Waterloo, Web & Whimsy

Last week I found myself wondering "Why is Waterloo Region's unemployment rate so high?" For every story we hear in the news about a plan shutting down, we hear another story about a local company closing more funding or going through a huge round of hires. Additionally, a lot of our region's marketing advertises "one of the lowest unemployment rates in Ontario" . So what gives? I did some digging - this post discusses what I found. However, to first set the stage, here are 3 numbers to keep in mind:

• Waterloo Region's Unemployment Rate: 9.1%
• Ontario's Unemployment Rate: 8.7%
• Canada's Unemployment Rate: 7.7%

Starting point: manufacturers closing?

Waterloo Region and Ontario have both been suffering from a rapidly growing unemployment rate for the last few months. Everyone instinctively says it's coming from closures in the manufacturing sector - but that's not entirely true.

First, manufacturers only represent a small number of the companies in Waterloo Region. In fact, self employment and businesses with 1-4 employees make up over 77% of all businesses in the area . Furthermore, it's these companies that are closing - the industries where we've seen the most business closures are Animal Production, Specialty Trade Contractors, Construction of Buildings, Miscellaneous Store Retailers, and Repair and Maintenance. This tells me we're seeing a more normal economic cycle - many small businesses closing in difficult times. The thing about entrepreneurs though, is that they tend to start something new - they don't linger as unemployed in the labour market for long. So where is this large, unemployed workforce coming from?

Fewer (but larger) closures?

Although we have comparatively few manufacturers, the argument can be made that they are few but large. Looking at the employment numbers I was surprised to learn just how strong Waterloo Region's manufacturing sector is: approximately 23% of the employed labour force works in the manufacturing sector, in fact it's the highest concentration of manufacturing workers in a metropolitan area in Canada (for comparison's sake, in Ontario, 14.4% of the employed labour force works in manufacturing).Thus, it makes sense that we're worried about the plant closures. However, in Feburary, for example, Ontario job losses were primarily in Construction, Finance, Insurance and Real Estate - so if we have such a high population of manufacturing jobs, how are our unemployment numbers climbing so quickly?

"All the lonely people. Where do they all come from?"

It seems that the challenge is coming from the fact that we've been too successful - we're recognized as a place to live and work - and so people are coming here.  Although we are losing jobs, the fact is that jobs are being lost all across Canada, and when people lose their jobs they ask themselves where they should go -it seems many of these people are deciding to come to Waterloo Region.

In the period from 2005-2006, we saw a net in-migration of almost 25,000 people moving here from other places within Ontario, not to mention the large number of immigrants coming to Waterloo from other countries (we're 4th behind Toronto, Vancouver and Montreal for new immigrants). It's this influx of people that is causing the discrepancy - especially because a lot of immigrants face barriers to employment. Immigrant unemployment rates are highest within the first 2 years of migration (19% and 15% in years 1 and 2, dropping to 8% in year3).

To wrap it up - although the number of unemployed people in the region grew by 12,000 in the last year, the local labour force (people that want to work in the region) grew by 11,100 to almost 280,000. This means we only have net 900 people who were employed here in the region last year and not employed now.

So what does this mean for the local business owner?

I'm no economics professor, but here are my thoughts:

1. In the sectors losing jobs (manufacturing and construction), the increased labour supply will likely cause a dropping in competitive wages
2. We'll see more people going back to school for retraining, so our local colleges and universities will see increased enrolment and thus increased employment
3. Because of the lag in retraining a workforce, and because demand is still so high in the Information/Communications/Tech field, we'll also continue to see growing competitive wages in the local tech sector
4. Because of 1 and 3 above, we'll see an increase in the gap between low-income families and high-income families
5. This means that for those of us that want to make an impact locally, we should be keeping our eyes open for ways to a) accelerate the retraining process for the recently unemployed, and b) accelerate the integration of newcomers to our community.

If you have any ideas on how to impact either of the above, let me know - I'd be interested to learn more! 

Sources:
[1] http://dsp-psd.pwgsc.gc.ca/collection_2009/statcan/71-001-X/71-001-x2009002-eng.pdf
[2] http://www.wwtab.com/Files/English/TOP%20Jan%202009%20Report.pdf