Canada’s Manufacturing Crisis in International Perspective
The U.S. Bureau of Labor Statistics has just released a comparison of manufacturing output, employment, productivity, and unit labour costs in 16 different industrialized countries.Â Here’s the link:
This data confirms that Canada’s manufacturing industry is in the midst of a uniquely terrible crisis.Â Some commentators have suggested that the sharp decline in Canadian manufacturing is an inevitable and largely universal result, reflecting a “natural” evolution of economic structure in the face of rising income levels, technological changes, and the rise of the BRICs.Â (This argument is even sometimes heard on the left: see, for example, http://www.socialistproject.ca/bullet/bullet050.html.)
It is certainly true that the faster rate of productivity growth in manufacturing, and the tendency of households to consume more services as their income levels rise, tend to imply that manufacturing output and employment will shrink over time relative to the overall economy.Â But this in no way explains what’s happened in Canada’s manufacturing industry over the past five years – a time in which the manufacturing share of total employment fell by close to one-third.
The BLS data confirms that Canada’s manufacturing meltdown has been distinct in many ways from the situation across the industrialized world.
The report summarizes average annual growth rates over the 2000-2007 period for a number of indicators.Â In terms of real manufacturing output, Canada ranked the worst of all the 16 countries considered, with real output declining at an average rate of 0.3% per year.Â (Korea had the most vibrant expansion of manufacturing output, an average of 6.9% per year.)
In productivity, as usual, Canada ranks near the bottom of the pack.Â Average output per hour in manufacturing grew 1.1% per year during the 2000-2007 period.Â Only Italy was worse.Â Korea, again, led the pack with an average (and stunning) 7.6% annual increase in manufacturing productivity.Â (With my CAW hat on, I must hasten to say that this poor productivity performance is not universal: there are a few industries, auto chief among them, where Canadian productivity excels!)
Employment fell at an average rate of 1.2% per year.Â (That equals the 1.1% increase in productivity, plus the 0.3% decline in productivity, plus a small adjustment for a slight reduction in average hours per worker.)Â That was in the middle of the pack of the 16 countries for the whole 2000-2007 period.Â Remember, however, that manufacturing was still doing well in 2000 and 2001.Â Since 2003, however, the decline in Canadian manufacturing employment has been the second worst of our peers (the U.K. has experienced more job losses).
Hourly compensation (in national currency terms) grew by 3.4% per year during the 2000-2007 period, ranking us 11th out of 16th.Â The shocker in this table was Japan, which experienced precisely zero hourly compensation growth at all during this period, which is a stunning indictment of the Japanese industrial relations system.Â This is the period of time in which major Japanese exporters (led by Toyota) significantly expanded their share of world markets (especially in autos) and enjoyed record profits as a result.Â Yet workers got no raise at all over a 7-year period.
In national currency terms, Canada’s rate of unit labour cost increase (2.3% per year) was the second highest of the 16 countries – despite our sub-par compensation growth.Â The negative productivity performance overwhelms the relatively muted compensation growth.Â And that’s before we throw in the terrible effects of the Canadian dollar appreciation.Â In U.S. dollar terms, Canada’s unit labour costs grew at a devastating 7.1% per year (compared to a slight average annual decrease in the U.S.).
Canada’s manufacturing decline reflects a complex combination of challenges – not solely the rising dollar.Â But clearly it is false to assume that this crisis is inevitable or universal in nature.Â Canada’s performance is uniquely poor – and government policy (ratifying the rise of the currency, failing to implement pro-investment and pro-productivity measures, allowing untrammeled imports to destroy whole swaths of industry) clearly bears a good share of the blame.