I would love to get Arnold Kling's take on the following data on the Canadian economy:
So the manufacturing sector is where most of the damage occurred. Even though it employed fewer than one worker in eight when the recession hit, it accounts for almost two-thirds of the jobs that have been lost. And if we restrict attention to manufacturing jobs in Ontario, the story is even more startling: a sector that employed 5.3% of Canadian workers has absorbed more than 36% of the total losses.In Canada, at least, it would appear that the major effect of the recession was to accelerate a number of processes that were already underway. How generalizable is this? And if it is, does this support the recalculation hypothesis?
Of course, not all of those losses can be directly attributed to the recession; manufacturing employment was already falling:
Before the recession, the manufacturing sector was losing something over 6,000 jobs a month. If this trend had held up after October 2008, some 80,000 manufacturing jobs would have been lost - about 40% of the total losses that actually occurred.
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To answer the question, you’ll need to answer another: “Which manufacturing jobs?”
Without digging into Canadian job statistics, I would predict that most of the jobs lost are concentrated in the automotive industry, which in North America, was largely dedicated to producing large vehicles, such as SUVs, with comparatively low mileage compared to smaller vehicles.
With fuel prices rising in 2007 and 2008, this formerly hugely profitable niche became a liability for the industry. Entire manufacturing lines, which are extremely expensive to retool to support other kinds of production, weren’t – the carmakers decided to simply shut them down as consumers began acquiring more fuel efficient vehicles. Especially following the spike in oil prices in the summer of 2008.
The production shutdowns cascaded upward through the entire production supply chain, affecting equipment producers, tool shops, etc. Small firms that supplied parts, components or services to larger ones were the first to have their production cut, with companies positioned at later stages of production following suit after delivering to their customers.
As a result, the observed job loss should follow that pattern – an increased level of job loss at small firms which spreads wider as larger, more concentrated and sudden job losses occur at large firms in that industry.
The advantage of looking at Canadian job loss compared to those in the U.S. during the same period is that its job market isn’t complicated by the job loss effects of the U.S.’ minimum wage hikes of 2007, 2008 and 2009. As such, the Canadian statistics should more clearly isolate the impact of the apparent recalculation.