Our changing economy

Introduction

The concept of expanding or shrinking economy is not new. You likely read about it regularly in newspapers. The country’s economic output is measured in terms of the total value of goods and services produced, or as economists named it, gross domestic product (GDP). A month-to-month or year-to-year increase in GDP indicates that the economy is expanding whereas a decrease indicates that it is shrinking. The GDP is valued in terms of both current market prices, or in terms of prices of a given base year in order to remove the effect of fluctuating prices or implicit inflation. The GDP adjusted for inflation is called the real GDP – a universally recognized conventional measure of economic growth or recession.

Do you ever wonder about the makeup of GDP in terms of the sub-sectors of the economy or industry groups? After all, the strength of an economy depends not only on its resource base, but also on the type of industrial infra-structure it maintains, providing jobs, investment, and earning opportunities to its population.

This post provides readers a bird’s view of the composition of GDP by industry groups – groups similar to those used by our American and Mexican counterparts, as agreed upon under the North American Free Trade Agreement (NAFTA). To illustrate the changing nature of the economy, I have chosen two time points: the years 1997 and 2015 rather than yearly data to conserve space. Industry groups are classified first into two main sectors: goods-producing, and service-producing. The former consists of five industry groups, and the latter thirteen – thus showing a breakdown of GDP by eighteen industry groups (as listed in Table 1).

While highlighting the makeup of GDP (in chained 2007 dollars, as published by Statistics Canada) by industry groups, I also look at the number of persons employed (full and part-time) by industry groups (Table 2) in order to see if an industry contributing the most to GDP also employs the most. One would usually expect that but that’s not the case.

GDP by industry group

In 1997, goods-producing sector contributed 35% of Canada’s GDP, valued at $1,072 billion (Table 1). By 2015, this sector’s contribution reduced to 29.8% of GDP of $1,649 billion. This shows that between 1997 and 2015, Canada’s goods-producing sector lost ground – mainly the manufacturing industry that has lost its contribution to GDP from 14.7% to 10.6% for several reasons including the outsourcing, lack of investment, technology, and short of skilled manpower. Construction industry is the only one that increased its contribution from 6.0% to 7.2%.

Table 1_GDP by industry group

Over the same period, Canada’s service-producing sector has increased its contribution to GDP from 65.0% to 70.3%. Only five out of thirteen industry groups in the service-producing sector increased their respective contributions: retail and wholesale trade, finance and insurance, real estate (including owner-occupied dwellings) and rental and leasing, and professional, scientific and technical services. The last group, comprising professionals, with a lot of human capital, technical and high skills, has increased its contribution from 5.4% to 6.3%.

It may be noted from Table 1 that of the $577 billion real increase in GDP between 1997 and 2015, 80% is generated by the service-producing sector – one-half of it from four industry groups alone: wholesale and retail trade, real estate and rental and leasing, and professional, scientific and technical services. Among goods-producing industries, construction industry accounted for 9.4% and manufacturing for mere 2.8%.

Employment by industry group

In 1997, there were 13.7 million persons 15 years old and over were employed – 26.1% in goods-producing and 73.9% in service-producing sectors. By 2015, the respective proportions were 21.6% and 78.4% of the 17.9 million employed. The proportion of those employed in manufacturing dropped significantly from 14.7% to 9.5%. Some of these likely found jobs in construction industry, hitching up its proportion from 5.3% to 7.6% (Table 2). Industries that benefited the most in the service-producing sector were professional, scientific and technical services, health care and social assistance.

Table 2_Employment by industry group

Of the additional 4.2 million persons employed between 1997 and 2015, only 7% got employment in goods-producing sector; the remaining 93% found jobs in service-producing industries – mainly in health care and social assistance (21.4%), and professional, scientific and technical services (13.8%), and retail trade (9.4%).

Output contributed per employed

Since industries in goods-producing sector are more likely to be capital-intensive, with state of the art technology, requiring skilled labour force, the output per employed person is likely to be higher for those employed in this sector than that of their counterparts in service-producing industries. For example, the output per employed person is the second highest ($350-$400 K) in the forestry, fishing, mining, quarrying, oil and gas, compared to ($78-$102 K) for manufacturing, and the lowest ($28-$29 K) for those in the accommodation and food services. The highest ($500-$700 K) was found for the real estate and rental and leasing industry but that was because it included owner-occupied dwellings, renting of homes, leasing of autos, etc. – so it really can’t be compared with the output per employed person.

No association between industry’s size of contribution to GDP and its number employed

An industry’s requirement of labour depends on the type of product(s) its manufactures, capital intensity, level of automation or technology, competitiveness, demand for its product(s), and several other considerations. Usually, a capital-intensive and fully automated industry would require lesser number of persons on its payroll. Since mining, quarrying, oil and gas, as well as utilities industries fall into this group, their relative contribution to GDP is way higher than the share of total employed. Data in Tables 1 and 2 support this, showing ratios between 2.19 and 3.34 for these good-producing industries. In the same fashion, wholesale trade, finance and insurance, and real estate and rental and leasing have ratios greater than one among the service-producing industries. On the other extreme, accommodation and food services industry contributed 2% of GDP but has around 7% of the total employed.

Conclusion

The Canadian economy has been steadily changing, leaning more and more on service-producing industries. With the exception of a very few industries like professional, scientific and technical services, health, education, finance and insurance in this sector requiring workers with higher education, technical and specific trade skills, resulting in higher payouts, this increasing reliance on service-producing sector may affect not only earnings levels of Canadians, but also their living standards.

Tags: Economy Industry GDP Employment Goods-producing Service-producing Contribution to GDP

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