Ontario’s manufacturing sector was once the bedrock of the province’s economy. But over the past decade the sector has lost some 300,000 jobs and its share of GDP has declined sharply. Whereas in 2002 the sector accounted for 8.9 per cent of Canada’s GDP and 21.7 per cent of Ontario’s, it now accounts for just 4.9 per cent and 12.7 per cent respectively. Many communities across the province have felt the hardship of factory doors closing for good.
Ontario is not alone among developed economies in having a manufacturing sector that faces significant challenges. Compared to peer jurisdictions in the US, the decline in employment has been similar, while the decline in output in Ontario over the past 15 years has been steeper .
Even though there has been modest recovery in some American states in recent years, these gains are too small to signify a ‘renaissance’ in US manufacturing employment .
Some of the decline in employment and output is to be expected and merely reflects the ongoing shift from goods-producing to service industries being experienced across OECD countries. But there are other explanations for the challenges in the Ontario manufacturing sector.
Many firms have relocated lower skilled and labour-intensive portions of the production process outside of Ontario and our research has confirmed that it is these jobs that have been more likely to disappear in Ontario (see Figure 6). The highest job losses have been experienced in categories like assembly and processing, which are lower on the value chain, require less education and training, and on average pay 60-80 per cent of the average Ontario wage.
On the other hand, job losses in the lower productivity sectors (like apparel and leather products, textile and wood product manufacturing) were mainly due to the relocation of production to lower-cost jurisdictions. It is these latter jobs that were more affected by the cost of labour and the increased exchange rates. Those jobs that were lost in the higher productivity sectors were more likely to occur at lower levels of the GVC in those firms. Figure 7 depicts changes in employment by sub-sector.