Ontario Economic Update May 2018: One step forward, two steps back

Ontario Economic Update May 2018: One step forward, two steps back

Economic Update Takeaways:

  • Ontario’s economy remains strong with the unemployment rate down to 5.5 percent
  • Full-time job gains are replacing most of the lost part-time jobs, with females taking a larger share of employment
  • Older workers aged 55+ are capturing the majority of new jobs with declines in employment among the core age group (25-54)
  • The service-producing sector is responsible for most of the new employment and 99 percent of Ontario’s GDP increase from 2007-2017
  • Ontario’s real median wages are stagnant, only having gone up by one percent since 2008 due to recent gains in March 2018
  • The gap between mean and median wages has also risen since the recession, making Ontario the only among its peer provinces having stagnant wage growth and increasing inequality

The latest release of the Labour Force Survey gives us positive news about Ontario’s economy, with the unemployment rate remaining steady at 5.5 percent. This follows a nation-wide trend of strong economic growth and low unemployment rates.  Particularly noteworthy is the fact that Ontario’s unemployment rate dipped below Québec’s at the start of the New Year—an impressive feat considering it coincided with the increase in minimum wage to $14.00 from $11.60 in January (Exhibit 1).

Exhibit 1

Unemployment rate, Ontario an provincial peers, Jan 2008-Mar 2018

Strong job growth propels the economy forward, uneven gains hold it back

The magnitude of jobs added tells an equally impressive story. Among workers in the core working age group (25-54 years of age), Ontario added nearly 44,000 new full-time jobs since January 2017, replacing 45,000 lost part-time ones. Of those full-time jobs, 23,700 went to women and 20,200 went to men (Exhibit 2). Despite women taking a slightly higher share of the new job growth, their unemployment rate remains persistently high when compared to their male counterparts. Since January of last year, the male unemployment rate has dropped by nearly a whole percentage point to just four percent while female unemployment has fallen by 0.2 percentage points to 4.9 percent over the same time.

Exhibit 2

Change in number of employees by employment type and gender, Ontario, Jan 2017-Mar 2018

Similarly, employment is tending toward older workers over younger ones. The number of workers in the core working age group has been virtually unchanged over the past 14 months. Meanwhile, the number of workers aged 55+ increased by five percent; a facet that is consistent across both sexes. This trend comes on the heels of rising labour participation rates for older workers as seniors are increasingly opting to delay retirement or re-enter the workforce. As detailed in Strength in Numbers, the 16th Annual Report of Ontario’s Panel for Economic Growth and Prosperity, older workers should be encouraged to stay in the workforce via incentives such as flexible accommodations, on-the-job training, and job search programs.  The retention of seniors in the workforce is not detrimental to the economy or younger workers especially in a tightening labour market. However, more work is needed not just to keep momentum in the economy going but also to ensure that the benefits of strong economic growth are evenly distributed among Ontarians, especially core age group workers. 

The services-producing sector is leading the increases in employment

With the increase in employment, it is worth considering the nature of the jobs contributing to low unemployment rates. Between January 2008 and March 2018, the number of full-and part-time jobs in Ontario grew by ten and 14 percent, respectively. In British Columbia, full-time job growth also lagged behind that of part-time, increasing by 12 percent compared to 14 percent. Meanwhile, despite having the highest unemployment rate among peer provinces, Québec saw full-time jobs grow by 14 percent and part-time work grow by just three percent, showing a clear trend towards favouring full-time job creation. The rise in part-time work across compared provinces cannot be blamed on a specific sector but rather follows a growing trend among employers and their needs for a more flexible workforce.

Despite part-time work’s faster growth rate, the majority of Ontarians are still employed full-time by the services sector and this trend seems unlikely to change in the near future. In the ten years between 2007 and 2017, the vast majority of jobs created were full-time in the services-producing sector with some gains in part-time work as well. The goods-producing sector on the other hand has seen heavy losses in full-time work and very little gains in part-time (Exhibit 3). Ontario is specializing its economy towards the services sector; from 2007-2017, just over 99 percent of the increase in provincial GDP was from services-producing industries, while the goods-producing sector is responsible for less than one percent. By comparison, British Columbia’s and Québec’s service-producing industries, respectively, contributed to about 80 and 87 percent of their GDP increases during the same decade.

Exhibit 3

Change in employment numbers by sector, Ontario, 2007-2017

Different industries have different performances

Looking deeper, we can see that the utilities, energy, and mining/oil extraction industries all saw negative job growth between 2016 and 2017. The industries with the highest year over year growth in Ontario were: wholesale trade (7.1 percent), retail trade (5.79 percent), construction (4.63 percent), professional services (3.89 percent), and transportation (3.76 percent). Breaking down these industries, four are from the services sector while only one (construction) is goods-producing.[1] Most recent employment gains belong to one of these higher growth industries, emphasizing the strong employment gains in Ontario’s services sector.

Stagnating median wages and increasing inequality are hindering economic growth

With services leading the increases in employment and causing a tighter labour market, wages have pushed slightly higher since the recession. In Ontario, real median wages grew by about one percent over the past decade – only propelled by a strong performance in March 2018. Excluding recent gains, Ontario’s median wage after adjusting for inflation is 0.4 percent below 2008 levels-despite strong job growth and low unemployment rates. While real median wages have largely remained inactive during the past decade, monthly real mean wages have continued to rise, up by nearly 2.5 percent since 2008 and 13 percent above real median wages. Increasing income inequality should be a point of focus for the province since lower inequality can boost economic potential. Therefore, even though the province is experiencing record high employment levels and strong job growth, it is difficult for one to conclude that the median Ontario worker is better off today than a decade ago (Exhibit 4).

Exhibit 4

Real median hourly wages, Ontario and provincial peers, Jan 2008-Mar 2018

British Columbia has also seen an increase in inequality, with the gap growing by 21 percentage points since 2008 to 11 percent above real median incomes. Québec, on the other hand, has reduced the gap between mean and median incomes by 19 percent compared to January 2008 while also showing the strongest median wage growth among peer provinces. Therefore, while BC has respectable wage growth at the cost of inequality and Québec has managed to achieve strong wage growth while simultaneously reducing inequality, Ontario’s performance has been lacklustre at best with near stagnant wage growth and a growing gap between real mean and median wages (Exhibit 5).

Exhibit 5

Moving average of percentage difference between mean and median wages, Ontario and provincial peers, Jan 2008-Mar 2018

The next steps to a prosperous economy

Ontario’s economy by many measures is performing strongly, however there are many issues that have already begun hindering economic progress. Elected officials must actively work towards shared prosperity by encouraging policies that will benefit younger and female workers. For the province to become more prosperous, efforts need to be focused on improving the plight of Ontarians by ensuring that real wages start growing again while at the same time closing the inequality gap. So while there are concerns weighing down on the province’s future, it is not too late now to act to ensure Ontario remains Canada’s model of prosperity. 

Written by: Weseem Ahmed

Summary tables:

[1] The goods producing sector is defined as industries that belong to the North American Industry Classification System (NAICS) codes 11 to 33. The services producing sector is defined as industries that belong to NAICS codes 41 to 91. Together, both sectors sum to the total of all industries in the economy (NAICS codes 11 to 91).

Category: Economic Update, Economic Progress, Economy, Income, Benefits, and Pensions, Industrial Policy, Labour, Employment