The ghost in the machine – understanding employment figures

You probably know by now that New Brunswick’s employment performance has not been very good since the recovery started across Canada.  Over the last year, New Brunswick was the only province in Canada to register a decline in total employment (June to June).

We have been told by the media since the start of the recession that New Brunswick fared much better during the recession than the rest of Canada due to its ‘diversified’ economy and strong ‘fundamentals’ and that New Brunswick was first out of the gate with an aggressive stimulus program.

It’s one of those live by the sword, die by the sword moments. 

I said it then and I’ll say it now.  We didn’t have the booming growth in employment that places like Ontario and Alberta had for the past 15 years so we didn’t have as far to fall during the recession.  Government spending actually picked up during the downturn and the main sectors that were hurt – auto, other manufacturing, oil & gas, etc. have very little presence here to begin with.   You can’t lose what you don’t have.

Now as the national economy picks up steam again there is no ‘natural’ growth pattern for New Brunswick (little to regain) and we are back to the structural issues.  

I expect fairly tepid employment growth moving forward  – maybe more declines – if we don’t see any new sector opportunities emerging.    NB-focused services sectors (including most construction) are reactive.  As there is new growth in the economy, these sectors react and hire more staff.  10 new call centres or five new manufacturing facilities lead to the requirement for 50 new retail clerks, 5 new hairdressers, 4 new plumbers (#s not accurate – just for illustration).    It doesn’t work the other way around.   If we see a rash of new hairdressers, it won’t lead to a new manufacturing plant setting up in the province.

So we does this new, primary growth in the economy come from?  It won’t come from government spending – you can expect government spending in New Brunswick to remain fairly consistent for the next at least five and probably closer to 10 years.

Will it be manufacturing?  Certain segments of the manufacturing industry are starting to pick up but the competition is enormous.

Will it be call centres?  There are still some niche opportunities here but I don’t see much overall growth on the horizon.

Will it be IT?  Again, it’s a very competitive space – particularly if we are looking to attract established companies here.

Will it be energy-related?  Areva is one of those projects that could gird up employment for a couple of years but that project is still several years out – if it goes ahead.  As for gas exploration, we can expect a modest increase in activity but not a massive injection.

Government needs to think about this stuff.  It’s easy to issue press releases each month trying to spin the labour market numbers but eventually they can catch up to you.    Either you have economic growth drivers or you don’t.

8 thoughts on “The ghost in the machine – understanding employment figures

  1. Why couldn’t it be agricultural? I don’t mean to suggest that we go further into the agricorporation move, but rather pull a Rwanda, and focus on high-value-added agricultural goods. The most recent government report on agriculture in New Brunswick pointed out that most farms in the province are still located in traditional coastline settlement areas, leaving a good portion of New Brunswick’s best arable land still undeveloped, or perhaps in the hands of forestry companies. A subsidy for farmers to undergo the organic certification process would probably go a long way towards attracting people interested in pursuing sustainable and high-value added agriculture in province, that could kick start more labour-intensive primary growth.

  2. What about natural resource exploration and development. The rest of Canada is doing it and has been doing it for years. Why is NB an exception? This tends to draw in all sorts of talent and skill sets. The uranium and carbon fuel deposits seem to be moderately abundant. My favorite equities to watch lately have been Canadian uranium miners. They have tons of potential especially once the movement back toward nuclear energy picks back up in North America, especially the states.
    This would at least give the local economy and government enough of a boost to explore other possible drivers.

  3. “If we see a rash of new hairdressers, it won’t lead to a new manufacturing plant..”

    Richard Florida would probably say that encouraging ‘creative’ hairdressers can lead to a whole new fashion industry, right here in NB! Not sure how many call centre employees or mill workers could afford (or want) creative hair dressers, tho.

    Seriously, tho, I think Mike is correct that natural resources can be a focus for high-paying jobs; not just for the miners themselves, but for R&D that deveops the resources into high-value export products. Unfortunately, R&D is a long-term investment and that runs into the short-term needs of accountants and politicians.

    Whatever the focus turns out to be, it needs to be on export-oriented sectors that generate high-wage jobs. For that reason, I would not give ag a high priority; the jobs it produces tend to be low-wage (that is one reason why NB farmers increasingly turn to Mexico and the Caribbean for farm labor).

  4. I agree with you on the numbers regarding lower wages for agriculture, Richard, assuming everything stays the same going forward. I just don’t happen to believe that food prices will remain where they are. I’m in the Tantramar region of New Brunswick, where the demand for organically-produced food far and away outstrips the supply. Organic producers are turning customers away.

    Rather than turning to mining or other natural resource extraction, with all of their negative externalities, I’d suggest creating an attractive environment for people who aren’t after high-wage jobs to come and farm here. If you subsidize organic certification, you create that environment. Land is relatively cheap. Demand for the products is high. The people who are interested in fully organic farming tend to be younger, in it for the long run, and could reverse some of the demographic issues facing the province. Immigrants, not as farm labourers but as farmers, could also be a source of new blood/talent. And as Mr. Campbell is fond of observing, the change in demographics is essential to creating a new virtuous cycle of economic growth in other areas as well.

    The other side of this is that it will cost very little to implement, with potentially large upsides, with the sustainable practices of organic farming having very few (if any) long term negative external consequences. On the other hand, take a look at this video demonstrating the effects of extracting natural gas through a common method called “fracking”:

    As the man said, let 1000 flowers bloom. But my case for giving agriculture higher priority is based upon the idea that I wanna be able to eat the flowers, rather than have them blow me up. 😉

  5. “I just don’t happen to believe that food prices will remain where they are.”

    That’s likely true. But that won’t affect wages paid to farm workers. They will remain low-paid; food distributors will collect most of those profits. Ag is not an answer to NB’s ills – NB has relatively little good land for ag; true that land is currently under-exploited, but there is just no way govt should be further subsidizing activities that will not promote high-wage export-oriented jobs. If you want to stimulate sales of organic food, then I suggest that you support policies that will create high-wage jobs in NB. The more high-wage earners, the more disposable income, and the greater demand for organic produce.

    I am not sure why you are providing organic ag and natural gas extraction as alternatives to one another – one has nothing to do with the other. Both are low-end activities, insofar as the NB economy is concerned.

    As far as ‘1000 flowers’ is concerned, given its fiscal state, NB can’t afford to run in all directions at once. We have to pick and choose the sectors most likely to create large numbers of high-wage export-oriented jobs. That excludes ag.

  6. Agricultural development is obviously a very important driver for the local and regional community, but as it relates to job creation and as a major economic driver, it has its limits. You can only employ a certain number of people per acre of farmed land. You can also only produce as much as the land is able to support. One area in agriculture that can translate into a major economic driver is Agro-business in seed and farming technology. Big chemical companies are spending millions of dollars on this kind of research and development. Other parts of the world, however, have better resources in which to conduct such research and larger markets to provide sufficient incentive for development. NB and the maritimes need to find some other niche to drive there economies. One area that seems to be surfacing in the news more often is the development of the ports for major shipping sites. They are very strategically located near key transporation routes both inland and by the sea. If done properly the Maritimes could develop as a central port to Asia for North American and alternatively Europe.
    This could lead to more value adding jobs in the area with the increase in the flow of goods, not just transportation!!

  7. Fair enough, Richard. I agree with you, insofar as the existence of high wage jobs creates higher demand for other products, such as organic food. However, the subsidization of high wage export-oriented jobs is far from a panacea, for a number of reasons. Firstly, the competition for the companies with that demographic, by local governments, is massive. To the point that the total economic returns for those jobs may be far below less obvious activities. Hundreds of millions of dollars in subsidies to create 150 high wage jobs is very politically salable. However, the massive subsidies come in order to secure longevity against the economic reality; export-oriented industries are highly elastic in response to exchange rates, material costs, and a whole range of exogenous factors that make subsidizing these activities economically, if not politically, risky.

    Wages for farm workers are likely to remain low, I agree with you. But there is a minority of the population in the world for whom low wages are perfectly acceptable, so long as they have independence, and the freedom to innovate. For whom sustainable practices are an end onto themselves. Creating demand for their product isn’t a problem; the demand already exists in droves, and sending it higher is no more difficult than changing existing perceptions; that their products are difficult to obtain, overly expensive, or there are no benefits to choosing it over the alternatives. In other words, the supply side of the equation. The relative low cost of these subsidies, relative to the potential upsides should they be successful, make them more economically reasonable, if counter-untuitively so.

    And if I may; the provision of plentiful organic produce, from a secure (read: diverse) supply, does create a competitive advantage for the province from a residential point of view. Granted, it is unlikely to attract companies to come to New Brunswick to provide high-wage export-oriented jobs of itself, especially compared to 9 figured subsidies. However, it is likely to provide an incentive for highly-skilled innovators to choose New Brunswick as a place to live, and those are more than worth their weight in gold.

  8. “However, the subsidization of high wage export-oriented jobs is far from a panacea, for a number of reasons.”

    I’m not sure what you are talking about here. I am not proposing to subsidize all export-oriented jobs until the end of time. Furthermore, that subsidy should not be the only inducement; NBs environment has its attractions and we do have natural resources that can be utilized to produce high-end products – not everyone has those.

    ” The relative low cost of these subsidies”

    In my experience, ag subsidies are significantly large and never-ending.

    “And if I may; the provision of plentiful organic produce, from a secure (read: diverse) supply, does create a competitive advantage for the province from a residential point of view”

    Perhaps, but I do not think that this is likely to be the case. NB is on a poor position relative to ON and QC to be successful as an organic ag exporter to any significant extent – they have larger markets close by and scale advantages.

    Insofar as attracting people with organic produce, I think you have it backwards. Get the higb-wage earners here by providing economic opportunities and they will create a market for organic produced. A good example of this is the Boyce Market – organic providers have developed to meet the demand there for organic produce.

    “But there is a minority of the population in the world for whom low wages are perfectly acceptable, so long as they have independence, and the freedom to innovate.”

    Perhaps, but low wages do not generate much tax revenue, and its tax revenue that NB needs to get out of debt and pay for basic services. We sure aren’t doing that now.

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