With Ontario’s labour market bumping up against capacity constraints, job creation in the province is poised to slow after a banner year in 2017. Derek Burleton, Deputy Chief Economist, TD Bank, speaks to Sara D’Elia about his outlook for Ontario’s jobs market from an industry perspective. The TD Economics report is available here.
Before we get into some of the analysis in your report, Derek, I want to talk about some of the recent pressures. Which do you think will have the biggest impact, and what do you think that could mean for hiring?
Well, I guess first of all, why we did the report-- I get asked a lot of questions when I'm out on the road talking to clients. With all these pressures you talk about, how are we going to get any kind of economic growth or job growth in Ontario? So it is a long list, as you mentioned. I think the one that I'm particularly looking at would be the minimum wage and the housing slowdown-- I think the housing slowdown that we're starting to see filter through the greater Toronto market more than anything.
And you think about all the growth we've seen attached to housing in recent years, the fact it is reversing course will be a pressure. And minimum wage, it's a very sharp hike, about a 30% increase in the minimum wage over an 18-month span. So those, no doubt, will take away from Ontario's job picture. But I suppose the good news is we still see growth. So when you say fizzle, it's going to be about half of the rate we've seen in recent years where we still expect to see a positive, albeit fairly modest.
I want to ask you a little bit more about the minimum wage piece. You mentioned we're up about 30%. From a consumer perspective, are you anticipating either less hiring, or do you think this is going to mean higher prices?
Well, it's all relative to what we would have seen on a business-as-usual. We did some modeling at the end of last year just ahead of the implementation of the minimum wage hike. And we were looking at a reduction in employment in Ontario of about 75,000 workers over the next two years, which is fairly significant.
I think we've got about four months of evidence behind our belt with the April job numbers out. And I think our thinking is it's still going to detract from employment, but less than we had initially thought, which I suppose is some good news. There's no doubt many employers are getting hit with it. But we're seeing in certain areas evidence that companies are able to pass through the pressures on to retail prices, areas like restaurant, accommodation, and food. It means more price increases, maybe less of a hit on employment, so a bit of mixed news there.
We're going to bring up your chart on the screen right now. You talk about the leaders and laggards, from an industry standpoint, right through 2019. I want to start with the laggards first or the industries that you think will lag. Which ones are they, and what are some of the biggest trends there right now?
It comes back to the minimum wage, which industries tend to employ a higher share of minimum wage workers. And retail trade is one. It's a large sector in Ontario's economy. It has a large share of the minimum wage workers. And its employment performance has reflected a bit of a slowdown there.
So we are seeing a hit. Again, it comes back to my argument that some retailers are actually able to pass through some of these pressures, but net-net a hit. So that's at the bottom end.
Some of the other areas that are going to lag-- primary metals. So the mining industry has been on a long-term downtrend. That's going to be an area of softness. Another one is accommodation and food. That's going to see some very slight, essentially zero, job growth over the next couple of years, again, tied in part to the minimum wage.
And on the flip side, you talk about the leaders. You call them job generators. Who makes the top of that list?
Thank goodness there's enough of those to offset the drags. We see at least some modest employment growth. At the top of the list you've got some of the stalwarts, the technical side of the equation, professional science and technical workers. We're seeing good strength there, good momentum.
Manufacturing is an area. We tend to hear a lot of negative headlines about manufacturing employment. Thank goodness for US momentum, because it's helping sustain at least some export growth, and we're seeing manufacturers employ.
So those numbers are at the higher end of the list-- not a boom by any stretch, but at least positive growth. And then you kind of move down. Wholesale trade-- areas that are tied to more trade activity, I think, are going to be at the upper end, transportation and warehousing as well.
In the bottom line of your report, you actually highlight two silver linings really around that you're not expecting negative job growth but a slowdown. What can you tell us about that?
Well, I think one is that the productivity should go up. One of the trends we're seeing in Canada, and it was reflected in a recent Bank of Canada forecast, is that they're looking at investment trends. I know there's a lot of pessimism around capital flight from Canada, but the trends we're seeing are the investment has been picking up. That should lead to more productivity, which means the higher wages that we're seeing can be sustained without being inflationary. So we're seeing productivity improve, partly because of a lack of available workers and more and more investment as a result.
The other thing is that I think it's just if we don't get a bit of a slowdown in unemployment, we could have a bigger problem down the road. We are starting to see full capacity being hit when it comes to the job market, unemployment at 5.5% in Ontario. There's not a lot of further downside room.
So if we continue to see pressures pull down that rate, it tends to set in stage a more sharp swing down the road in terms of higher unemployment. That's cyclical swings. So one could look at a little bit of a slowdown now will kind of sustain an expansion down the road.
Derek, thanks very much for being here.