated business models to warrant paying those wages. Otherwise, potential and existing creativity-oriented workers will not invest in acquiring and upgrading the valued skills they need and thus not develop to their full potential. This will result in Ontario’s economy languishing at a lower level of creativity, innovation, and competitiveness.

We must increase the creativity content of all our occupations and industries. The increased efficiency from better job design along with greater use of technology and better management will make these occupations more efficient and thus require fewer workers. This will allow for a shift in employment from dispersed industries to clustered industries. At the same time, we must encourage the greater presence of creativity-oriented occupations in clustered industries.

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A. Forest products, furniture, and textile industries are examples of clustered industries that operate with a lower percentage of workers in creativity-oriented occupations.