Blowin' In The Wind

Yes, how many times can a man turn his head Pretending he just doesn't see? The answer my friend is blowin' in the wind The answer is blowin' in the wind. -- Bob Dylan, Blowin' in the Wind Yesterday Ontario's Energy Minister, Bob Chiarelli was blowing in the wind again when he said: "Businesses will come and go in Ontario... The reality is that there are more coming in than are leaving --very significant."

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Although an apparently simple claim at face value, it bears some careful examination. The phrase are more coming in than are leaving would focus on number of companies whereas the real issue is the number of jobs and the relative value of those jobs. To examine Chiarelli's claim we will look at overall employment numbers and average wages in two industry sectors, goods-producing industries that include manufacturing, construction and natural resource extraction, and service-producing industries.

Changes in the Labour Force

In our monthly analysis of Ontario job numbers (The Ontario Employment Picture: October, 2014) we look at two data sets from Statistics Canada. The first, CANSIM Table282-0087, Labour force survey estimates (LFS), by sex and age group, seasonally adjusted and unadjusted monthly is extracted in Figure 1 and shows graphically the variation in the Ontario labour force and total, full-time and part-time employment over a 10 year period. The second is the breakdown of employment by North American Industry Classification System categories, CANSIM Table282-0088, Labour force survey estimates (LFS), employment by North American Industry Classification System (NAICS), seasonally adjusted and unadjusted. This data is summarized in Figure 3. Note: click on any chart to open in a larger window and click your browser back arrow to return. Figure 1. Ontario labour force (orange line) and total (magenta line), full-time (green line) and part-time (blue line) employment. Source:CANSIM Table282-0087 As can be seen, there is a slow linear increase in the number of jobs, mostly in the full-time category. By themselves these numbers are only partly informative. A broader picture is obtained in Figure 2 where we show these numbers as a percentage of the population. Figure 2. Ontario labour force (orange line) and total (magenta line), full-time (blue line) and part-time (red line) employment as a percentage of provincial population. Source:CANSIM Table282-0087 We note from this graph and the underlying data that there is a decrease in jobs of 2.3% over the 10-year period relative to the overall population. Another way of saying this is that every job has come to support a greater population base. This is important because tax on income in a large part supports social and medical entitlement programs. Figure 3. Ontario employment: total (orange line), service-producing (green line) and goods-producing (magenta line). Source: CANSIM Table282-0088 Figure 3 above shows that all the growth in Ontario jobs over the last 10 years has been in the service-producing sector with a loss overall of goods-producing jobs. This is the celebrated service economy the Liberals have transformed the province into.

Relative Value: Goods- Versus Service-producing Jobs

We can get an idea of the relative value of different jobs by studying the average weekly wages paid by the different industry sectors shown in Figure 4. The Canadian data is contained in CANSIM Table281-0026, Average weekly earnings (SEPH), unadjusted for seasonal variation, by type of employee for selected industries classified using the North American Industry Classification System (NAICS). Figure 4. Average sectoral wages in Ontario: goods-producing (orange line) and service-producing (magenta line). Source: CANSIM Table281-0026 As can be seen from Figure 4 and the underlying data, for August 2014 the last month for which data is available at this time, the average goods-producing weekly wage of $1159.57 is $266.76 greater than the average service-producing wage of $892.81. This is a 30% difference.

The Shift from a Manufacturing to a Service Economy

Over the last 10 years of the Liberal's management of the economy, Ontario has shed 233,400 goods-producing jobs replacing them with 883,100 service-producing jobs. This translates to, using today's wage rates, a loss of $270.64 million in goods-producing wages against a gain of $788.4 million in service-producing wages. The net wage gain over 10 years is $517.8 million or $51.8 million a year. This is a rather paltry growth from Canada's largest provincial economy. Unfortunately, Statistics Canada does not have good GDP data. CANSIM Table379-0030^1,2Gross domestic product (GDP) at basic prices, by North American Industry Classification System (NAICS), provinces and territories has only five years of annual figures, the most current being 2011. It shows that in 2011, Ontario had an economy measured at $617.8 billion, an increase of $28 billion or 4.8% over 2010. We haven't studied GDP so cannot say what wage growth contributes to it. The provincial economy was growing after two years in recession. Our study is based on a 10 year time frame with the 2007 recession buried in the data. There has been material written on the economic shift in jobs such as The Shift from Manufacturing to Service Economy. Our point is that for Ontario, the shift has not been positive.

An Electrifying Contribution to the Problem

Energy Minister, Bob Chiarelli will of course try and spin the energy problem in the same positive light he spins his windmills. Using the old political trick of blame the other guy, he presents the problem, according to the SUN as:

The Ontario Liberals had to rebuild the electricity system after the PCs left office, installing about $30 billion in new transmission and generation to ensure the province had enough supply and moved away from dirty coal-fired power, Chiarelli said.

The fact is that the electricity system was working just fine when the Liberals took power 11 years ago. They made huge changes to the generation system by phasing out coal-fired stations, building, un-building and moving gas fired stations, and distributing wind and solar generators throughout the province. Transmission lines that served the coal plants have become largely redundant. On the other hand, the grid has had to be changed across large parts of southern and eastern Ontario to accommodate the increased power from local wind and solar farms. Transformer stations had to either be re-engineered or built anew as a result and central control of generation has becomes more challenging. For those who want to understand the complexity that renewable generation imposes on an electricity system, an excellent article appeared on Dr. Judith Curry's blog titled More renewables? Watch out for the DuckCurve. The point in correcting Chiarelli's misinformation is that major costs have been incurred both on a one-time and an ongoing basis (the high rates paid to renewable energy generators) that have raised the price of electricity. The Ontario Energy Board has a nice table of Tiered Prices that shows from 2004 to 2014, the lowest tier price increased by 87.3% and the highest tiered price that would affect manufacturers increased by 87.3% also. As the Globe and Mail noted in 2013: Ontario drives manufacturers away with overpriced electricity.

Summing Up

The overall management of the Ontario economy by the Liberal government over the last 10 years has resulted in:

• a net loss of 233,400 higher paying goods-producing jobs;
• a net gain of 833,100 lower paying service-producing jobs;
• each goods-producing job lost paying 30% more than each service-producing job gained on the average;
• the percentage of the population employed dropping by 2.3%; and
• an increase in electricity rates of 87%.

Chjarelli is correct that jobs come and go. But the net change in the labour market has been economically negative from a value point of view. A major cause of the shift has been the increase of electricity costs for manufactures which along with payroll taxes is sending them out of province. The electricity system has become much more expensive and much more complex. With increased complexity comes increased risk of failure. Mr. Chiarelli obviously doesn't see from his public speeches, the problem his energy policies have helped create. He and his wind turbines are blowin' in the wind.

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