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May 12, 2014

Why don’t we focus more on services?

In discussions on employment and the Canadian economy the focus is almost exclusively on the production of goods. Factory x closed and with it went Y jobs. Now, as I’ve written before here, I’m very attuned to the broad benefits that a healthy and productive manufacturing sector brings to an economy. That said, the reality is that nearly three-quarters of Canadians work in services-related industries.[1] Moreover, looking at total employment, over the period of 2007-2013 (I chose 2007 owing to pre-recession), all jobgrowth in the Canadian economy occurs in the services sector. While goods-producing sectors see a net loss of 100,000 jobs over this period, the services sector grows total employment by over 1.4 million jobs.

Subsequently, figuring out how to coax more productivity and employment out of this sector should be as important of a goal for policy makers here in Canada.

This thinking is influenced by a major project the DEEP Centre completed earlier this year for a U.S. foundation.  Our conclusion to this work, and the driver for a similar focus in Canada, is that new technological platforms offer a variety of types of service providers with a means of accessing massive new service import markets.

Now, while more than 13 million Canadians work in the service sector, this number includes what we’ll call non-tradable services such as government services, retail, accommodation and food services. Moreover, while elements of health and education can be exported (online learning and health technologies, for example), these are small shares of total employment in the sector. Focusing in on “tradable” services-sector employment using a very conservative estimate of what is tradable across borders, leaves around 2.5-3 million jobs. This isn’t far from the total number of manufacturing jobs in the country (3.8 million). And given that the conversation around manufacturing jobs usually revolves around their high quality wages, why is little attention paid to the export of these tradable services whose salaries are usually higher?[2]

Perhaps it’s due to the fact that Canada runs a significant services trade deficit of $24 billion. However if you break this aggregate number down by its component parts, you’ll see that over $17 billion of that deficit comes from personal and business travel, i.e. booking on American Airlines rather than Air Canada.[3] Another $7.5 billion comes from our use of foreign shipping companies.

On the flip side, when it comes to tradable professional and commercial service, Canada actually runs a healthy surplus of approximately $10 billion (depending on how you want to segment things).

This sign of competitiveness should be on the radar as an area we want to exploit and expand. Given that the spending power of middle-class consumers in emerging markets is forecast to rise US$20 trillion over the next decade, Canadian policy-makers need to be focused on how to serve them not just with goods but rather also with the services that will accompany professional and personal gains.

 


[1] Of the 17.7 million Canadians employed in 2013, over 13 million were employed in the services sector.

[2] While manufacturing wages in Canada average $23/hour, service sector wages in tradeable sectors are as high as $30/hour for professional, scientific and technical services (PST) (think architects, lawyers, researchers, translators), and above $20/hr across transportation, health, education and information and cultural services.

[3] Why the Federal government doesn’t free airports from its rental contracts is beyond me. The GTA alone is estimated to lose $1 billion in revenue as a result of users choosing Buffalo over Pearson.

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