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Ontario’s manufacturing sector hardest hit by recession

A high flyer on the employment front for years, Waterloo Region has been hit harder by the recession than many other parts of the country, with the unemployment figures to match.

As a story in this week’s paper shows, the number of people receiving unemployment benefits in September more than doubled in the past year, to 8,420 from 3,890. Much of that can be attributed to the downturn in the province’s manufacturing sector, which has lost tens of thousands of jobs, with the automotive industry leading the pack.

While provincial government forecasts predict overall employment numbers will rebound by the middle of 2011, there’s little chance many of those jobs will be in manufacturing, let alone pay decent wages.

According to private-sector forecasters, the unemployment rate is expected to edge up from 9.3 per cent in 2009 to 9.9 per cent in 2010 as the number of job seekers outpaces the number of people getting jobs. Over the medium term, Ontario’s unemployment rate is expected to remain elevated, declining to 7.8 per cent in 2012.

That doesn’t bode well for the future, particularly if you don’t buy into the myth that the service economy will offset the continued outflow of manufacturing jobs to offshore locations.

In that debate, I have to side with Jayson Myers, president of Canadian Manufacturers & Exporters.

“Wealth creation ultimately has to be secured on supply and demand for hard assets – for goods,” he says.

“Now, think about it – there are only a few ways that we can produce tangible goods. We can grow them if you’re a farmer; we can extract them in the case of our primary industries; we can build them in construction, and we can make them. That’s what manufacturing is all about – adding value in the production of tangible goods.”

Manufacturers in this country have shed some 250,000 jobs in this decade. Everything from higher labour costs to red tape and a strong loonie have been blamed for the crisis. It’s cheaper to make goods in China or Mexico, so that’s where those intent on short-term gains go to do business.

The workers displaced by plant closures – offshore transplants or recession-invoked bankruptcy, it doesn’t matter – find themselves looking for work in a tough environment. Those lucky enough to find another job typically take a pay cut, reducing buying power and ultimately contributing to the overall economic malaise.

A Statistics Canada study shows  that those Canadian workers displaced by closures and mass layoffs who find other jobs suffer an average decline of 25 per cent in earnings, implying a loss of about $10,000 a year for a typical manufacturing worker. Given the disappearance of one-quarter of a million manufacturing jobs, the total loss of Canadian earnings is now probably around $2.5 billion annually.

Even with all these losses, manufacturing remains the single-largest business sector in the province and the country. It represents more than $600 billion for the Canadian economy, accounting for 15 per cent of total economic output and employing almost two million people.

In Ontario, which has seen about two-thirds of the country’s job losses, the hit taken by manufacturers has worsened the impact of the recession. The same is true in this region.

A provincial forecast prepared by RBC predicts we’ll be riding this storm out for a while, noting the manufacturing sector continues to hemorrhage as plant closures and job losses mount. The automotive industry, heavily concentrated in Ontario, has been particularly hard hit, and a recovery does not appear imminent, despite billions in aid.

Even as we recover from the recession, employment will lag. Further job declines in the manufacturing sector will no longer be offset by gains in the services industry, at least not this year, as total employment has dropped for the first time since the recession of the early ’90s.

The decline of manufacturing and resultant job losses, combined with the buy-American policy adopted by our largest trading partner, have fueled buy-Canadian sentiments. There’s a growing awareness that shipping jobs overseas has a downside that far outweighs the plethora of cheap goods at Wal-Mart and the dollar store, retail locations almost synonymous with Chinese products.

More than just junky plastic trinkets, however, offshore locations are making more complex and value-added products, not to mention taking on the service jobs that are supposed to be the salvation of our economy.

Stop buying Chinese products and maybe we’ll have some impact on the future of manufacturing in this country.

That’s easier said than done, of course. We’re happy with the low prices that come from China’s lack of labour, environmental and safety regulations, even if manufacturers and retailers aren’t passing on the full savings they enjoy by doing business there.

Worse still, finding alternatives can be difficult. Certainly, much of the cheap plastic stuff you can find in dollar stores isn’t available from other sources. But even with larger items such as household goods, the Made-in-China label is hard to avoid.

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