Explanations of the Decline in Manufacturing Employment in Canada

The objective of this report is to examine the reasons for the decline in manufacturing’s employment share in Canada, with particular attention paid to the roles of labour productivity growth, demand-side factors, and outsourcing. The results of the report suggest that above average labour productivity growth explains most of the decline in the manufacturing employment share before 2000, while below-average real output growth explains most of the decline after 2000. The slowdown in real output growth after 2000 reflects the sector’s poor export performance which is related to many factors, including: a loss in cost competitiveness linked to an appreciation of the Canadian dollar; increased competition in the U.S. import market; and a slowdown in domestic demand growth in the United States. However, the story becomes more complicated when manufacturing employment is broken down into its various components. In particular, the evolution of manufacturing employment was, in different periods, largely driven by the fortunes of specific industries.