There’s blood on the factory floors: where’s Ottawa?

For once the headline-writers at the Globe gave my latest column (on continuing job losses in manufacturing) a better headline than the one I suggested (which in this case was a bland one: “Why manufacturing matters” zzzzzzzzzzz).

Mind you, even their “blood on the floor” headline was not as eye-grabbing as Philip Cross’s year-old quote about carcass-hackers in Brandon Manitoba.

There’s some debate out there about which numbers to use.  The Labour Force Survey reports almost 400,000 lost jobs since the sector peaked in Aug 2002 (just as the loonie was taking off).  But August is a seasonal peak in manufacturing; if you seasonally adjust the numbers, it’s more like 250,000 losses (although the usual seasonal upturn in manufacturing jobs is remarkably muted so far this year).  Meanwhile the firm-level survey of Employment, Earnings and Hours reports a still-smaller job loss total.

We still have some way to go to match the job toll from the post-FTA 90-cent loonie shake-out of 1990-1994 (when half a million manufacturing jobs disappeared, using the unadjusted LFS numbers).  But we can all agree it’s going to get a lot worse before it gets better.  This latest surge in the loonie will be the final straw for many marginal plants, I predict.

Back in 2004 I also predicted we’d lose at least 400,000 manufacturing jobs if the dollar stayed much above 80 cents.  That will turn out to be a conservative guess.  And remember: in 1990-93 there was a recession making things much worse.  This time it’s all structural (and therefore more permanent).

In the next few days unionists and their allies will be hitting the streets in several manufacturing communities to vent their anger at Ottawa’s inaction.  What’s at stake is Canada’s economic role: will we be purely a supplier of resources to other more technology-intensive economies, or will we have something else to rely on when the oil runs out?

Here is the full column:

Why Manufacturing Matters 

Jim Stanford

            From their comfortable posts in Ottawa, Canada’s top economic policy-makers have been remarkably sanguine about the continuing recession in what is still Canada’s most important single sector: manufacturing.

            The foundations of Canadian industry continue to crumble.  After another bad month in April, manufacturing now employs barely 2 million workers – the lowest in a decade.  Almost 400,000 jobs have been lost since August 2002, when Canada’s currency began to soar.  If we “seasonally adjust” the data, the toll is smaller: a quarter-million workers have lost their jobs since 2002.  (Too bad we can’t seasonally adjust their pain.)  The share of manufacturing in total employment has plummeted to 12 percent – the lowest in our postwar history.

            Manufacturing output is declining, and now productivity is, too (it’s hard to be efficient when your factory is half-empty).  Rose-coloured predictions that exposure to a high dollar and merciless competition would elicit stronger investment and productivity have proven to be wishful thinking.  By every measure, manufacturing is mired in a hum-dinger of a recession that now rivals the great free trade shake-out of the early 1990s.  That time, we eventually won all the jobs back, and then some (thanks to a low dollar and our cost-effective health care system).  That won’t happen again, however, without a dramatic change in policy direction.

            But despite the bleeding on the factory floors, those occupying the seats of economic power aren’t budging from their view that this is a natural, even positive development.  The Bank of Canada persists in its judgement that our petro-fueled currency should be left to its own devices, all the better to help us “adjust to change.”  Trade mandarins plough ahead with another free trade agreement – this time with Korea – that will destroy thousands of manufacturing jobs, despite huge losses resulting from the last four deals they signed.  In Ottawa, manufacturing is just another sector, not worthy of special attention whatsoever.

            Statistics Canada official Philip Cross summed up this attitude bluntly.  “I don’t know where this idea came from that manufacturing jobs are great,” he said last year.  “There’s nothing exciting about hacking away at a pig carcass outside of Brandon, Manitoba.”

            Visit an abattoir and you’ll recognize immediately that nobody does that job for excitement.  People with Ph.D.’s curl up their noses at that kind of work.  But for working class people, manufacturing jobs are desirable: relatively well-paying (if unpleasant and tiring), often located in communities with few alternatives.

            Indeed, it’s not the carcass-hackers we need to worry about.  Meat processing employment has been rock solid: it mostly serves a regional market, and hence is relatively protected from the global forces buffeting other manufacturing.  It’s the globally-oriented machinery, equipment, and motor vehicle jobs that are disappearing by the thousand.  And those high-tech positions are essential to our future as a modern economy.

            The strategic importance of manufacturing can be summed up in three words: productivity, incomes, and trade.  Productivity levels are almost 30 percent higher in manufacturing than other jobs, and productivity growth is historically faster.  The transfer of employment out of manufacturing (mainly to unproductive service jobs) is contributing to a national productivity performance that can only be described as lousy.

            Thanks partly to higher productivity, and partly to workers’ stronger bargaining position, manufacturing incomes are also higher: about 25 percent better than in the rest of the economy.  That’s worth $8500 per year to a manufacturing worker.  It’s one of the few jobs where a working class person can enjoy a middle class lifestyle.

            And in trade, it’s absolutely wrong to assume that manufacturing is a “smokestack” industry of the past.  Manufacturing accounts for about three-quarters of global trade, and this share is rising over time, not falling.  If we can’t successfully participate in that trade, we won’t prosper – especially once the oil boom ends.  Writing off the decline of manufacturing as a natural result of “comparative advantage” would be an economic mistake of epic proportions.  Japan, Korea, and now China have prospered in global trade precisely because they rejected that logic; instead, they used active policy to deliberately carve out valuable, high-tech niches for their industries.

            For all these reasons, Ottawa’s policy-makers need to shake off their white-collar elitism, and quickly.  The crisis in the dirty, dusty blue-collar world of manufacturing needs their urgent attention.

One comment

  • It is a tricky business figuring out what number to go with, LFS or SEPH. Given that SEPH uses the NAICS coding from the Business register and then makes use of seemingly more reliable adminstrative data, one would lean towards using SEPH estimates.

    However the final totals on payrll dollars must then be converted into payroll jobs, which poses some serious challenges such as double counting for people with more than one job. (see here for a paper on explaining the differences in using the two to measure the employment within the public service, which could be used as a guide for comparing the manufacturing totals from both sources.

    Another major issue is the assigning of the industry code to determine the industry. It would take a couple of major papers that have yet to be written on the efficiency of the Business register vs the LFS protocols to determine which does a better job of assigning a manufacturing NAICS. However, given the rotational nature of the sampling plan within the LFS should provide for a bit more stability at the Canada Level on determining the changing employment activity within the manufacturing sector.

    Given consideration to all the measurement issues and the noise that comes into play
    I would tend to go with the LFS.

    You do raise another question that has bigged me for quite sometime. That is the nature of using seasonally adjusted data and the time frames in which one uses them to compare employment activity levels. For me if you are using seasonal adjustment to compare say a monthly rate such as unemployment, then I would agree with is use. However to determine a cumulative total I would say that using non-seasonally adjusted data is the way to go. It seems to make sense to me. Although using both, like you have mentioned in your article may be a more descriptive and informative method.


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