Job growth

How healthy is Ontario’s economy—outside of Toronto?

Current projections suggest firms will invest less money in Ontario this year than in 2008.

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Uneven Recovery: Much of Ontario Still Hasn't Fully Recovered from the 2008 Recession

In recent history, Ontario has suffered more than its share of economic pain. From 2003 to 2015, real per-person economic growth in Ontario was roughly half of the rate in the rest of the country at 0.5 percent annually. Thanks to a steep recession and a tepid recovery since (although a recovery that has gained some steam in very recent years), Ontario’s economic performance looks even worse if you consider a somewhat shorter timeframe. From 2008 to 2015, for example, Ontario’s economy grew at an average annual rate of just 0.3 percent.

While Ontario as a whole has suffered from weak economic performance in recent years, the economic pain in the province has not been spread evenly. In fact, the province’s economic performance has been uneven geographically, and some regions of the province have suffered significantly more than others.

In order to illustrate the uneven recovery in Ontario, this study examines available economic metrics for the province’s urban areas, which are classified into Census Metropolitan Areas (CMAs) and Census Agglomerations (CAs). The paper pays particular attention to metrics of labour force performance, and especially to rates of job creation in the various urban areas. The CMAs and CAs are grouped in order to highlight common themes, for the most part by geography.

The study finds that most of the province’s job creation took place in its largest urban areas, as well as several metropolitan areas that are closely connected to the Toronto economy. In fact, the Toronto and Ottawa CMAs alone created the equivalent of 98.6 percent of all new net jobs in Ontario between 2008 and 2016. In other words, if the rest of Ontario outside of Toronto and Ottawa is taken as a whole, there has been almost no job creation at all since 2008.

But even excluding the two big engines of job creation, there were large variations among CMAs and CAs, ranging from an 18 percent increase in employment levels in Oshawa to a nearly 33 percent decline in Cornwall.

This paper builds on past analysis from a 2016 Fraser Institute paper that divided Ontario into five major regions or “Solitudes,” and employs a modified version of this framework for grouping the province’s major urban areas that are examined in this paper. The results show that outside of Ottawa and the Greater Golden Horseshoe (including Toronto), major regions of the province have experienced little or no job creation in recent years. All of the CMAs and CAs in Northern and Eastern Ontario (excluding Ottawa) experienced job creation rates below the national and provincial averages between 2008 and 2016. The same is true of nearly all urban areas in Southwestern Ontario. In fact, the only CMAs other than Ottawa and Toronto that enjoyed job creation rates above the national average were Kitchener-Waterloo-Cambridge, Guelph, and Oshawa—all of which are within the Greater Golden Horseshoe.

The paper shows that although job creation in Ontario as a whole has been weak in recent years, many of the province’s urban centres have actually experienced job losses. In fact, out of the 23 CMAs and CAs examined during this period, 11 experienced net job losses between 2008 and 2016. Furthermore, taken together, the province’s non-CA/CMA areas (rural areas and very small towns) also experienced net job losses.

Examining the data in individual CMAs and CAs is crucial to understanding the province’s economy, since provincial-level data is so dominated by the large Toronto and Ontario CMAs that it is easy to miss the economic pain that persists in various regions and cities of the province, many of which still have not recovered to pre-recession job levels nearly a decade later. This paper shows that while the province’s recovery from the 2008/09 recession can generally be characterized as tepid, there are many areas of the province where it can be better characterized as virtually non-existent.

Ontario’s economic pain is spread unevenly around the province

Six years after the recession, neither Southwestern, Northern nor Eastern Ontario had recovered to 2008 employment levels.
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Ontario has experienced more than its share of economic pain in recent years. Between 2003 and 2014, real economic growth per person in Ontario has averaged just 0.3% annually. That’s less than one third of the rate of real per-person economic growth in the rest of the country, which averaged 1.1% annually. The economic pain in Ontario, how-ever, has not been spread evenly: there has been significant regional variation in eco-nomic performance within the province.

It is not clear that these important differences among the regions, and the related variation in their economic performance are recognized throughout the province. For example, an up-beat press release from the Office of the Premier celebrates the recent up-tick in provincial economic growth over the past year. And, it may well be that people living in more successful parts of the province are not aware of the extent of the economic troubles in other regions. We suggest that these misperceptions across the province’s regions have created five distinct “solitudes” of Ontario in which residents of certain regions are not fully aware of economic conditions and challenges elsewhere.

The five solitudes of Ontario as defined in this paper are: the Greater Golden Horseshoe; Southwestern Ontario; Ottawa and the surrounding area; Eastern Ontario; and Northern Ontario. The first major section of this paper provides a description of each and breaks down regional employment by industry. The study then compares recent economic performance in the five solitudes of Ontario with a particular focus on labour-market performance in the years during and since the 2008/09 recession. We find that, while the Greater Golden Horseshoe and the Ottawa region have fared comparatively well, labour market performance in each of the other solitudes has been considerably worse than the provincial average.

Principal findings

  • As of 2015, total employment in Ontario outside the Greater Golden Horseshoe (GGH) had still not recovered to pre-recession levels. In 2008, total employment in Ontario outside the GGH stood at 2.237 million; in 2015, total employment in the rest of Ontario stood at 2.173 million.
     
  • Even since the end of the recession, job growth outside the GGH has been poor. Average annual net employment growth has been negative in Eastern and Northern Ontario between 2010 and 2015. Average employment growth in Southwestern Ontario during this time has been positive, but only barely (0.4% annually). For several of Ontario’s regions there has been almost no job growth during the period of “recovery” from the 2008/09 recession.
     
  • Employment rates and labour force participation rates have been much lower in Eastern, Northern, and Southwestern Ontario than in Ottawa and the Greater Golden Horseshoe in recent years (2010–2015). The economic dependency ratio in Eastern, Northern, and Southwestern Ontario has also been consistently higher than the provincial average.

Each of Ontario’s five solitudes includes a significant number of Canadians and repre-sents an important regional economy within Canada. Even Northern Ontario, the least populated of Ontario’s solitudes,  has more people than Prince Edward Island, New-foundland & Labrador, or New Brunswick. Southwestern Ontario’s population of 1.6 mil-lion residents is nearly as large as all of Maritime Canada combined.

However, because the smaller regions are located in the same province as the highly populous GGH, which includes the metropolis of Toronto, economic trends and challenges in these regions can sometimes be overlooked by those who look only at pro-vincial-level economic statistics, which are heavily influenced by the economy of the GGH. Considering provincial statistics alone may give rise to misconceptions among people—even policy makers—who live in Ontario’s five solitudes and often face signifi-cantly different economic circumstances and challenges. Our aim in this report is to shed light on regional economic circumstances across the province in the hope of reducing these information gaps.

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Since the recession, Ontario has recorded large and consistent budget deficits that have increased the province’s already enormous debt load. According to a prominent narrative at Queen’s Park, policymakers are not to blame for this fiscal trend because the province has been struck by economic forces beyond its control including a higher dollar and global restructuring in manufacturing.

This study subjects this narrative to empirical scrutiny by comparing the economic and financial performance of Ontario with other industrial jurisdictions such as Quebec and the US “Rust Belt” states from 1999 to 2013. The Rust Belt states include Indiana, Michigan, Ohio, Pennsylvania, and Illinois. The selection of this peer group controls for the regional reliance on manufacturing; a number of the Rust Belt states had higher concentrations of manufacturing than did Ontario.

The main finding is that Ontario had a markedly worse financial performance than the Rust Belt states even though they enjoyed much stronger economies. Despite Ontario’s comparative economic strength, it accumulated far more government debt than the Rust Belt states. Even more disturbingly, by 2012/13 the US Rust Belt states had all restored healthy budget surpluses, while Ontario continued to run large deficits. Despite enjoying higher population and aggregate economic growth, Ontario is in a much deeper debt hole.

Queen’s Park claims that the poor economic performance is due to the appreciation of the Canadian dollar vis-à-vis the US dollar since the early 2000s. However, the exchange rate is currently very near its historical average. Simply put, bad policies in Ontario have led to poor financial performance compared to other industrial jurisdictions, which, like Ontario, have weathered a global restructuring in manufacturing. The implication is that better policies can improve the province’s finances and overall economic performance. Further, the responses both of both Indiana and Michigan to the global recession and the restructuring in manufacturing offer lessons for Ontario.

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