May 26, 2008

The sales economy: Canada now has more workers in stores than factories

Ottawa — For the first time ever, more Canadians are involved in selling products than producing them.

A Statistics Canada report Monday showing retail sales rose 5.8 per cent last year contained the added curiosity that for the first time, more people were employed in retail sales than in manufacturing.

The sales increase was the second strongest in five years and underlined the growing importance of domestic demand as the lynch pin of Canadian growth, with the red-hot West, particularly Saskatchewan and Alberta, leading the wave.

But the flip side of the coin is that as the service sector has shone, manufacturing – especially the auto and forestry sectors – has gone from bad to worse, so much so that there are now more people working in car dealerships, and at the local supermarket or department store than in factories and mills.

Statistics Canada said Monday that there were 1,790,000 retail jobs on average last year, compared to 1,784,700 in manufacturing.

But it’s the trend that matters. Starting the century, 2,036,700 were employed in manufacturing, compared to only 1,441,000 in retail sales. The gap narrowed steadily each year until 2007, when retail overtook manufacturing.

Although the report only covers 2007, manufacturing has continued to shed jobs this year, dropping another 15,000 in April.

“It’s not surprising when you consider manufacturing has been in a decline in recent years and probably over the past few decades,” said Aron Gampel, deputy chief economist with the Bank of Nova Scotia.

And it’s not about to turn around, he added. “As our economy has grown from a population standpoint and wealth standpoint, we are becoming much more service oriented and retail oriented.”

But Canadian Auto Workers economist Jim Stanford says the numbers are disturbing nevertheless, and bodes ill for the Canadian economy. He said retail jobs tend to be lower paying, less stable and less productive.

“That’s a shocking statement of the structural decline of our economy that we employ more people at lousy wages selling stuff than we employ at good wages making the stuff that we sell,” he said.

According to the federal agency, the average hourly wage for retail workers last year was $14.87, compared with $21.66 in the manufacturing sector. But Stanford said the discrepancy in average weekly wages is larger – $486 compared to $900 a week – probably because there is more part-time workers in retail.

“The loss of manufacturing jobs and their replacement with retail jobs still leaves a huge loss of income and productivity in Canada,” he said.

Although some of the job losses in manufacturing were caused by cyclical factors such as the appreciation of the Canadian dollar and lower demand in the U.S., the major factor is what economists call secular, which means they are not likely to come back.

In forestry, one of the hardest hit industries, 36,421 jobs have vanished since 2003, bringing total employment in the sector under 300,000.

And more will likely disappear before the industry has a turnaround, says Avrim Lazar, the chief executive with the Forest Products Association of Canada.

The good news is that with demand in China and other emerging economies growing, and producing countries such as Brazil and Chile turning more to planting food and biofuels than trees, the point will come when Canadian forest products will be in great demand, he says.

But the mills will be larger, leaner and more efficient, and less labour intensive.

“We have improved our productivity more than Canadian manufacturing and more than the U.S. consistently,” Lazar said. “So I’m not going to say employment is going to be increased, but I will say employment will be saved.”

Gampel said the same dynamic is at work in the auto sector, where companies are replacing inefficient plants and with more productive, less labour-intensive facilities. Increased production and a better economy may not mean more employment in the sector, he said.

“This has been where our economy has been morphing to,” he said. “If you add business services, health services, education services, transportation services, and whatever, you find the employment gains have been nothing short of spectacular in the services sector.”