Since the 2008/09 economic recession, the Canadian manufacturing industry has been experiencing several factors including rising employee layoffs, high-cost problem, and the need to integrate immigrants in the sector. Therefore, through various economic models, the industry can address the current issues in the industry. Overall, economic models will enable policymakers to formulate policies that will address the short and long-term challenges in the industry.
Background of Canada’s manufacturing Industries
The manufacturing industry is the mainstay of Canada’s economy. The country, which had a GDP (Gross-Domestic-Product) of around US$1.5trillion in 2016, is one of the leading global economies (PWC, 2018). It also has a mixed economy and mainly depends on the manufacturing sector. For instance, PWC (2018) point out that in 2016 the manufacturing sector contributed 10.5% of the country’s GVA and accounted for 68% of exports. Nonetheless, since 2010 the contribution of the industry to the economy has been declining. For example, the country’s manufacturing industry experienced the most significant job decline since the 2008 economic recession with over 48,000 jobs cut in the sector. Overall, it is essential to develop policies that will improve the manufacturing industry in the country.
Table 1.1 below is an analysis of factors affecting Canada’s economy based on the PESTLE (Political-Environmental-Social-Technological-Legal-Environmental) analysis tool.
|PESTLE Analysis Tool||Impact||Significance
|P||The country has a stable political environment that enables the manufacturing sector to thrive.||HS|
|E||The monetary policy in Canada depends on the US currency, mainly because of the country exports around 80% of products in the industry to the US. In turn, instability in the US dollar against other world currencies affects the purchasing power of the Canadian dollar.||HS|
|S||Demographic change is one of the factors affecting the manufacturing industry. Notably, the life expectancy in the country is around 81.7 years, which in turn has highly contributed to the country’s aging population. In turn, the ageing population is affecting the country’s labour force as 25% of the workforce, who are above 65 years are likely to exit the labour market in the next decade.
|T||Social: Technological: The sector depends heavily on technology; thus, change in technology affects the automobile sector drastically.
|L||The legal system in Canada is conducive for the manufacturing industry, mainly because it allows immigrants into the country who are likely to complement the declining labour force.||HS|
|E||In terms of the environment, the manufacturing industry in the country faces local and international restrictions to minimise the county’s contribution to global warming.||HS|
Fig 1.2 is a graphical representation of the impact of the analysis tool on a scale of 1-10. It shows that all areas of the instrument are highly significant.
How to Stabilise Existing Jobs and Have the Flexibility to Resist the Economic Crisis
Stable jobs directly relate to the level of employment in a country, which in turn determines the flexibility to resist economic crisis. Based on the Keynesian theory, when the purchasing power of individuals within an economy falls, consumers are unable to purchase the produced goods and services. Consequently, this, in turn, lowers the price of products (Appelbaum, 2017). Moreover, businesses incur losses and ultimately forces firms to lay off workers. Since the 2008/09 economic recession, the manufacturing industry in Canada has been a layoff of workers in the country. Resultantly, this has increased the level of unemployment in Canada. For instance, in 2010, employment in the manufacturing sector fell by around 375,000 employees. Overall, to stabilise jobs, the Canadian government must focus on policies that increase the purchasing power of customers.
The government can preserve existing jobs through the stabilising policy strategy. Notably, the policy contends that governments must monitor the business cycle and regulate standard interest rates to manage aggregate demand (Argy & Nevile, 2016). Accordingly, the Canadian government will increase the purchasing power of individuals by avoiding erratic shifts in total output as measured by the GDP (Gross-Domestic-Product). Moreover, to stabilise the existing jobs, the government can focus on bailing out the manufacturing industry, monetary tightening and reducing government borrowing. Hence, the stabilizing policy strategy is crucial in maintaining jobs in the nation.
How to Solve a Relatively High-Cost Problem
The Canadian economy has experienced a high-cost problem since the 2010 economic recession. One of the factors that cause inflation in the country is plummeting of the Canadian dollar. Furthermore, PWC (2018) states that Canada is highly dependent on the price of petroleum products, such as natural gas and crude oil. Hence, the value of the dollar depends on trade with international partners. With 45% of Canada’s GDP emanating from oil export, a drop in crude oil prices hurts the dollar. For instance, in the past five years, the amount of global price has been falling drastically. In turn, the Canadian dollar has dipped in comparison to other currencies, which in turn has raised the price of products in the country including the ones used in the manufacturing industry. In 2018, for example, the Canadian dollar was trading at around 1.3665 against the US dollar, which was one of weakest exchange rates since the 2010 recession. In general, the high-cost problem in Canada relates to the 2008/09 global economic downturn.
The Canadian government can address the high-cost problem by focusing on monetary policies such as raising interest rates. Taylor’s rule determines the projected or actual interest rates based on economic changes (Taylor, 2016). Based on Taylor’s rule economic model, the central government of Canada ought to raise interest rates when employment is above the employment levels, or inflation is high. Since the inflation rate is relatively high in Canada, the central bank must contain it to less than 2% by raising the interest rates in the country. In turn, increasing the standards will reduce the disposable income of consumers, thus cutting spending. Therefore, through Taylor’s rule model, the Canadian government will ensure that the price of products in the country is under control.
Can The Immigrant Labour Force Enhance The Future Of Manufacturing?
The long-term economic growth of a country depends on three factors: increased productivity, labour force growth, and investment in physical capital. Despite high R&D (Research and Development) enabling the county to raise its tangible capital, the increase in the country’s labour force is declining over time. Like most developed countries, demographic change as the ageing population rises is one of the challenges affecting the Canadian manufacturing industry (Annual report, 2018). In 2012, the employee-to-retiree ratio was 4:2:1; however, the rate will increase to 2:1 in the next seventeen years. The industry employed around 1.7 million people; nonetheless, 56% of factories in the country have been experiencing a labour shortage between 2017 and 2018. The deficit will rise as more Baby Boomers (persons born between 1946 and 1964) continue to exit the job market through retirement with the last group leaving the sector in 2029. Therefore, demographic change is one of the necessitating integration of immigrants in Canada’s labour market.
The industry is sustaining the labour market by undertaking several measures. Some of the steps used include developing a value proposition for workers to make the sector more attractive for existing and new workers, leveraging technologies and automating processes to minimise dependence on human labour. Despite the efforts, an increase in the number of labour force and total hours of work is still vital in the manufacturing industry. Accordingly, the government is focusing on the 2018 parliament immigration policy. Based on the system, the country expects to admit 43,000 to 64,000 migrants between 2019 and 2021 (Annual report, 2018). Since most of the immigrants in the country will be young, they will solve the ageing population challenge. Moreover, almost 50% of the immigrant population will come into the state under the economic program; thus, they will fill the anticipated skill gap in the manufacturing industry.
Like other industries in Canada, the manufacturing industry is still suffering from the aftermath of the 2008/09 economic recession. Consequently, the government must use the stabilising policy to secure the existing jobs in the industry and minimise further layoffs. Moreover, through Taylor’s rule, the country can increase interest rates to reduce the high-cost problem. The sector can integrate young immigrant workers to deal with the issue of an ageing workforce. Overall, understanding Canada’s macro-economic environment and using economic theories will enable the manufacturing sector to thrive.
Annual report (2018). 2018 Annual Report to Parliament on Immigration. [ebook] pp.1-45. Available at: https://www.canada.ca/content/dam/ircc/migration/ircc/english/pdf/pub/annual-report-2018.pdf [Accessed 28 Mar. 2019].
PWC (2018). The future of manufacturing – Canada. [ebook] pp.1-28. Available at: https://gmisummit.com/wp-content/uploads/2018/06/20190416_GMIS-Canada_v4.1.pdf [Accessed 28 Mar. 2019].
Appelbaum, E. (2017). The labour market in post-Keynesian theory. In Unemployment and Inflation (pp. 33-45). London: Routledge.
Argy, V. E., & Nevile, J. (2016). Inflation and unemployment: Theory, Experience and Policy Making. London: Routledge.
Taylor, J. B. (2016). Policy stability and economic growth–lessons from the great recession: Lessons from the Great Recession. London: London Publishing Partnership