Report quashes claims Dutch disease eroded manufacturing

School of Public Policy study reveals the sector was healthier in 2008 than 2002.

September 6, 2013   by PLANT STAFF

CALGARY — A new report by the University of Calgary’s School of Public Policy says the manufacturing sector has not been a victim of Dutch disease, especially as it pertains to employment.

Dutch disease is used to describe how a flourishing resource sector and a high value dollar causes decline in manufacturing.

“The term Dutch disease is a misnomer; the Canadian manufacturing sector was arguably healthier in 2008 than it was in 2002,” writes Stephen Gordon, the report’s author and a professor of economics at Laval University in Quebec City.

The Canadian Manufacturing Sector, 2002-2008: Why is it called Dutch disease? notes employment numbers in manufacturing between the 2002-2008 show a drop of 328,000 jobs; however, real wages in the sector increased over the period and the jobs that were lost were “generally low paying.”

The reduction in employment is actually caused by workers leaving that sector and taking higher-paying work in expanding sectors, says the report.

“Real wage growth was anemic through the 1990s, and the loss in purchasing power induced by the 20% depreciation in the value of the Canadian dollar during the decade was a contributing factor. The only period of significant wage growth over the past 30 years was during the shift out of manufacturing.”

Gordon says Canada is the only G-7 country where manufacturing employment is on par with what it was 40 years ago. Other industrialized countries have seen steady declines for decades, a trend that pre-dates the arrival of Chinese manufacturers in world markets.

As additional evidence the manufacturing sector is not facing its demise, Gordon’s report points to an increase in the stock of hi-tech technology. Investing in information and communications technology, machinery and equipment “is the sort of investment that is most closely linked to technical progress.”

Gordon also indicates that R&D activity in manufacturing appears to have held its own after 2002.

Click here for a copy of the report.

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