Something’s wrong with London

Generally speaking, Ontario is not doing well.

The province’s employment rate still hasn’t recovered to its pre-recession levels, and in fact hasn’t been this low for this long in almost 15 years, when we were still climbing out from the rubble of that other recession.

The raw change in Ontario employment from January 2008 to November 2013 was +300,000. However, this was not large enough to keep pace with the population increase, and consequently the employment rate is now two points lower, a drastic difference especially in an economy the size of Ontario’s. (The participation rate is also down, masking the problem to some degree by keeping unemployment lower than that which would cause headline panic.)

Lagging employment growth is a problem province-wide, essentially. But by CMA it breaks down like this (expressed in thousands, with the change in employment rate following):

+281 Toronto (-1.3)
+37 Kitchener (+3.4)
+22 Ottawa excluding Gatineau (-3.8)
+17 Oshawa (-1.7)
-6 Hamilton (-5.1)
-7 London (-5.4)
-8 Windsor (-2.9)
-9 St. Catharines (-3.8)

There are some pretty disturbing patterns here. If you’re not Toronto, Ottawa, or tied closely to one of them, you’re doing worse. +300,000 overall and +303,000 in the Toronto/Ottawa CMAs speaks for itself. Border towns and southwestern Ontario (or, in one case, both) are the worst off.

The exception is the Kitchener-Cambridge-Waterloo CMA. The high-tech sector is an obvious explanation for this (and the numbers bear it out). Following a city presentation of economic data during the worst part of 2009, a COO at one of the tech companies headquartered in town told me ‘when you talk about job losses, it’s just not our experience at all.’ I don’t wish to diminish the impact of the negative Blackberry stories (I do have friends who work there, or who did recently) but at the same time the rest of the region really wants software developers. All regions do, but this one knows what to do with them.

The second factor is that their employment numbers are simply on a hot streak right now, and that’s not likely to continue. November’s rate was 70.2%, the highest it has been since 1996. The two months before that were 69.2 and 67.7, and the entire year prior to that had Kitchener under 67%. A more representative change would be closer to +1.0 rather than +3.4, though of course that is still better than everywhere else.

Another factor, a less transient one, is Kitchener’s very high labour-force-participation rate. This doesn’t affect employment directly, but among other things I think it indicates a measure of confidence in the local economy. Those who are looking for work could either stop looking for work, or move for work elsewhere. They (generally) did not do either of these. To me, that means that the local economy is not just in relatively good shape, certainly relative to the rest of SW Ontario, but also known to be in good shape. And that may help keep job-seekers around (and active).

That last part, the knowledge of the situation rather than the situation itself, is key. I know I spent a fair bit of time at city hall trying to convince the local paper that a giant banner headline of “10% unemployment” wasn’t instructive or helpful to its readers (the fact that I had a vested interest in making the city look good was entirely secondary to correcting someone else’s poor statistical reasoning, I assure you). Perception rules over reality in many cases and at the risk of entering nonsense narratives here, I do think that all else being equal, the average person in KW believes in the future prospects of KW more than the average Londoner, say, believes in London.

KWC and London used to be each other’s closest comparables. (In geography, population, junior hockey support, economic mix…) But comparing them now makes it clear just how disparate the two regions have become. And, if I may be indelicate, how screwed London is.

Rather unbelievably, employment in every non-healthcare industry declined more in London in the last four years than it did in Kitchener. (These data are based on annual moving averages, as they are not seasonally adjusted, which also means they are not hugely affected by the recent blip in Kitchener’s employment.) If London’s growth rates by industry matched Kitchener’s from 2008/01 to 2013/11, there would be this many more jobs in each of London’s sectors:

7,470 Educational services
7,304 Professional, scientific and technical services
4,690 Transportation
4,370 Manufacturing
3,585 Construction
3,189 Retail and wholesale trade

This is a widespread and severe relative decline. I didn’t really grasp how significant London’s problems were until now, and I didn’t even list every industry, either. Virtually all jobs in London not in one of these groups are affected by one or more of them. This isn’t just a case of a couple of plants closing in St. Thomas. It is not an overstatement to say these job losses are crippling the entire city.

Now, to some degree, we are looking at the worst part of the data. January 2008 was before most of the bad things* happened. (*Technical term.) And “jobs” aren’t the sole determinant of economic health; often they aren’t a good one at all. And as mentioned healthcare is seemingly doing fine (one in six jobs, apparently, in London as a whole). But everywhere in Ontario was subject to the same recent pressures, and a longer view is no more kind to London.

Here is the employment rate for London, Kitchener, and Windsor, compared to Ontario as a whole, since 1996.

ont_emp

Kitchener was usually ahead by a point or two. In 2008 and 2009 they both followed the same descent felt Ontario-wide. The big difference after that? Ontario stopped the bleeding. Kitchener turned it around. London got worse.

Windsor’s inclusion here is instructive. For most of the early 2000s, KWC and London tracked either other fairly closely, as you can see. They rose and fell at the same times. Then that correlation stopped. Not when things were bad, but when they were supposed to be getting better.

This next one is the “last-36-month correlation” between the employment rates in the listed CMAs, running through to the present day. So for example, for most of 2002 through 2005, the employment rates in KWC and London were highly correlated with each other.

ldn_correl

In other words, London is being adopted by Windsor. The estrangement from the Kitchener side of the family has been going on for a couple of years now.

The real question here is what to do about it. (What not to do about London specifically and Ontario is general is, as my friend wrote last week, hand out corporate welfare to profitable companies in thriving industries in other, relatively-well-off cities.)

“Skills training and re-education” gets thrown around a lot, usually by politicians who don’t understand the concept. Education isn’t the difference here anyway. Kitchener is one of the least formally educated CMAs in Canada, with a very high proportion of high-school dropouts. (This is news to you only if all you know about the region is what you read in Toronto papers — a group that appears to include many provincial leaders.) It is almost impossible for another city to be so much worse in terms of basic education that it would make their ability to recover from the recession worse than Kitchener’s. So that doesn’t explain London.

It also isn’t a case of London’s reliance on disappearing manufacturing jobs. Well, it’s not just a case of that. You saw all the different industries up there on that list. London’s share of the workforce in manufacturing went from 18% to 14% at a time when employment was holding steady in the city. That 18% was the highest it’s been lately, and yet wasn’t as high as Kitchener’s is now, at 19%. What may be showing up here are the different kinds of manufacturing in one city or the other. Manufacturing is another one of those words that gets used when it means a lot of very different things. It’s not that helpful to have every subsector grouped together. I can speculate on Kitchener’s different distribution within manufacturing, but more detailed data than I have currently are necessary to tease this out.

I’d want to know more about what’s going on with education, too. That’s the biggest gap, though maybe only because Statscan is frankly incompetent at some of its NAICS-by-CMA estimates. If it’s indeed true that London’s behind Kitchener by thousands of jobs in that area … why the hell is that so? They both have very good universities and colleges. Maybe Western needs more alumni from that Canadian 0.1% to donate millions for a new building. (This is the only time I’ll suggest that the problem is not enough rich, proud Western grads.)

Finally, it may be the case that London’s oriented too much towards the U.S. and with how things are going in the States (you don’t want to see Michigan’s graphs, trust me), that may be playing a role here, too. This problem isn’t just affecting the goods sector; many, many services are bought and sold to Americans.

It will take someone with more intimate knowledge of the city to figure out where London can go from here. What is clear, though, is that the city’s in bad shape, and it needs something to get turned around.

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5 Responses to Something’s wrong with London

  1. Cameron says:

    This is a really fascinating post. It very much corresponds to my experience recently living in Kitchener for a year. I recently had to leave unexpectedly for work reasons, and whenever we discussed selling our home, everyone outside of Kitchener assumed we’d have trouble. But we didn’t – it sold in a week.

    Kitchener’s full of a very optimistic and confident labour force. Even the BBers always seemed very confident everything would work out. Having grown up in Ottawa during and then post Nortel/Newbridge/JDS UNIphase, that’s not how people in troubled tech companies talk in other cities. It’s very special.

    The question I have, though, is do you have any insight into how the manufacturing/blue collar sector is so strong in Kitchener? Other than the good jobs at Toyota in Cambridge, I never understood how my predominately blue collar neighbourhood was so prosperous and confident. It wasn’t something I’ve seen in other Ontario cities where I’ve lived. Usually, blue collar work these days means being squeezed. In Kitchener it didn’t seem that way.

    Anyways, thanks for the post, and my apologies for the long comment.

    • Your question goes to the complexity of manufacturing and it’s something I should really look into more (the additional data I referred to above). What I recall, and this is from three or four years ago now, is that while Kitchener’s workforce was concentrated in the manufacturing sector overall, the diversity within manufacturing was quite high. For example, I am reasonably certain RIM was classified as a manufacturing operation (they are in W, not K, so I don’t know for sure). There is no RIM in London, not even what’s left of RIM. Also, Kitchener may simply have, for lack of a better term, more “advanced manufacturing” than London. There are plenty of KW mftg. firms with a cadre of research scientists. (The same types of companies could exist in London; I’m just not as familiar with the city.)

      • Cameron says:

        Thanks for the response. It’s all very interesting to me. Whatever KWC’s done is very special, and it strikes me that it really could be a model of sorts. For both better and for worse (ie. I don’t know if it can be replicated), when politicians talk about their vision for the economic future, I kind of feel they mean something like what’s going on these days in KWC. Thanks again!

  2. Gary Will says:

    RIM/Blackberry is classified as communications equipment manufacturing, which was not only (by far) the largest component of KCW’s tech sector as of 2011 and the second largest employer in the region, but was also gave KCW the most communications equipment manufacturing workers in Ontario. http://blog.garywill.com/2013/09/rim-was-beatles-of-waterloos-tech.html

    The education numbers are very odd. In 2011, London CMA and KCW were neck-and-neck in educational services, and that’s also reflected in the NHS numbers where London CMA was reported at 21.3K and KCW at 21.0K for employees in the sector. The occupation stats showed the two regions with comparable levels for university profs, college instructors and elementary/secondary teachers.

    They were still nearly equal in the summer of 2012, then something happens in the fall of 2012 and the gap starts widening. According to StatsCan, in June 2013 KCW was at 30.4K while London CMA was at 17.4K—so we’re getting close to a 2:1 gap in less than a year. And I don’t see a seasonal explanation, since StatsCan had London CMA ahead of KCW in June 2012. The gap has since narrowed somewhat, but it’s hard to believe in such a large sector that the numbers could actually change so much in one year without anyone noticing,

    • Thanks for adding that info, Gary. (Was a longtime reader of yours, too, back when I worked for Kitchener.) The KCW education numbers have been messed up for years so I’m not surprised that further shenanigans have ensued. Then again, the margin of error on these estimates is probably enough to render them near-useless anyway.

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