Tuesday, December 13, 2016

January 2011 Posts

12 Posts from January 2011

Northern Economist Presents to Queen’s Park Committee
Jan 31, 2011 Posted By: Livio Di Matteo Tags: budget, economy, ontario

I was invited to present to the Ontario Standing Committee on Finance and Economic Affairs as part of the pre-budget consultations and did so via video-conference on January 31st, 2011.  Below is the text of my address.  Please note that actual delivery may have varied from the prepared text.  Slides used for the presentation are available on my university web page.



Good morning Mr. Chair and Committee Members of the Ontario Standing Committee on Finance & Economic Affairs.

My name is Livio Di Matteo and I am Professor of Economics at Lakehead University in Thunder Bay.

Let me being with a quick summary.

Ontario’s economy was severely hit by the recent recession particularly in its resource and manufacturing sectors.

While the recession is ending and both employment and output are beginning to recover, we still need to address the long-term performance of the Ontario economy.  Even without the impact of the recession, the fact is that Ontario has been performing poorly over the last decade when compared to many of the other provinces in the Canadian federation.  Productivity and income growth has lagged.

Fiscal sustainability is having the resources necessary to provide the public goods and services that as a province we have decided we need.  When lagging productivity and income growth is combined with fiscal indicators that point to rising deficits and debt, the sustainability of Ontario’s public finances is called into question.

Poor economic growth, low productivity and lagging per capita incomes will result in a decline in Ontario’s standard of living and ultimately also result in poorer public services.

The basic economic indicators I wish to highlight are simple.

First, as a basic output measure I will use real per capita GDP – the value of provincial output per person adjusted for inflation.

Second, I will present evidence on employment – an indicator of economic activity as demonstrated by the number of jobs in the economy.

Third, I will present a simple productivity measure: real GDP per employed person.

The data sources are from Statistics Canada and the Government of Ontario

The first decade of the 21st century is a decade in which Ontario’s economy stood still.

While the overall output of Ontario’s economy has grown over the last 20 years, when you adjust that output for inflation and divide by population, provincial output per person has essentially stagnated since the start of the 21st century.  While the drop since 2008 can be attributed to the severity of the recession, the fact remains that the period from 2000-2008 also saw little in the way of growth.

Notwithstanding the 2008-2010 recessionary period, if real per capita GDP (1997 dollars) from 2000 to 2007 had grown at the same average annual rate as it had from 1993-2000 (about 3 percent), then per capita GDP in 2008 would have been approximately 42,000 dollars or about 23 percent more than it actually was in 2008.

This represents foregone output from Ontario’s economy equal to about $7,000 per person.

Ontario’s economic performance is also poor in relative terms.

Ontario’s poor performance would be more tolerable if it was accompanied by other poor performances but Ontario’s real per capita GDP performance has stagnated while that of other provinces has continued to improve.

Ontario’s real per capita GDP has recently been surpassed by Saskatchewan, and Newfoundland and Labrador.  While Ontario still has a higher GDP than many other provinces, they have continued to grow while Ontario has stagnated.

As a result, Ontario has begun to slip in the rankings of per capita output within the federation. In 1990, Ontario was second only to Alberta in its real per capita GDP while today it has slipped to fourth place. Since 2000, Ontario’s real per-capita GDP has gone from being 25% above the provincial average to being barely at the provincial average.

As Canada’s largest province and largest single provincial economy, the health of the Ontario economy has long been an important driver of prosperity for the Canadian economy.

Ontario has traditionally accounted for about 40 percent of the nation’s output and a similar share of its population.  Ontario’s economy has traditionally been a diversified performer rooted in manufacturing, resources, and services and served as a powerhouse for the Canadian economy.

However, the powerhouse is waning and its performance become less electrifying.

During the course of the first decade of the 21st century, Ontario has seen its share of Canadian output decline steadily.

From about 42 percent of national output in the late 1990s, Ontario’s share has dropped to below 36 percent.

Over the period  2000-2010, Ontario has indeed  been the worst provincial performer in terms of growth in real per capita GDP.

Over the first decade of the 21st century, eight out of 10 provinces experienced an increase in their real per-capita output, while only Ontario and New Brunswick saw declines.

Even Quebec, which has been the historical poor economic sibling to Ontario, saw its real per-capita GDP grow 6% during the decade.

Given this performance, it is perhaps no surprise that Ontario has come to qualify for equalization payments.

Employment is another indicator to consider.

Despite the poor per capita output performance, employment has continued to grow in Ontario and indeed since 1991, employment in Ontario has grown by 32 percent despite the recent losses from the recession.

However, when the employment growth is taken alongside the output stagnation, it means that more workers are producing less output per worker – a problem in productivity.

Labour productivity has declined.

Real GDP per employee rose from the early 1990s to 2000 but has since taken a steep drop.

Real output per worker from 2000 to 2010 fell from 71,000 to 65,000 dollars – a decline of about 8 percent.

This decline in productivity was also recently noted by Andrew Sharpe and Eric Thompson, of the Centre for the Study of Living Standards.  They noted that while there has been a labour productivity slowdown in Canada since 2000, Ontario was the province that contributed disproportionately to the slowdown because of the concentration of manufacturing in the province and the fact that manufacturing was a major source of the low productivity.

 Ontario was responsible for nearly two-thirds of the decline in Canadian labour productivity since 2000.  Keep in mind that Ontario only accounts for about 36 percent of national output.

What does declining productivity and low growth really mean?

Productivity is important because cumulative slowdowns in the rate of economic growth result in the long term erosion of our standard of living.

For example, if your real per capita GDP is growing at 2% per annum, then you could expect your per capita income to double in about 36 years,  At 4 percent, it would take about 18 years.  At 10 percent, incomes would double in a mere 7 years.

While real per capita GDP in Ontario grew at just over 3% a year over the period 1995 to 2000, over the period 2000 to 2010, it shrank at an average rate of about 1/3 of one percent per year.

The long term implications of low or declining economic growth are stark.  Low growth means that the tax base is also not growing which means that to increase or even maintain public spending you will require either higher tax rates or deficit financing.

Since 2000, government expenditure in Ontario has grown by 96 percent while government revenues have grown by 62 percent.  The result has been a deficit in six of the ten years since 2000.

Fiscal sustainability is government having the resources to do what the public  wants or needs.  Growing deficits and debts mean that Ontario’s public finances have a sustainability problem which puts the vital public programs we all  need at risk.

Ontario’s public finances over the long-term can be neatly summarized by an examination of revenues and expenditures and their difference –the deficit.

Since 2007, expenditures have rapidly outpaced revenues resulting in even larger deficits. Part of the recent deficit gap is the result of increased spending during the recessionary period, while part of it is also due to the slowdown in revenues because of the recession.

Nevertheless, longer term factors are also at work.  Slower long-term economic growth is also a factor given that the ratio of provincial government revenue to GDP  was 14.6  percent in 2001, reached 16.6 percent in 2007 (just before the onset of the recession) and in 2010 was at about 17.6  percent.  Revenue has grown slower than expenditure but has grown faster than GDP meaning that the revenue burden on the economy has also grown. 

Maintaining current levels of spending has required a rising revenue burden as well as large deficit.  Large deficits in turn have accumulated into a growing debt.

When deficits and debt are combined with the power of compound interest over the long term, the results can be astounding.

Ontario’s net public debt was 1.6 billion dollars in 1965 and has risen to reach an estimated 245 billion in 2010.  The debt is the sum of accumulated deficits plus interest.  Given that Ontario’s net debt was 132 billion in the year 2000, it means that nearly half of Ontario’s net debt was acquired over the last 10 years.  Indeed, while Ontario has been a province in the Canadian federation for 143 years, over 80 percent of its debt has been acquired in the 20 years since 1990.

A debt means interest costs to service the debt and debt service costs in Ontario have only been as manageable as they have been because of historically low interest rates – rates that will inevitably have to rise given inflationary pressures in the growing economies of India and China.

Of course, the ability to carry debt is also a function of your GDP and in Ontario, the debt to GDP ratio has also risen dramatically and now stands at nearly 40 percent.

By way of comparison, the Federal debt-to-GDP ratio has always been larger than Ontario’s.

However, as the federal government got its finances under control, its debt-to-GDP ratio began to drop dramatically while Ontario’s has continued to rise.

 In 2010, Ontario’s debt-to-GDP ratio actually surpassed that of the Federal government for the first time in living memory.

The debt situation in Ontario has been compounded by a weak economic performance that was aggravated by the recession period from 2008-2010.  Even with recovery from the recession, Ontario will also need to boost its productivity and growth rates to make sure that its debt-to-GDP ratio does not worsen.

Ontario is an economy facing many challenges.  Ontario’s economy as evidenced from its output and productivity performance has been on a low growth trajectory with long-term implications for the province’s public finances and its public services.  Rising deficits and debt have been tolerable up to this point because of a fiscal dividend afforded by the lowest interest rates in 40 years but should interest rates begin to climb – the combination of a large debt and the power of compound interest will be devastating.

The long-term implication of poor economic growth and productivity is a lower standard of living and reduced public services in health, education and other programs we hold dear.

Ontario must improve its economic growth record, its productivity performance and bring its public finances under better control.

Thank you.

Canada, Ontario and Debt
Jan 25, 2011 Posted By: Livio Di Matteo Tags: canada, debt, deficits, gdp, ontario
The recent recession and fiscal crisis has ramped up government spending, deficits and of course sovereign debt around the world.  Canada has been fortunate in that its federal deficit and debt has been relatively smaller than those of other countries such as the United States and the UK.  Of course, Canada is a federation and along with federal debt there is also the debt of the provinces.  An interesting comparison involves Ontario and the Federal government.  Of course,  one would expect the value of the Federal debt to be much larger than Ontario’s and indeed it is anticipated in 2011 that the Federal net debt will be about 594 billion dollars while that of Ontario will be about 245 billion dollars.  However, when the net debt is compared to GDP to construct a debt-to-GDP ratio, what emerges is that for the first time in living memory, Ontario’s debt-to-GDP ratio has actually surpassed that of the Federal government.  As the accompanying figure illustrates, the Federal debt-to-GDP ratio has always been larger than Ontario’s and the gap grew from the mid 1970s to the mid 1990s as federal finances became increasingly unsustainable.  However, as the federal government got its finances under control, its debt-to-GDP ratio began to drop dramatically while Ontario’s has continued to rise.  After a large jump in the early 1990s, Ontario’s debt-to-GDP ratio remained stable but since 2005 has taken another leap.  In 2010, Ontario’s debt-to-GDP ratio actually surpassed that of the Federal government. The debt situation in Ontario has been compounded by a particularly weak economic performance that was aggravated by the recession period from 2008-2010.  Even with recovery from the recession, Ontario will also need to boost its productivity to make sure that its debt-to-GDP ratio does not worsen.





Northern Economist on Television!
Jan 23, 2011 Posted By: Livio Di Matteo Tags: economy, thunder bay
Thunder Bay Television recently did a two-part series on Thunder Bay’s changing economy, which featured some of the interview I did with Reporter Dennis Ward discussing the growth of the knowledge economy and changing economic conditions in Thunder Bay.  To see the two stories, click on the following links:  Changing Economy Part 1 and Changing Economy Part 2.

Changes in Employment and EI
Jan 23, 2011 Posted By: Livio Di Matteo Tags: canada, employment, employment insurance, ontario
Statistics Canada recently released new data on the change in Employment Insurance Beneficiaries and the evidence suggests that recovery from the recession is indeed underway. In November, 673,700 people received regular Employment Insurance (EI) benefits, down by 5,700 (-0.8%) from October. The number of beneficiaries edged down in five provinces.  The year-to-year decline numbers (November 2009 to December 2010) are also quite interesting and show the biggest percentage declines in Alberta and Ontario while Nova Scotia and PEI have actually seen increases (See Figure 1).

Figure 1

 





For Ontario in particular they show improvement in all centers with the biggest percentage drops in EI beneficiaries in Greater Sudbury, Kitchener-Cambridge-Waterloo and then Thunder Bay. (See Figure 2).

Figure 2







Of course, the question is whether or not this represents an improvement in the economy and people moving off of EI and into new jobs or unemployed workers simply using up their benefits and falling off the EI rolls and still unemployed.  The employment growth evidence for the period December 2009 to December 2010 suggests that at least some of the EI drop must be due to new jobs being created.  Figure 3 shows that for Ontario CMAs, employment growth in percentage terms was greatest for Oshawa, Greater Sudbury and Toronto.

Figure 3







Even Thunder Bay and Windsor registered increases of 2.2 and 0.5 percent respectively.  However employment still declined in Hamilton, London and Kingston suggesting that full recovery from the recession still has a way to go in these cities.  That employment growth is associated with large drops in EI beneficiaries is illustrated in Figure 4.

Figure 4







Northern Economist in Saskatchewan!
Jan 23, 2011 Posted By: Livio Di Matteo Tags: health care, johnson-shoyama public policy, sustainability

I just got back from a trip to Regina where I had the opportunity to present a talk  at the Johnson-Shoyama Graduate School of Public Policy at the University of Regina.  The seminar was also sponsored by the Western Regional Training Centre and beamed by video link to the University of Saskatchewan.  My talk was on the afternoon of Friday January 21st and  titled Health Expenditure Sustainability in Canada: Evidence from Expenditure Categories. While in Regina, I also got the chance to speak with Sheila Coles at CBC Saskatchewan's morning show.  I have slides posted on my own university page and the slides as well as video will soon also be posted on the Johnson-Shoyama site.

My host for the visit was Dr. Greg Marchildon, Canada Research Chair in Economic History and Policy, Johnson-Shoyama Graduate School of Public Poilcy, at the University of Regina.  The Johnson-Shoyama Graduate School of Public Policy is a provincial centre for advanced research and education, outreach and training activities with campuses at both the University of Regina and the University of Saskatchewan. The school provides students and faculty the opportunity to work on contemporary public policy and administration challenges in an academic environment renowned for innovation and is fast becoming a destination for students from across the country and around the world.


Northern Policy Advice for Ontario’s Next Premier
Jan 17, 2011 Posted By: Livio Di Matteo Tags: economic policy, northern ontario, ontario election

As Ontario heads towards its fall 2011 election, there will inevitably be discussion of what new policies can help drive Northern Ontario’s economy in the 21st century. Historically, economic development in Ontario’s North was a partnership between private sector resource exploitation and a public sector economic strategy to make the north an investment frontier for the south as well as a source of government revenue via the exploitation of natural resources.

Nineteenth century Ontario implemented a northern development scheme that could be termed a “Northern Ontario Policy” that operated parallel to the Federal government’s National Policy. Ontario’s Northern Policy provided a regional program of northern land grants to promote agricultural settlement and the building of the Temiskaming and Northern Ontario Railway and colonization roads to foster access.  As well, there was the passage of the “Manufacturing Condition” which required that timber cut on crown land be processed within the province so as to retain value added as well as provide government revenue.

At its peak, the province of Ontario obtained nearly one quarter of its revenue from northern resources and used it to fund expanding provincial services.  Indeed, in the early part of this century, Ontario’s northern forests and mines were akin to Alberta’s oil today.  However, the process of resource revenue maximization was also a factor in biasing our economic development away from a more diversified and innovative economy.

The last decade has seen government policies that have deliberately raised the cost of energy in the North and have sequestered large chunks of its territory from future development in the name of protecting the environment.  In the wake of the forest sector crisis, the McGuinty government has sponsored numerous consultations but we are of course still waiting for the release of the Northern Growth Plan.  Judging from the preliminary documents and discussion to date, there likely will not be anything truly innovative in the Northern Growth Plan aside from new ways of uttering bland platitudes aimed at providing palliative economic care.  Indeed, truly innovative proposals have generally been ignored not only by the provincial government but also by Northern political leaders whose main preoccupation is serving the needs of Queen’s Park first and their constituents second.

Here again are some policy suggestions for a growing North that will create economic activity and ultimately foster economic independence and prosperity.  First, Ontario and the Federal government together should set as their ambitious goal the four-laning of the Trans-Canada highway through all of northern Ontario by 2020.  Such an ambitious infrastructure project will generate substantial economic activity and the improved transport corridor will generate long-term commerce and trade throughout the North.  Such a corridor will also complete the vital east-west zone of highway transit for the Canadian federation.  Second, the province should explore the creation of northern tax incentive and trade zones to spur economic activity and attract investment. These incentive zones are especially crucial in border areas immediately adjacent to the United States such as Sault Ste. Marie, Thunder Bay and Kenora.

Third, the provincial government should allow the North to operate its own regional electric power grid through a regional power authority.  The North is blessed with thousands of megawatts of potential hydroelectric power that is cost-effective, sustainable and not a contributor to greenhouse gases.  A regional power authority could become a valuable tool for northern development and provide the cheap electricity for value-added processing and development necessary for mining in the Ring of Fire.

Finally, the province should foster institutional change and bring about the creation of regional government in the north to foster regional planning and direction in the areas of energy, environment, transportation, economic development and resource management.  Indeed, the creation of new hydroelectric corridors in the North should fall under the auspices of a regional government.  Moreover, the regional authority would also open up access to crown lands for cottage and recreational development.  To date, crown lands have been administered as if they are as scarce as in the more populated South.  Indeed, an entire sea of regulations designed in Southern Ontario to administer a heavily urbanized region has been broadly applied to the North as a set of one size fits all policies.

These are not new ideas but it is time to bring them up again as we move into an election year as they are unlikely to be brought up by Ontario's current governing party.  If Northern Ontario is to prosper and provide opportunities for its children, Northern Ontarians must advocate more strongly than ever before.  The North is a resource abundant region with a skilled labour force but it requires the institutional tools to affect its development and chart its economic course.  Ontario’s next premier should think differently and unleash the potential of the North by giving it the tools its needs to help itself.

An International Perspective on Public Health Care Sustainability
Jan 17, 2011 Posted By: Livio Di Matteo Tags: health spending, international, public spending, sustainability

The sustainability of Canada’s public health care system is a constant policy issue and the evidence presented usually shows public health spending growing faster than revenues, national income and other government spending.  The specter is often raised that health will come to occupy ever-larger shares of provincial government health spending and crowd out other spending such as education and social welfare.

It is interesting to examine the growth of public health care spending in Canada from the perspective of international comparisons.  The World Health Organization (WHO) provides some interesting data sets on international health care spending in 2006 that facilitate comparisons.  Two figures from that data are presented below.  The figures are for nominal per capita government health spending in U.S. dollars and therefore are not adjusted for inflation or purchasing power parity.  It should be cautioned that some of the differences might partly reflect exchange rate differences.  Nonetheless, the results are interesting.

Figure 1 ranks the top 40 spenders from lowest to highest in 2006 and reveals that in per capita U.S. dollars, Canada in 2006 was the 16th highest spender in the world at 2,754 U.S. dollars per capita – between Belgium and Germany.  First was Luxembourg which spends 5,991 dollars while Norway, Monaco and Norway were the next highest.  The United States of America actually spends more per capita on government health care (its Medicare and Medicaid Plans) than does Canada – a fact that many Canadians are unaware of.  This figure also leaves off more than another 100 countries that spend below the top 40.  Indeed, some countries at the very bottom of the international rankings only spend a few dollars per year on health care period.  They are generally places you probably do not want to get sick in.

Figure 2 ranks the top 40 spenders in 2006 by the percent growth in per capita government health spending over the period 1995 to 2006.  The biggest increase is for Qatar at 415 percent followed by Korea and Ireland. Canada, at an increase of 112 percent over the 11-year period is in the middle of the top 40-pack, between Australia and Greece.  Japan, Israel and Germany are at the bottom of the spending list.

Needless to say, Canadian health care sustainability is a relative issue when examined internationally.  While increases in public health care spending in Canada are an important and serious issue, we are not alone in facing it.  We probably have much to learn from those that spend both more and less than we do.



Figure 1





Figure 2







So I Guess It Was Not A "Great Depression"
Jan 13, 2011 Posted By: Livio Di Matteo Tags: canada, economy, ontario, recession

Statistics Canada has officially weighed in on what many of us have of course suspected all along - that the Great Recession of 2008-09 was not only not Depression-like but also was not as bad as previous recessions.   Those of us who recall our economic history know that the Great Depression saw unemployment rates in Canada in the vicinity of 20 percent while some Canadian provinces saw their output drop by one-third.  Unemployment rates during the 1981-82 recession reached about 13 percent in Canada.  As for the 2008-09 "Great Recession", the unemployment rate in Canada did not break 10 percent (though it did in places like Windsor) and aside from the Ontario manufacturing impact did not seem as traumatic as past recessions.

According to Statistics Canada's study Comparing the 2008-2010 Recession and Recovery With Previous Cycles , while output contracted in the early stages at a faster rate than the previous two recessions, by most conventional measures (real GDP, hours worked and employment) the 2008-09 recession was less severe than the 1981-82 and 1990-92 recessions.  The most striking feature of the "Great Recession" was the severity with which the export sector was hit and this helps explain part of what hit Ontario industry which had a monoculture of forestry in the North and auto production in the South.  Ontario's economy is very closely tied to the U.S. economy and the severity of the downturn there hit Ontario exports quite hard.  Household demand and by extension consumer spending also appears to have suffered less during this downturn and this demand in a sense helped compensate for the export sector drop. I think that low interest rates and high debt loads households took on was probably a major factor stabilizing consumer demand during this last recession in Canada.

See below for some graphs on Canada's recession experience from Statistics Canada:















Reality Check: What is Thunder Bay's GDP Growth Rate?
Jan 11, 2011 Posted By: Livio Di Matteo Tags: economy gdp, thunder bay

According to a story in this morning’s Chronicle Journal (Better Strategy Urged, Chronicle-Journal, January 11, 2011, A3) it was reported that: “While Ontario cities have seen an average increase of nine percent in their GDP, Thunder Bay has only been growing at about one percent…” This is generally a positive sounding story because it stresses that while we are not growing as fast as other Ontario cities, we are still growing.  It would of course be interesting to know what the context for these numbers is and how they were calculated.  For example, is it real or nominal GDP?  Is it for the last year?  Is it an average for the last decade?  We’ll never know because of course the report the numbers are coming from will not be made public as the report according to the city manager is considered “an internal document”.  On the one hand the City of Thunder Bay wants an open process to engage citizens in its new strategic planning process and on the other hand it likes to keep its data part of an internal process.  Fortunately, there are other sources of data.  According to the Conference Board of Canada’s Metropolitan Outlook 2 Summer 2010 edition, Economic Insights Into 27 Canadian Metropolitan Economies, Thunder Bay has experienced negative real GDP growth over the last three years (See Figure below).  In 2007, real GDP growth was -0.3 percent, in 2008 it was -2.0 percent and in 2009 it was further reduced to -4.9 percent (See Figure).  How those numbers in any way might average out to one percent positive growth is something I certainly would like to see. It would appear that nothing much has changed in Thunder Bay city politics when it comes to objective research and data and open public discussion.



Figure 1





Changing Employment Picture in Thunder Bay
Jan 6, 2011 Posted By: Livio Di Matteo Tags: economy, employment, thunder bay

As I was preparing for my health economics class lecture this week, I came across a table I was using to illustrate the importance of the health care sector in a local economy.  The table showed the top 10 employers in Thunder Bay in May 2003.  I decided it was time for an update given that 2003 was the start of the regional forest sector crisis and a time of immense change and transition for the Thunder Bay economy.   What changes have occurred between 2003 and 2010?

The top employer in 2003 (See Table 1 below) was Thunder Bay Regional Hospital (now the TBRHSC) with 2,000 employees.  The top 10 employers accounted for 14,610 employees out of a total employment at the time of 65,700 – about 22 percent of total employment.  In 2010, the top employer (See Table 2 below) was still the hospital sector with the Thunder Bay Regional Health Sciences Centre (TBRHSC) now reporting 2,500 employees – an increase of 25 percent from 2003.  Next is Lakehead University, which is reported to have 2,250 employees, an increase of 51 percent since 2003.  After that is the Lakehead District School Board which reports 2,100 employees or an increase of 17 percent since 2003.  Still in fourth place is the City of Thunder Bay with 1,855 employees – an increase in employment of six percent.  Total employment by the top 10 in 2010 is 15,715 out of a total employment of 60,300 representing 26 percent of employment.

These numbers are really quite fascinating for a number of reasons.  First, total employment in Thunder Bay is down from 65,700 to 60,300 representing a decline of 5,400 jobs or about 8 percent of employment since 2003.  This no doubt is the impact of the forest sector crisis and associated spillovers.  If you look at the top 10 in 2003, both Bowater and Buchanan Group are among the top 10 employers with 1,603 and 1,262 employees respectively.  In 2010, both Abitibi-Bowater and the Buchanan Group have dropped off the top 10 list and according to  the Thunder Bay Community Economic Development employer list now only account for 500 and 610 employees respectively - a combined drop in employment of 61 percent since 2003. Indeed, according to this list, in Thunder Bay, Abitibi-Bowater now employs as many people as does MacDonald's Restaurants.

Second, while overall employment in Thunder Bay has dropped, the number of jobs accounted for by the top 10 has actually gone up by about eight percent.  Jobs in Thunder Bay have been both created and destroyed since 2003 but overall more have been destroyed than created.  Where are these new jobs?  Well, generally in the broader public sector.  Employment has increased substantially in the health and education sectors.  The increases in school board employment are particularly interesting given the widespread view that enrollment is declining and there are no jobs for new teachers.  The increase in Lakehead University’s employment numbers over this period by 51 percent are also interesting given that according to the university’s institutional statistics, the number of full-time faculty has grown by 22 percent - from 259 to 315. 

This can all be positively interpreted as growth in the knowledge economy but at the same time there is a disturbing absence of private sector involvement.  Whereas in 2003, 4 of the top 10 employers were in the private sector, by 2010, only one remained – Bombardier - and that company is also heavily reliant on the public sector for transportation purchases.  A growing dependence on public sector employment at a time when governments have moved into deficit territory should raise some warning flags for local leaders and policy makers.



TABLE 1: Major Thunder Bay Employers May 2003

SOURCE: CITY OF THUNDER BAY, TOURISM AND ECONOMIC DEVELOPMENT

1. THUNDER BAY REGIONAL HOSPITAL                                             

2,000

2.  GOVERNMENT OF ONTARIO                                                         

1,853

3.  LAKEHEAD DISTRICT SCHOOL BOARD                                          

1,800

4. CITY OF THUNDER BAY                                                               

1,750*

5. BOWATER                                                                                   

1,603

6. LAKEHEAD UNIVERSITY                                                               

1,492

7. BUCHANAN GROUP                                                                      

1,262

8. THUNDER BAY CATHOLIC DISTRICT SCHOOL BOARD                      

1,250

9. BOMBARDIER                                                                                 

850

10. RMH INTERNATIONAL TELESERVICES                                  

750                      

TOTAL FOR TOP 10                                                                                  

14,610

TOTAL THUNDER BAY EMPLOYMENT (May 2003)                                        

65,700

*In 2003, the FTE number of City of Thunder Bay employees was 1,749.7 but what was originally reported was the total number of employees, which was 3,080.  This actually placed the City of Thunder Bay 1st in 2003.  This has been adjusted to make the City of Thunder Bay numbers consistent with what they have reported as their employment in 2010 which appear to be the FTE numbers.



TABLE 2: Major Thunder Bay Employers June 2010

SOURCE: THUNDER BAY COMMUNITY ECONOMIC DEVELOPMENT CORPORATION



1. THUNDER BAY REGIONAL HEALTH SCIENCES CENTRE          

2,500

2. LAKEHEAD UNIVERSITY                                                                      

2,250

3. LAKEHEAD DISTRICT SCHOOL BOARD                                              

2,100

4. CITY OF THUNDER BAY                                                                      

1,855

5. GOVERNMENT OF ONTARIO                                                          

1,849

6. ST. JOSEPH’S CARE GROUP                                                          

1,700

7. THUNDER BAY CATHOLIC DISTRICT SCHOOL BOARD                      

1,521

8. GOVERNMENT OF CANADA                                                          

653

9. BOMBARDIER TRANSPORTATION                                              

650

10. CONFEDERATION COLLEGE                                                          

637



TOTAL FOR TOP TEN                                                                      

15,715

TOTAL THUNDER BAY EMPLOYMENT (June 2010)                                                          

60,300                      

Manitoba should consider an HST
Jan 4, 2011 Posted By: Livio Di Matteo Tags: economy, manitoba
by Livio Di Matteo

This originally appeared in the Winnipeg Free Press print edition January 4, 2011 A10

Manitoba has a reputation as a diversified and steady long-term economic performer. Indeed, in 2009, Manitoba alone among Canada's provincial economies did not contract.

According to the Conference Board, real GDP growth in Manitoba for 2011 will be 2.3 per cent placing it fifth highest amongst Canada's provinces.

This strong performance is evidenced by still robust housing investment and provincial unemployment rates that are below the national average. Even recent population growth has been strong by historic standards as the result of in-migration. With a strong agricultural sector and growing world demand for food, Manitoba seems well placed for future prosperity.

Yet there is the nagging feeling that all is not right and Manitoba demonstrates some economic weaknesses.

Though a part of Western Canada, Manitoba's economy has not grown as fast as Saskatchewan's or Alberta's and its projected GDP growth in 2011 and 2012 will also trail those provinces. If one compares Manitoba to its southern prairie neighbor, North Dakota, it is also Manitoba that has the higher unemployment rates and the lower real GDP growth. Manitoba's economic performance only looks stellar when it's compared with Atlantic Canada or northwestern Ontario.

Of course, Alberta and Saskatchewan are fuelled by the equivalent of economic steroids -- natural resource rents from oil, gas and potash. But Manitoba also has natural resources -- agricultural land and, more importantly, abundant hydroelectric resources.

Yet Manitoba seems to have not benefited as much from its natural resource base, given that electric power sales overall have declined in the last five years.

As for Manitoba's diversified and stable economy, the fact is that its celebrated manufacturing sector has also been slowly declining as a share of the province's economy over the last decade. The high value of the Canadian dollar and the impact of the recession in the United States, which takes about two-thirds of Manitoba's exports, have both played a role in manufacturing decline.

Another indicator worth noting is that Manitoba still gets one third of its provincial government revenues from federal transfer payments,much of that from equalization.

Equalization accounted for $2 billion last year, making up about half of all transfer revenue and about 17 per cent of total revenue. Given that equalization is paid to provinces with below average fiscal capacity, it means that Manitoba -- despite its diversified economy and "robust" growth, is still relatively weak economically.

As an equalization recipient, Manitoba is definitely a part of the East rather than the West as P.E.I., New Brunswick, Nova Scotia, Quebec and Ontario are the other recipients.

Aside from current strategies of investing in education and pursuing business tax relief, what else can Manitoba do to boost its long-term economic growth rate and competitiveness?

First, while its export markets are more diversified than other Canadian provinces, Manitoba needs to broaden its markets even more. Export opportunities in rapidly growing China, India and Brazil need to be explored more aggressively.

A benefit from the recent surge in international migration to Manitoba will be a host of instant trade ambassadors and contacts with other countries. The biggest sources of Manitoba's recent international immigrants -- Philippines, Germany, China and India -- are also where future export and import business opportunities lie.

Second, because of its beneficial effects for exporters, it may be time to revisit the controversial HST issue. Harmonizing the retail tax system with the GST can provide a competitive boost for industry and business by allowing them to claim taxes paid along the supply chain as credits against their tax liabilities.

Moreover, the HST reduces the administrative costs of complying with two tax systems. While this does entail a shift of the sales tax burden from business to consumers, the burden on lower income groups can be mitigated by a more generous provincial tax credit.

The benefits of the HST on the export sector and the economy are long-term, but in politics timing is everything.

Ontario implementing the HST at the height of an economic downturn was not terribly prudent. It was a calculated risk motivated by the looming fixed provincial election date in 2011. Burying the transitional impacts of the HST alongside the recession would hopefully allow it to reap the long-term economic benefits in time for the election while leaving consumer anger in the past. The wisdom of this strategy remains to be seen.

With the recession ending, Manitoba is fortunate to have the flexibility to reconsider implementing the HST during a time of economic recovery.

Livio Di Matteo is professor of economics at Lakehead University in Thunder Bay, Ontario.



Airports, Taxis & Monopoly
Jan 2, 2011 Posted By: Livio Di Matteo Tags: airport, taxi service, thunder bay

Well, I’ve just returned from a holiday trip away and like other years again found myself at Thunder Bay International Airport late at night in a cold line-up with numerous other people all waiting for a cab.  Despite the abundance of passengers, it took a while for lone cabs to arrive and my wait was about 15 minutes.  Given that the Air Canada flight I was on had just discharged at least 120 passengers and a West Jet flight arrived minutes later from Punta Cana, one would have expected to be greeted by a line-up of taxis eager to take your business. After all, with modern communications technology, cab companies must know the airline schedules and  should be able to assign capacity to meet expected demand.

Moreover, it’s not as if it’s not worthwhile to provide the service as the price is not exactly cheap. Like all firms with market power, taxi companies in Thunder Bay charge some pretty steep fees compared to other cities both inside and outside Ontario.  Indeed, in Ontario, Thunder Bay and Sault Ste. Marie generally have some of the highest cab fees. I live near Lakehead University and it is basically a 30-dollar ride to the airport.  A similar distance in Winnipeg can be had for 15-20 dollars while in Toronto, 108 dollars can actually get you from Pearson to downtown Hamilton while about 50 dollars gets you to Oakville.

Taxi service can be considered a partial monopoly by virtue of government franchise as the Police Services Board regulates entry into the industry as well as the fee structure.   Like many other cities, taxis in Thunder Bay face regulations regarding airport service that limit the amount of competition allowed. While all companies can drop off, one company has a monopoly on airport pickups and others are allowed to pick up only if a cab from the dominant provider is not there to provide the service.  In essence, one company has a degree of monopoly power over airport pick-up service.  I guess I don’t have a problem per se with monopoly though I would prefer more competition and lower prices.  We all have to make a living and if you can get yourself a monopoly or some kind of market power that can boost your price or income well then bully for you.

What is odd about the Thunder Bay Airport taxi situation is that the company with the exclusive rights does not seem able to meet demand.  By not having enough cabs at periods of peak demand, it is actually foregoing revenue while at the same time preventing entry by virtue of its government franchise.  The point of having a monopoly is being able to generate monopoly profits!  In the case of Thunder Bay’s airport taxi service, one cannot help but hypothesize that a reason for the high fees is simply to maintain a target income flow while reducing operating costs and service.  If business drops because of the poor service, simply petition for an increase in rates to make up for the business drop.  The only beneficiaries from this type of oddball business practice are probably the airport parking authority and the car rental companies.  More competition and lower prices in the airport taxi business would probably force them to lower their fees too.

Apparently, the Police Services Board in Thunder Bay has hired a consultant to study taxi bylaws and fees. (Taxi bylaws to come under review) One would hope that a result of this review would at least be a move to greater taxi capacity at the airport during periods of peak demand.  After all, the first impression on visitors and business people arriving in Thunder Bay for the first time and trying to get somewhere is not great.  High prices and fast, efficient service is acceptable but high prices with slow, inefficient service is definitely bush league.