Local economist makes news

Stephen Gordon considers Dutch Disease


 

One of our favourite economists, Stephen Gordon, has a new paper on Dutch Disease and the manufacturing sector in Canada. Here’s the summary.

High-profile complaints about so-called Dutch disease have led many to question if industry in some parts of the country is suffering due to the success of the natural resources sector in others. This paper considers changes in manufacturing employment from 2002- 2008, a time of increased commodity prices. At first glance, the figures appear alarming — Canada shed 328,000 manufacturing jobs during that period — but the decline wasn’t entirely commodity-driven. Canada is the sole G-7 country in which manufacturing is on par with what it was 40 years ago; manufacturing employment rose in the decade prior to the decline thanks to government austerity, which spurred monetary easing, making industry more export-competitive. Much of the contraction from 2002-2008 was a natural reaction to this unsustainable situation. Higher commodity prices in the same period actually had a benign — if not positive — effect on Canada’s manufacturing industry, notwithstanding the fall in employment. The manufacturing jobs that were lost were typically low paying, and were offset by the creation of betterpaying employment in other sectors. The available data on gross employment flows suggest that the disruptions associated with the shift of employment out of manufacturing were surprisingly small. The reduction in employment was largely achieved through attrition; layoff rates held steady while hiring rates fell. Moreover, the data are not consistent with fears that the manufacturing sector was hollowed out. Research and development activities held steady and investment in new technology continued to grow, leaving the manufacturing sector healthier in 2008 than it was in 2002.

The CBC, National Post and Calgary Herald have taken notice.

Dutch Disease became a bit of a thing after Thomas Mulcair used the phrase in an interview in May 2012. Stephen has written about it for us here, here, here, here and here.


 

Local economist makes news

  1. Okay, Aaron .. having said “one of our favourite”, yer just gonna
    walk away without telling us why ? Because he smells good ?
    Because he makes good cookies ? Because he comes over and
    mows yer lawn ?
    I believe there’s a few economists in Canada. How does one out of
    the many get to be a “favourite” ?
    Was there a “most recent favourite” ? Is there a “coming favourite” ?
    Is there someone on the bubble ?
    So many questions …

    • Okay, Aaron .. having said “one of our favourite”, yer just gonna
      walk away without telling us why ?

      It’s his blocking/censoring skills. Notice I’m up to crossing my “t”s thrice?

  2. The twitter effect..

    Amazing what you can discern about the Canadian economy using just StatsCan data and an excel spreadsheet.

    My understanding is that Dutch Disease refers to mid to longer term effects, not limited to the boom period (the incubation period). So, not surprising the conclusions reached, given that it is limited to 2002-2008. Does it even cover a full business cycle?