Service Exports Help Drive Growth in Well-paying Jobs

By C.D. Howe Institute —— Bio and Archives January 9, 2014

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TORONTO, - While manufacturing has been struggling to recoup job losses, Canada's tradable services sectors have been expanding, providing an increased number of well-paying jobs in Canada in the midst of tough economic times, according to a report released today by the C.D. Howe Institute. In "Tradable Services: Canada's Overlooked Success Story," author Daniel Schwanen finds the relative strength of the Canadian economy has shifted towards the services side, and policy should now seek to exploit that strength. "Tradable services are an area of strength for the Canadian economy, and certainly one of relative success when it comes to exports and the creation of 'good' jobs," commented Schwanen.

Schwanen surveys Canada's services sectors over the past decade, tracking employment and weekly earnings, and finds the higher wage jobs are located mainly in internationally traded goods and services. Further, the tradability of a good or service is closely related to firms' investments in education and physical and intellectual property (IP), which contributes to higher earnings overall. Services, such as insurance, research and development, architectural and engineering services, and commodities trading, rely more on investments in highly educated personnel or IP than on large amounts of fixed capital per worker. Schwanen finds between 2001 and 2012, the volume of Canada's goods exports fell by 1.8 percent, whereas the volume of commercial services exports rose by 35 percent. This shifting strength has implications for government policy, he says. However, policy should recognize the interrelationship between the manufacturing and services sectors. Tradable services are key to manufacturing competitiveness, as well as to successful resource-based development, says Schwanen. Both manufacturing and resource industries depend on engineering, technical, scientific, design, research, management, financial, logistical, management, communications, and other services. The skills and knowledge used in these services sectors are vital to the success of Canada's goods-producing sectors and, once acquired, can be applied or sold abroad.

Schwanen warns a policy to deliberately talk down the Canadian dollar as a way to help Canadian manufacturing jobs - should it be adopted - could be counter-productive. A similar critique could be made of policies that would subsidize so-called "value-added" manufacturing that is based on resource processing, rather than focusing on marrying Canada's services strengths — in science and engineering, for example, with its resource base. Canada has smarter policy tools at its disposal that would bolster manufacturing competitiveness, says Schwanen. These include addressing policies — such as those relating to milk and energy — that raise the cost of manufacturing inputs. More fundamentally, he says, Canada needs to deal with its relative neglect of skilled trades and manufacturing-oriented careers in Canada, exemplified by the significant interprovincial barriers to trade apprenticeships within Canada. Canada's trade policy should seek to exploit our Canada's strengths in the tradable service sectors, said Schwanen. "Economic policy thinking should focus less on a presumed conflict between resources and manufacturing, and more on the contribution that trade in commercial services can make to Canadians' standards of living." For the report, click here: