How Ontario’s two-speed economy is making inequality worse

ANALYSIS: Toronto and Ottawa are outpacing the rest of Ontario when it comes to job growth and economic opportunity. Mike Moffatt looks at how the province can solve this problem
By Mike Moffatt - Published on June 4, 2018
Toronto skyline and Parliament Hill in Ottawa
Due to their size, Toronto’s and Ottawa’s economies are more diversified than those elsewhere in the province. (iStock.com)

Comments

X

Ontario has a two-speed economy: Toronto and Ottawa are creating employment and opportunity, while the rest of the province is, on average, seeing stagnant employment growth. This is a difficult but not impossible problem to solve — and failing to solve it would have significant economic and political consequences.

First we need to define what we mean by Toronto and Ottawa. In this case, we’ll refer to Statistics Canada’s concept of a Census Metropolitan Area. A CMA contains not just the city itself, but also surrounding municipalities that have “a high degree of integration with the core, as measured by commuting flows.” So Toronto CMA contains not just the city of Toronto, but also Mississauga, Brampton, and Newmarket. When it comes to Ottawa CMA, this piece will consider only the parts that exist within Ontario — Gatineau will not be included, for example, but Russell will be.

There are real differences between Toronto/Ottawa and the rest of the province. One is that, due to their size, the two cities’ economies are more diversified than those elsewhere in the province. Our two regions — Toronto/Ottawa and the rest of Ontario — are roughly the same size when it comes to population and employment numbers. In October 2002, an estimated 3,045,700 people worked in Toronto and Ottawa, while 3,044,900 worked in the rest of the province. Data on employment by CMA goes back to 2001; since then, Toronto and Ottawa have seen a dramatic increase in net new jobs, but the rest of the province has experienced little growth.

The gap gets even wider if we use the end of 2004 as our starting point. Since then, less than 12 per cent of all net new jobs in Ontario have been created outside Toronto and Ottawa CMAs — 749,600 for Toronto/Ottawa versus just 98,500 for the rest of the province.

The causes of this discrepancy aren’t unique to Ontario; rather, they reflect the changing fortunes of certain industries. Some, like the tech sector, tend to agglomerate in big cities due to localized spillover effects and the need for a large pool of specialized inputs, from venture capital to high-skilled labour. Others, such as manufacturing, tend to be more geographically dispersed, owing to the industry’s need for inexpensive land and easy highway access. Over the past decade in Ontario, the industries that agglomerate have been booming, whereas manufacturing jobs have been in decline since the mid-2000s, when China became a manufacturing powerhouse and the loonie soared.

Since the vast majority of the job growth is occurring in Toronto and Ottawa, you’d think that people would be moving to where the jobs are. When it comes to international migration, this is absolutely true: in any given year, Toronto and Ottawa attract roughly 80 to 85 per cent of Ontario’s net new immigrants and temporary residents, roughly in keeping with the cities’ employment creation figures. For net migration to Ontario from other provinces, Toronto and Ottawa still punch above their populations, but the capture rate is closer to 70 to 75 per cent, depending on the year — in large part thanks to people from other provinces moving to Ottawa to work for the federal government.

Intraprovincial migration is a completely different story, however. Instead of moving to Toronto and Ottawa CMAs, where jobs are being created, Ontarians are, on net, moving in the other direction. Toronto CMA, in particular, is experiencing significant outmigration to other parts of the province; the largest numbers are moving to Hamilton and Barrie.

You could argue that there’s not much new here: since the end of World War II, we have seen migration from downtown cores to suburbs. In Toronto, this meant movement from the core to Scarborough and Etobicoke, and later to Mississauga and Brampton. But what’s new here are the sheer distances involved.

In the past, the migration to the suburbs occurred within CMAs, and commuting distances remained reasonable. But now Barrie (85 kilometres away) and Waterloo (94 kilometres) are becoming Toronto suburbs. Even London — 164 kilometres from Toronto — is experiencing significant net migration gains from the GTA (which has caused a spike in housing prices). And these movers aren’t retirees cashing out on the Toronto real-estate boom: the biggest single age group moving out of Toronto is children under five. The stock of housing suitable for families in Toronto CMA (which, keep in mind, includes much of the 905) is not keeping pace with job creation.

Ontario’s two-speed economy is hurting quality of life in the province and causing inequality to rise. Time inequality is increasing as commuting times and distances grow for those who can’t afford to live near their workplaces. Wealth inequality is increasing, too, as those with the good luck or foresight to have bought homes in Toronto decades ago receive massive (and largely tax-free) capital gains. And if more workers are willing to take lower-paid jobs closer to home in order to avoid long commutes, then income inequality will also likely grow in the form of wage differentials between jobs in Toronto/Ottawa and those in other parts of the province.

This is a wicked problem to solve, but there are some potential solutions. Any government looking to address the issue must craft policies that accomplish one (or more) of the following:

  1. Increase the supply of housing in Toronto and Ottawa.
  2. Decrease the commuting time between Toronto and adjacent cities.
  3. Increase employment outside Toronto and Ottawa.

The third solution offers the most promise, and the provincial government has mechanisms to make it happen — one idea is to expand and build more colleges and universities outside Toronto. But first, the province needs to recognize that its two-speed economy is a problem.

Mike Moffatt is the director of policy and research for Canada 2020, an independent think-tank.


Related:

The Agenda on Politics: The two Ontarios

Author

Most recent in Politics