This paper investigates the hypothesis that the relatively slow recovery of output and employment in Canada after the last recession may be attributable to the short-term negative effects of industrial restructuring that have temporarily overwhelmed the longer-term positive effects and dampened the typical cyclical upswing in the economy. Recent developments in the Canadian labor market are examined to provide a partial assessment of the nature and magnitude of industrial restructuring in Canada.
Measures of dispersion in employment growth at the broadly defined (1-digit) sectoral level reveal little evidence of recent sectoral shifts prompted by restructuring. Within the manufacturing sector, the dispersion of employment growth has been relatively high since 1990, indicating that large interindustry shifts may have occurred within manufacturing. Using labor reallocation measures over a three-year horizon, this paper also finds some evidence that long-term net flows of labor may be occurring across broadly defined sectors of the economy.
The implications of industrial restructuring for the medium- and longterm prospects for the Canadian economy are then examined. Although productivity levels have increased at both the aggregate and sectoral levels over the last few quarters, a large part of this increase may be attributable to relatively low levels of labor hoarding by firms in anticipation of prolonged weak aggregate demand conditions. Evidence of permanent gains in productivity growth arising from restructuring remains elusive.
The rising employment shares of low productivity sectors such as trade and services suggest that, even if the increase in the growth rate of manufacturing productivity proves to be permanent, aggregate labor productivity growth may not show substantial permanent improvement. The evidence presented in this paper suggests that the recent increases in labor productivity may represent a cyclical phenomenon rather than a permanent increase in the rate of growth of productivity.