Report on the Manitoba Economy: 2007

By Fletcher Baragar

September 2007 ISBN: 978-0-88627-527-3

Canadian Centre for Policy Alternatives–Manitoba The Authors

Fletcher Baragar is an Associate Profes- sor in the Department of Economics at the University of Manitoba and a mem- ber of the CCPA-MB Board of Directors.

Acknowledgements

The author would like to thank Ian Hud- son and Lynne Fernandez for their com- ments and suggestions. They are not responsible for any errors that may remain.

This report is available free of charge from the CCPA website at http://www.policyalternatives.ca. Printed copies may be ordered through the Manitoba Office for a $10 fee. Report on the Manitoba Economy: 2007 Report on the Manitoba Economy: 2007

By Fletcher Baragar

Canadian Centre for Policy Alternatives–Manitoba September 2007 Table of Contents

1 I. Introduction 1 Figure 1: Western Provinces: Real GDP Growth 2001–2007 3 II. Manitoba: The Macroeconomy 3 Figure 2: Manitoba: Real GDP Annual Growth Rates 3Consumer spending 5 Business investment 5 Figure 3: Manitoba: Non-Residential Business Investment 7 Government expenditures 7 Figure 4: Government Fixed Capital Formation 1981–2006 9 Exports and Imports 9 Figure 5: Manitoba Exports 1981–2006 10 Figure 6: Manitoba Trade Balances 1981–2006 12 Table 1: Manitoba’s Oil and Natural Gas Imports 13 III. Manitoba: The Labour Market 13 Figure 7: Unemployment Rates 2000–2007 14 Figure 8: Manitoba: Net Inter-Provincial Migration 1972–2006 15 Figure 9: Net Inter-Provincial Migration: Selected Provinces 2000–2006 16 Figure 10: Relative Average Weekly Wages 1991–2006 20 IV. Manitoba Industries: A Closer Look 20 Figure 11: Manitoba Economy by Industry Share 2006 20 Agriculture 21 Figure 12: Manitoba Cattle and Calf Price Index 22 Farm Income 22 Table 2: Net Farm Income 23 Figure 13: Manitoba Farm Product Price Index 2002–2007 25 Table 3: Value of Farm Capital and Farm Debt 1996-2006 26 Figure 14: Relative Returns in Agriculture 1991–2006 27 Mining and Oil Extraction 27 Figure 15: Growth Rates in the Mining and Oil Industry: Manitoba 1998–2006 28 Figure 16: Price Indices for Selected Metals 2002–2007 29 Utilities 30 Table 4: Manitoba Hydro: Selected Production and Financial Statistics, 2003-2006 33 Construction 34 Manufacturing 34 Figure 17: Manitoba: Manufacturing Share of Output 1997–2006 39 Figure 18: Manitoba Service Sector 2006 40 Service Sector 42 Figure 19: Employee Earnings in Health & Social Assistance, Education: 1991–2006 46 V. Conclusion 50 VI. References

Report on the Manitoba Economy: 2007 Report on the Manitoba Economy: 2007 I. Introduction

There is an economic boom in Western cause for celebration nor grounds for Canada. Real gross domestic product despair. Naysayers and malcontents who (GDP)1 of the four western provinces are inclined to disparage the Manitoba increased 3.9% in 2005, and then surged economy and/or its economic steward- well beyond that with a 4.6% growth rate ship will make invidious comparisons in 2006. These rates easily surpassed between Manitoba’s growth and that of those for the Canadian economy as a Alberta. Those who prefer to see the glass whole, which experienced a more mod- half full will emphasize the fact that Mani- est expansion of 2.9% and 2.7% in 2005 toba’s economic output is in fact grow- and 2006 respectively2. As shown in Fig- ing at a rate above the Canadian aver- ure 1, however, these regional averages age. A proper assessment of the province’s conceal considerable disparity in the economic performance must, of course, growth rates of the western provinces. consider many more factors than the GDP Alberta is leading the pack. Manitoba and growth statistics, but the disparities in Saskatchewan bring up the rear. the growth rates of the provincial economies of Western Canada cannot be disre- The reality of differential provincial garded. Specifically, both the heightened growth rates is, in and of itself, neither economic boom in Alberta and the rela-

Figure 1: Western Provinces: Real GDP Growth 2001–2007

Source: Statistics Canada, CANSIM, Matrix 3840002, selected series.

Canadian Centre for Policy Alternatives 1 tive resurgence of the British Columbia economy. Being situated at the outermost economy have direct implications for the reaches of a booming economy presents rest of the country. Of national signifi- a number of challenges for Manitoba, but cance are the effects of the boom on the it also offers some opportunities. value of the Canadian dollar, on fiscal policy and Federal-Provincial equaliza- These challenges and opportunities will tion policy, and on inflation rates and the be discussed throughout this report. Sec- conduct of monetary policy by the Bank tion II provides a macroeconomic over- of Canada. Developments in all of these view of the provincial economy, with areas will have consequences for the special attention on the components of Manitoba economy. In addition, how- aggregate expenditure. Section III exam- ever, the relatively close geographic prox- ines the provincial labour market. A imity of Manitoba to Alberta means that sectoral look of the economy on an in- developments in the two westernmost dustry-by-industry basis is presented in provinces will unavoidably alter eco- Section IV. A general summary and con- nomic conditions and market dynamics clusion then follows in Section V. in various parts of the Manitoba

2 Report on the Manitoba Economy: 2007 II. Manitoba: The Macroeconomy

In 2006, Manitoba’s real GDP, as meas- pare very favourably with those experi- ured in 1997 dollars, was $37.1 billion. enced by the province over the last 25 This is an increase of about 3.3% above years. Furthermore, the record shows the 2005 level. Figure 2 puts these growth noticeably greater stability in the provin- rates in historical perspective. Since the cial growth rates since 2001. To date, the severe recession of 1981, the long term dramatic swings of the 1980s and 1990s trend sees annual growth rates inching have not been repeated. up to 2%. The chart shows that the Mani- toba economy has managed to sustain The economic forces that underlie these its recovery from the sharp reduction in broader statistics and trends can be bet- growth rates that affected most of the ter appreciated through the following North American economy in 2001. The examination of the major sectoral com- province’s growth rates for 2005 and 2006 ponents of aggregate expenditures: con- are now above the long term trend, and sumption spending, business invest- the consensus of economic forecasters ment, government spending, and net yields estimates of 2.7% for 2007.3 Al- exports (defined as provincial exports though growth rates in the range of 2.7% less imports). to 3.3% are decidedly less impressive than the 6.8% rate that Alberta posted in 2006, Consumer spending these contemporary Manitoba rates com- Manitoba households spent $23.1 billion

Figure 2: Manitoba: Real GDP Annual Growth Rates

Source: Statistics Canada, CANSIM, series v15855804.

Canadian Centre for Policy Alternatives 3 (in 1997 dollars) on consumer goods and used to sustain and even augment con- services in 2006. This amounts to 62.3% sumption expenditures. In particular, of aggregate provincial expenditures. personal lines of credit, which, accord- Given the size of this sector, movements ing to the Bank of Canada, have increased in the level of consumer spending will by about 15% nationally in 2006, are of- be very noticeable in terms of provin- ten secured by home equity.6 In Winni- cial GDP. On the demand side, real con- peg, the average selling price of a stand- sumer spending, which grew 3.2% in ard two-storey home increased 12.9% 2005 and a further 3.3% in 2006,4 has between December 2005 and December been an important driving force under- 2006,7 which constitutes a handsome lying the relatively strong expansion of enhancement of the book value of house- the provincial economy in the last cou- hold assets. ple of years. Rising housing prices and access to credit In general, consumption spending is on favourable terms, combined with closely tied to the disposable (i.e., after waves of new and improved high-tech tax) income of consumers, but the strong consumer goods and the ever increasing spending levels of recent years indicate sophistication and intensity of corporate that Manitoba consumers are part of a marketing strategies, have proved to be broader trend which has the ratio of con- quite effective in raising consumption- sumption spending to disposable income disposable income ratios. In Manitoba, rising. This rising ratio is due primarily this ratio, which was around 80% in the to national factors rather than circum- early 1980s, has, since 2005, soared to just stances specific to Manitoba. One such under 98%.8 These unprecedented levels factor is the maintenance of relatively low have helped fuel the expansion of a interest rates. This reduces the cost of number of important industries in Mani- borrowing and thereby encourages debt toba, including construction, wholesale, financing of consumption on the part of retail, real estate and other services. households. Nationally, household debt as a ratio of disposable income has risen from 0.98 in 2000 to 1.24 in 2006.5 Sec- However, the long term sustainability of ondly, for any given debt load, lower in- these extremely high consumption to dis- terest rates will reduce the proportion of posable income ratios is questionable. household income that indebted consum- Increased rates of household borrowing ers will have to allocate to interest pay- imply increased levels of household debt, ments. As a result, relatively more income and an increase in interest rates can put can be directed to additional purchases. the squeeze on households as they struggle to maintain their debt servicing obli- Economists have also pointed out that gations. While interest rates available to rising housing prices have created a consumers remain low by the standards “wealth effect” by increasing the value of the last 25 years, they were clearly of household assets. This can make moving in an upwards direction in lat- households feel richer, which in turn can ter half of 2005 and throughout much of induce an increase in their current con- 2006.9 The higher rates can also be ex- sumption levels. Households can also use pected to cool down the rate of increase this increased value as collateral for fur- in housing prices. Consequently, there ther loans, some of which can then be are signs which suggest that the rate of

4 Report on the Manitoba Economy: 2007 growth of consumer spending in 2007 is Investment in machinery and equipment unlikely to match the particularly strong and non-residential structures also di- performance of recent years. rectly affects the capacity of the economy to produce its range of goods and serv- Business investment ices. Furthermore, this investment affects the competitiveness of local producers, The big story in the provincial economy since new equipment and structures, and since 2003 has been business investment. the technology that is often embedded in Conventional measures classify business and associated with these new capital investment according to i) expenditures goods, will have consequences for the on newly produced residential and non- productivity and unit costs of Manitoba residential structures, ii) expenditures on producers. Consequently, in both its de- new machinery and equipment, and iii) mand-side and supply-side aspects, busi- expenditures on business inventories. ness investment is of enormous impor- These investment expenditures have an tance to the provincial economy. immediate impact in terms of the demand they generate for the outputs of other Historically, however, this importance industries, and for the employment cre- has been matched by its volatility. Fig- ated in these industries as well as in the ure 3, for example, charts annual growth construction industry. rates of business investment in non-resi-

Figure 3: Manitoba: Non-Residential Business Investment 1982–2006

Source: Statistics Canada, CANSIM series v15855791 and V15855792.

Canadian Centre for Policy Alternatives 5 dential construction, machinery and rect link to productive capacity, labour equipment. As indicated by the data, non- productivity and cost competitiveness, residential business investment collapsed so these investment figures augur well in the recession of 1981 and 1982, but re- for the prospects of continued growth, bounded sharply in 1983 and 1984.10 The at least for the short term, of the pro- buoyant expansion of the last half of the vincial economy. The historic volatility 1990s saw real investment levels surge, of business investment, however, implies rising almost 28% in 1997 alone, but these that sustaining strong investment rates heady days were immediately followed by is always problematic. Dramatic surges a six-year period in which the level of in levels of investment expenditures can investment spending increased only just as quickly dissipate as new projects slightly. The pace picked up in 2004, again come online and the retooling and mod- in 2005 and yet again in 2006, as real non- ernizing of various production processes residential business investment grew is completed. 7.8%, 8.3% and a dramatic 15.8%, respectively. These increases brought the level Peering into the future, some cooling off of non-residential business investment of these exceptionally strong investment up to $5.4 billion (in 1997 dollars). As a levels can be expected. A relative percentage of provincial GDP, this el- slowdown in residential investment has evated non-residential business capital been noted above. A similar outlook is formation in 2006 to 14.6% which sub- indicated for the non-residential compo- stantially exceeded the peak share that nent. For 2007, Statistics Canada has re- 11 was realized back in the roaring nineties. ported that private sector plans for non-residential capital expenditures in Investment in residential construction is Manitoba are $6.0 billion12. This is still a also important element on the demand 6.5% increase over 2006 levels, but these side of the provincial economy. This sub- are nominal figures. Once inflation is sector had exhibited impressive growth factored in, a real growth rate of less than in recent years, rising 54% between 2000 5% can be expected. and 2005. The latest data suggests that this sector is now slowing down. After 4 Overall, then, business investment ap- years of real growth in the neighbour- pears to be poised to assume a less ener- hood of 10% per annum, the 2005 growth getic role in the Manitoba economy in rate dropped to 5.1%, and then slowed 2007. The slowdown can be partly attrib- further in 2006 to 4.9%. Nevertheless, uted to efforts to consolidate and utilize even allowing for this slowdown these the upgrades in equipment and increases growth rates exceed that of the provin- in capacity that resulted from the higher cial economy as a whole. Furthermore, investment rates of the preceding years, the slowdown in growth of residential as well as the consequences of the recent construction is more than offset by the increments in interest rates. A 5% annual accelerated growth of the non-residen- increase in real investment expenditures tial component. Consequently, business would compare favourably with the long- investment has been a major driving term trend in investment spending in force of the Manitoba economy in the Manitoba over the last quarter century. last couple of years. The challenge will be to sustain this rate of growth. It should be noted that re- Fixed capital formation comprises a di- cent movements in the rate of growth of

6 Report on the Manitoba Economy: 2007 investment in Manitoba echo the na- component of provincial fixed capital for- tional average. In fact, 2007 projections mation13. This public investment fluctu- have Manitoba doing relatively well com- ates markedly from year to year and, in pared to its provincial counterparts. This recent years, has in fact experienced even is due in part to the fact that the enor- greater yearly fluctuations, measured in mous growth rates of investment expe- terms of percentage change, than its pri- rienced by Alberta in 2005 and 2006 (15% vate sector counterpart. In 2006, these real in 2006) cannot be sustained year in and fixed capital expenditures increased 8.9%, year out, so a leveling off there will show but this seemingly impressive figure be- up statistically as a big decrease in that comes much more modest when consid- economy’s investment growth rate, hence ered in conjunction with a real increase their low growth projections for 2007. of just under 1% in 2004 and a decrease of Nevertheless, the data suggests that the 4.3% in 2005. booming provincial economies west of Manitoba have not produced a palpable In terms of overall government expendi- negative impact on the rate of private tures, this public investment component capital formation in Manitoba itself. is relatively small, usually comprising less than 10% of the total. These, however, are the expenditures which finance, Government expenditures among other items, the construction of Government expenditures in the Mani- roads, schools, hospitals, sewers, and toba economy in 2006 totaled $9.4 billion waste and water treatment facilities. As (1997 dollars), which amounts to 25.3% illustrated in Figure 4, since the mid-1990s of provincial GDP. This expenditure share there has been a perceptible reduction in is down a bit from the 27% to 29% range the share of provincial GDP which has that was commonplace throughout the been allocated to public investment. With 1980s and early 1990s, but it has held pressure to balance budgets while hold- fairly steady over the last 5 years. Part of ing the line on tax increases, it is per- these expenditures constitute the public haps not surprising that such public in-

Figure 4: Government Fixed Capital Formation 1981–2006

Source: Statistics Canada, CANSIM series v15855778 and v15855785

Canadian Centre for Policy Alternatives 7 vestments may end up being squeezed the result that public investment will in the budgetary planning and forma- make a more significant contribution to tion processes of the different levels of immediate provincial demand, employ- government. Public infrastructure and ment, and, arguably, to the longer term the capital stock of many public institu- productive capability of the province. tions bear the marks of this relative expenditure shift. This enhanced commitment to public investment is laudable and arguably over- There are signs, however, that govern- due, but it must be noted that the timing ment is now prepared to elevate its direct of this renewal has some associated costs role in augmenting the province’s stock as well. The relatively strong perform- of fixed capital. Particularly significant is ance of the Manitoba and Canadian the provincial commitment to the expan- economy in the last few years has im- sion of the Red River Floodway and also proved the revenue flow and overall fis- the government’s announced 5-year plan cal situation of government, especially at to improve provincial highways. The the federal and provincial level. This helps Floodway project has a cost estimate of provide the financial resources to meet $665 million. Provincial expenditures on demands for capital investment without the project amounted to $56 million in sacrificing other programs and policy 2005-06, but jumped to $207 million for commitments. However, the strength of 2006-07, and are budgeted at $214 mil- the Manitoba economy has both resulted lion for 2007-08.14 The impact of the an- from and contributed to robust invest- nounced commitment to upgrade provin- ment in the business sector, as noted in cial highways is evident in the 2007 the section on investment above. Fur- budget, where spending on provincial thermore, much of this investment is con- roads, highways and airport infrastruc- struction, both residential and non-resi- ture is anticipated to rise from $129.7 dential. This sector of the economy is million to $239.7 million, a whopping expanding, with the result that strong increase of almost 85%. Overall, core pro- demand is generated for the materials, vincial government expenditures for capi- equipment and skilled labour employed tal investment for the 2007-2008 fiscal year in this sector. The construction boom in is projected to increase to $595.3 million. Alberta will also compete for these in- This is an increase of almost 37% over puts. The result is tight supplies and ris- their 2006-2007 budget plans.15 Similarly, ing prices. A large increase in public sec- at the local level, Winnipeg’s 2007 Pre- tor investment coming at the same time liminary Capital Budget is quite explicit in as the private sector boom then acts to acknowledging that the city faces an “in- intensify the demand pressures within frastructure deficit” of an estimated $2 the industry. The City of Winnipeg noted billion. Consequently, their proposed in its 2007 Preliminary Capital Budget that 2007 capital budget of $424.3 million con- inflation on various city construction stitutes an increase of capital spending projects for 2006 was estimated to ap- of almost 37% over its 2006 levels.16 proach levels of close to 30%.17 The surge in government investment, especially In light of these new figures and stated construction projects, exacerbates this intentions, gross fixed capital formation demand pressure. Strong demand and by government can be expected to post high prices will induce a positive supply strong increases in 2007 and 2008, with response, but this response takes time.

8 Report on the Manitoba Economy: 2007 Looking ahead, as the supply side re- ing the recessions of 1982 and 1991. By sponds in the next few years, the chal- contrast, the boom years of the late 1990s lenge will then be to sustain demand in saw this ratio fall below the 25% level, the years that follow. There is a danger reaching 23.6% in 1998. The 1.7% annual that volatility of private sector investment growth rates of the non-investment por- may in fact be accentuated by the timing tion of government expenditures may of public sector projects. then reflect the relative strength of the provincial economy as it participates in The non-investment portion of govern- the relatively strong economic expansion ment spending totaled $8.5billion in 2006 in Western Canada, but this sector is not (1997 dollars) and is noticeably less prone setting the pace of economic activity. to sharp yearly fluctuations. In the last two years, these expenditures have, in real terms, increased at a very modest annual Exports and Imports rate of 1.7%. The steadiness of this large Figure 5 illustrates the rise in the value component of aggregate provincial of Manitoba’s exports of goods and serv- spending does act to stabilize the provin- ices. In 2006, total exports amounted to cial economy in a Keynesian-like fashion. a record $23 billion (in 1997 dollars), and Indeed, over the last quarter century, were relatively evenly split between ex- overall government spending as a per- ports to other countries (international centage of provincial GDP reached its exports) and exports to other provinces peak (29.4%) during the recession of 1991, (inter-provincial exports). As the figure and high spending-GDP ratios were re- shows, the real value of exports has more corded in the years immediately follow- than doubled over the last two decades.

Figure 5: Manitoba Exports 1981–2006

Source: Statistics Canada, CANSIM series v15855797 and v15855798.

Canadian Centre for Policy Alternatives 9 As similar trend holds for imports, the largest international trading partner is value of which reached $26 billion in the United States (for example, 76% of 2006. Taken together, these figures un- Manitoba’s international exports are des- derline the enormous and growing role tined for the US market18), so the US- that national and international trade Canada exchange rate is of enormous sig- plays in the Manitoba economy. nificance. This exchange rate is also significant because many of Manitoba’s com- Imports usually exceed exports for the modity exports, such as agricultural and Manitoba economy, but this trade deficit mineral products, are sold on global mar- has grown sharply since 2002. Figure 6 kets with global prices set in term of the separates out the inter-provincial and US dollar. On the import side, a major international components of this deficit. supplier of consumer goods, in addition The data reveals a marked deterioration to the US, is China, and China has of the inter-provincial trade balance be- pegged its currency to the US. Thus ginning in 2001, and the international changes in the US-Canada exchange are balance following suit a year later. also changes in the China-Canada ex- The economic forces underlying the change rate. An appreciation of the Ca- growth of these two respective trade defi- nadian currency will tend to lower the cits contain some important differences. relative price of imports for Canadian In regard to international trade, consid- buyers, thereby encouraging increased eration must be given to the impact of spending on imports. For Canadian ex- exchange rate movements. Manitoba’s porters, this currency appreciation can

Figure 6: Manitoba Trade Balances 1981–2006

Source: Statistics Canada, CANSIM series v15855797, v15855798, v15855800 and v15855801. 10 Report on the Manitoba Economy: 2007 make their goods more expensive for for- flects, in part, rising material standards eign buyers, which can lead to a reduc- of living. In the business sector, tion in the quantity purchased and, un- Manitoban firms rely heavily on imports der normal conditions, to a reduction in for the machinery and equipment that the value of exports. Alternatively, if Ca- they use in their production processes. nadian exports are sold at a fixed world The strong increase in business invest- price, the volume of exports may not de- ment in machinery and equipment—an crease, but the value of these products, increase of almost $1 billion (in 1997 dol- when converted back into Canadian dollars) since 2003—is, consequently, also lars, will be lower. The end result is a primarily an increase in imports. Note decrease in export earnings. The reverse that the rising exchange rate not only can be expected if, instead, the Canadian reduces the cost of the fixed capital im- dollar depreciates. ports for Manitoban businesses, thereby encouraging these capital expenditures, This exchange rate effect is undoubtedly but also that investing in new equipment a large part of the story concerning Mani- and technology is one way in which firms toba’s changing international trade bal- have responded to the erosion of their ance. The period from 1991 to 2002 saw a international competitive position that is decrease in the value of the Canadian dol- due to the appreciating currency. In this lar relative to the US dollar, as the US price respect, surging imports and the conse- of a Canadian dollar fell from $0.87US to quent deterioration of the international less than $0.64US. At this low rate, Mani- trade balance is not entirely a negative toba was able to post a sizable trade sur- development, since it in part reflects in- plus on its international trade account, creased provincial capital formation. as shown in the figures for 2001 and 2002. Since 2002, the exchange rate has been The sharp deterioration of Manitoba’s rather consistently moving in the other inter-provincial trade balance cannot be direction, rising from a value $0.64US in attributed to exchange rate effects, but December 2002 to $0.95 in July 2007.19 This some features of this trade balance reflect constitutes an increase of 48.5% in just 41/ structural aspects of the Manitoba 2 years. Changes of this magnitude have economy which affects both interna- an enormous impact on the relative prices tional and inter-provincial trade flows. of domestic versus foreign produced goods For example, the lack of a strong con- and services, as well as on the net earn- sumer goods and capital goods produc- ings of Manitoba exporters. ing industry in the province implies that much of the increased spending by This powerful exchange rate effect has, Manitobans on these categories of goods for Manitoba, operated in conjunction will result in imports. As it pertains to with the strong spending levels in the inter-provincial trade in particular, part consumer and business sectors. Many of this demand is supplied by Canadian consumer goods, especially durable goods producers located in other provinces, es- such as electronic products, appliances, pecially Ontario. and automobiles, are produced outside the province and, in many instances, Another significant component of the outside the country. Therefore, this com- province’s inter-provincial trade concerns ponent of consumer spending will regis- energy products. Manitoba is a net im- ter in the province’s imports, but this re- porter of mineral-based energy products,

Canadian Centre for Policy Alternatives 11 especially oil and natural gas. Manitoba’s per barrel increase in the price of oil will, annual consumption of oil and natural when it works its way down to the re- gas has not changed significantly over tail level, cost Manitobans $36,000 per the last decade or so, but there have been day, or $13.1 million per year. This is an very large changes in the prices of these important part of the story underlying products within this relatively short time the recent growth of the inter-provincial period. For example, the Edmonton price trade deficit. of a barrel of light crude oil (in Canadian dollars) averaged $27.35 in 1999. In 2006, Further inspection of the inter-provin- the average price had jumped to $72.77.20 cial trade figures reveals tepid growth in The Alberta Energy Company price for Manitoban exports to other provinces. natural gas averaged $2.959 per Since 2000, these inter-provincial exports MMBTu21 in 1999, but in 2005 it aver- have grown, on average, at a rate of less aged $8.478 per MMBTu.22 The result of than 1% per year.23 It is perhaps too early these price increases is a hefty increase in to determine the extent to which these Manitoba’s import bill for mineral-based recent figures, which are well below the energy products. Table 1 compares the 6.6% annual average of the 1994-2000 results for 2000 with 2005 (the last year period, are the result of larger structural for which a full set of comparable data is changes in the production and flow of available). As shown in the table, the dif- goods and services within the Canadian ference between these years amounts to economy, but this is an important ques- over $600 million, and this does not even tion meriting further research. For the include the huge jump in prices in 2000 future, the creation of a power grid could over the previous year. Recall also that, significantly boost inter-provincial elec- from May to August 2006, oil prices tricity exports, which would lead to im- tended to exceed $80 per barrel. More gen- provement in the trade balance, but this erally, with a net consumption level of will not be realized in 2007. around 36,000 barrels of oil per day, a $1 Table 1: Manitoba’s Oil and Natural Gas Imports OIL: 2000 2005 Consumption 45,000 barrels per day (bpd) 50,000 bpd Production 11,000 bpd 14,000 bpd Net Imports 34,000 bpd 36,000 bpd Price per barrel ($Cdn) $44.33 $68.72 Net Imports per day $1.5 million $2.5 million Net Imports per year $549.7 million $903.0 million NATURAL GAS: 2000 2005 Consumption (= Imports) 200,000 MMBTu per day 200,000 MMBTu per day Price per MMBTu $5.019 $8.478 Value of Imports per day $1 million $1.7 million Value of imports per year $366 million $620.5 million Total yearly value of $915.7 million $1523.5 million oil & gas imports Source: Canadian Association of Petroleum Producers, StatsHandbook and and author’s calculations. 12 Report on the Manitoba Economy: 2007 III. Manitoba: The Labour Market

Statistics Canada reports that in April range—a level that is not only histori- 2007, 592,700 Manitobans were em- cally high by Manitoba standards, but ployed.24 As a proportion of the popu- which exceeds the Canadian average. The lation aged 15 years and over, this ratio unemployment rate has reached its low- (i.e., the employment rate), works out est levels in 30 years and, as shown in to 66.1%. A further 29,600 Manitobans figure 7, remains well below the Cana- were officially classified as being unem- dian average. ployed. Together, the employed and the unemployed comprise the province’s la- These standard indicators are, however, bour force. The April 2007 unemploy- only part of the picture. Critics can point ment rate, which is calculated as the ra- to the relatively low growth of the pro- tio of unemployed to the labour force, vincial population as a whole, and in registered 4.8%. particular to the net outflow of people to other Canadian destinations. For 2005, The snapshot of the provincial labour Manitoba’s net loss to other provinces market that these conventional statistics exceeded 7200 people, and in 2006 the provide is positive. Indeed, when viewed outflow increased to over 8600.25 As relative to the labour market performance shown in Figure 8, these recent figures in recent decades, or when compared constitute a sharp increase over the more with the Canadian labour market as a modest degree of out-migration in the whole, Manitoba’s current performance years immediately preceding 2005. How- looks quite strong. After rising through ever, the chart also reveals that the cur- the post-WWII period, since 2002 labour rent level of net inter-provincial migra- force participation rates in Manitoba have tion is not unprecedented. The 2006 lev- hovered around the 68.5% to 69.5% els were exceeded in 1979-1980 and again

Figure 7: Unemployment Rates 2000–2007

Source: Statistics Canada, CANSIM, series v2062815 and v2064138.

Canadian Centre for Policy Alternatives 13 in 1989-1990. The re-emergence of high provinces, and consequently it should levels of inter-provincial out-migration not be interpreted as an indicator of a in Manitoba since 2005 can undoubtedly moribund provincial economy or an egre- be largely attributed to the intense eco- gious failure of provincial economic man- nomic boom in Alberta. agement. More generally, labour mobil- This boom is exerting a powerful pull ity within Canada has always been high, throughout the national labour market and is an important channel through as ever more workers are drawn into the which the macroeconomy adjusts to the Alberta economy. Figure 9 shows net in- uneven rates of regional economic ter-provincial migration since 2006 for growth and development. The current some selected provinces. The surging boom in Alberta is largely exogenously Albertan inflow has produced an espe- driven, premised as it is on an ample en- cially marked effect in Ontario, as its net dowment of energy-based staple com- outflow grew to over 21,000 in 2006 modities which are currently enjoying alone, a level not seen since the devastat- high prices in international markets. Pro- ing recession of 1981. Even the relatively vincial labour markets across the coun- robust BC economy has not been left try are reacting to this boom, and Mani- unaffected, although it has still managed toba is no exception. The relative to retain a net surplus. Therefore, when strength of the Manitoba economy has considered in the national context, the somewhat mitigated the naked attraction increased outflow from Manitoba is not of Alberta’s demand for labour, but the at odds with the situation in most other rising net outflow of people from Mani-

Figure 8: Manitoba: Net Inter-Provincial Migration 1972–2006

Source: Statistics Canada, CANSIM series v391140. 14 Report on the Manitoba Economy: 2007 toba is unlikely to be reversed until Al- last 3 years, and that the numbers for berta’s growth rate subsides. The chal- 2006 exceeded 10,000.27 The province is lenge is to formulate economic policy and justified in attributing much of this re- conduct economic activity in light of the cent increase to the successful operation specific nature of the Alberta-based boom. of its Provincial Nominee Program (PNP), which, according to Budget 2007, This challenge and the attendant adjust- “facilitates visa and workplace permit ment to inter-provincial labour outflows applications from skilled foreign work- has been achieved in part through inter- ers and families.” Government figures national labour inflows. With respect to indicate that approximately 50% of total international migration, Manitoba is a net immigrants to Manitoba in 2004 were beneficiary. Since the 1990s, the yearly associated with PNP, and that this ra- numbers of Manitoban residents who tio had increased to about 66% for 2006. have emigrated to other countries have Furthermore the government has stated fallen, while the number of international that it plans to increase immigration immigrants has been increasing. Accord- levels by 1000 persons per year over the ing to Statistics Canada, emigration from next decade.28 Manitoba has consistently been less than 1500 persons per year since 2002.26 Im- Relative wage rates are one of the factors migration, however, has increased, espe- influencing these net labour flows. Mani- cially since 2004. In the 2007 Budget, the toba’s wage rates are high relative to the province reports that Manitoba has av- global average, and especially with re- eraged 8500 immigrants per year over the spect to countries such as the Philippines,

Figure 9: Net Inter-Provincial Migration: Selected Provinces 2000–2006

Source: Statistics Canada, CANSIM series v391130, and series v391139 to v391142.

Canadian Centre for Policy Alternatives 15 China and Korea, which are 3 of the top external market and living conditions 4 sources of international immigrants. and less pronounced cultural and in- The magnitude of this international wage stitutional barriers, inter-provincial la- gap, and the material standards of living bour mobility is much more sensitive that are associated with it, constitute a to those differentials. Consequently, powerful economic incentive for work- any significant adjustment of the rela- ers around the world to migrate to re- tive inter-provincial wage gap can be gions such as Manitoba. On the other expected to affect net flows of labour hand, limited information about oppor- across provincial boundaries. tunities in Manitoba, and bureaucratic and other institutional barriers confront- Manitoba wage rates have tended to lie ing potential international migrants, act below the national average, so it is not to effectively limit this inflow. Expansion surprising that Manitoba usually expe- of the PNP program will help immigrants riences a net inter-provincial labour out- overcome these hurdles, but it underlines flow. As illustrated in Figure 10, Mani- the fact that the immediate determinants toba wages relative to the national av- of international immigration levels are to erage have more than held their own be found more in the realm of public since the middle of the 1990s. However, policy and recruitment campaigns, than the benchmark for comparison is in- in the workings of the price system. creasingly not the Canadian average, but the rates offered in Alberta. By this By the same token, however, Manito- measure, Manitoba’s relative position ba’s wages compare less favourably with has been deteriorating, and this relative the Canadian average, and especially decline has been noticeably more pro- when compared with wage rates in Al- nounced since 2004. berta. The inter-provincial wage differential is of a much lower degree of mag- Positioned on the periphery of the Al- nitude than the international differen- berta boom, the pull of the Alberta tial, but, with better information about economy in combination with the high

Figure 10: Relative Average Weekly Wages 1991–2006

Source: Statistics Canada, CANSIM series v1740722, v1741964 and v1742279. 16 Report on the Manitoba Economy: 2007 employment/low unemployment rates in years. Consequently, the supply side of Manitoba itself makes for a very tight the labour market tends to lag behind provincial labour market. The director sharp cyclical and sectoral surges in de- of the province’s Economic and Fiscal mand. Secondly, improving the skills and Analysis Branch, Jim Hrichishen, was qualifications of Manitoban workers reported as saying that the “tight labour does not in any way guarantee that these market” is the “No.1 challenge to eco- very workers will continue to apply their nomic growth in Manitoba.”29 The Win- skills in the province. Arguably, better nipeg Free Press cited a recent survey by skills can, by increasing workers’ mar- Probe Research Inc. which revealed that, ketability, actually operate to increase the in 2006, 72% of Manitoba businesses degree of labour mobility, especially if the “had difficulties finding enough quali- market premium for skilled workers is fied new employees over the last year” proportionately larger in an area in (emphasis added). This figure is notice- which those workers are in greatest de- ably higher than the 56% reported in mand. Recognizing this, it is significant 2004, and induced at least one journal- that all three of the major parties in the ist to describe the provincial labour 2007 provincial election included in their shortage as “a crisis”.30 election platforms some measures explicitly designed to induce Manitobans to This situation has produced a number stay and work in the province. With the of adjustments within the provincial la- re-election of the NDP, their proposal to bour market. Provincial funds for tech- allow for a 60% tuition rebate for post- nical colleges and training programs have secondary students who stay and work increased, as reflected in an increase in in Manitoba for 5 years following gradu- funding to $32.6 million in 2007-08 for ation is likely to be implemented in the the College Expansion Initiative (up from current fiscal year. $26.5 million in 2004-05—an increase of 22.7% over 3 years) in addition to a 6% Additional internal opportunities for increase in college grants for 2007-08.31 enlarging Manitoba’s labour supply in- In the 2007 Budget Speech, Finance Min- volve explicit recognition of the prov- ister Greg Selinger stated that appren- ince’s aboriginal population. According ticeships and certified journeypersons to the 2001 census, aboriginal people have increased by 50% since 1999, and comprised 11% of Manitoba’s working went on to announce that the govern- age population (aged 15 years and over). ment is committing $2 million in new This is significant in the context of la- funds for training and skill enhancement bour supply because the “aboriginal age in priority areas.32 distribution is considerably younger” than that of non-aboriginals.33 Thus, a Efforts to augment the skill levels and recent Statistics Canada study reports enhance the training process for that, in 2001, 17% of aboriginals in Mani- Manitoban workers is both valuable and toba were in their 20s, but that this per- appropriate, but in and of itself it is not centage is expected to rise to 23% by sufficient to address the labour market 2017.34 The demographics imply that the challenges facing the Manitoba economy aboriginal population can potentially today. Education and training takes time comprise an increasingly prominent com- as well as money, and some apprentice- ponent of the provincial labour force. ship programs can extend from 2 to 5 Labour force participation rates for abo-

Canadian Centre for Policy Alternatives 17 riginals have been increasing, but they is also relevant here, since the on-reserve remain below the rates for the provincial population tends to have lower levels of population as a whole. Reducing this dif- educational attainment, both with respect ferential, aided in part by rising aborigi- to the off-reserve aboriginal population nal education levels, impacts favourably as well as the non-aboriginal population on labour supply in the province. as a whole.37 The disparity between the on- and off-reserve populations point to There are certainly grounds for optimism the pressing need to direct more re- in assessing recent and future prospects sources, especially with respect to educa- for aboriginal employment. For example, tion, but also with respect to housing aboriginal employment in Manitoba in- and other services, to reserves through- creased 30% between 2001 and 2005, a rate out the province. which is “five times the non-aboriginal rate.”35 Within the aboriginal popula- Although there remains much more to tion, however, there is a marked differ- be done, adjustments on the supply side ence in employment rates, labour force in various areas, including those dis- participation rates and unemployment cussed above, have attracted most of the rates between off-reserve aboriginals and attention of policy makers. Wage their on-reserve counterparts. For exam- changes, however, can potentially be the ple, the 2001 labour force participation most powerful form of market adjust- rate of off-reserve aboriginals was 64.4%, ment. There is evidence that selected but for the on-reserve population it was Manitoba employers are utilizing this only 46%. Similarly, with respect to un- instrument to attract and retain work- employment rates, the off-reserve rate in ers. For example, one aspect of the Project 2001 was 14.2%, while the on-reserve rate Management Agreement (PMA) of the was 29.7%.36 This extremely high on-re- Manitoba Floodway Authority gives serve unemployment rate contrasts mark- wage increases of 5% per year to some of edly with the low rate recorded for the the construction workers engaged in the province as a whole. It is significant that floodway expansion.38 More striking is the on-reserve population is not included the 5-year contract accepted by workers in the labour force surveys from which at the Prendiville Industries forest prod- the “official” employment and unemploy- uct plant in Birch River. Recognizing the ment rates are calculated. Thus the low current strong demand for skilled labour, unemployment rates of 5% or less that the contract is heavily front-end loaded, have characterized the Manitoba with a first year wage increase of 12%.39 economy in recent years understate to some degree the number of people seek- More generally, however, wages across ing employment by excluding those on the province have been slow to respond reserves, which is precisely the place to the emergence of a tight labour mar- where unemployment rates are the high- ket and the growing concerns expressed est. There is considerable scope for eas- by some employers and provincial offi- ing some of the labour supply constraints cials about a labour shortage. Despite the by improving integration of the reserve fact that unemployment rates in Mani- population into the larger provincial la- toba have consistently been below the 5% bour market. The well known link be- level for almost 2 full years (i.e., from June tween employment status and earnings 2005 to May 2007), it has really only been and the educational levels of individuals since August, 2006, that there has been

18 Report on the Manitoba Economy: 2007 any significant upward movement in age wage rates have moved up.41 The average wage rates. For example, in ex- August to March increase for this indus- amining the index of average hourly try amounted to a healthy 8.7%, but earnings for Manitoba workers, the data again this is a decidedly lagged response shows that the index increased by less to a demand-driven labour market situ- than 2% over the 20 month span between ation. Taken as a whole, the evidence January 2005 and August 2006.40 The seems to suggest that Manitoba employ- increase from August 2006 to March 2007 ers, both public and private, are very re- exceeded 5%, but this is a belated response luctant to raise wages in conditions other and, in light of the increased level of in- than those in which a critical shortage ter-provincial out-migration in 2005 and of workers has persisted for some time. 2006, it suggests an adjustment that is Employers and public policy seem to fa- “too little, too late.” In the construction vour supply side adjustments, such as industry, which has been singled out as immigration and training, rather than a sector that is enjoying especially strong enhanced monetary and material com- rates of growth and which generates de- pensation for workers. This is undoubt- mand for a wide range of skilled work- edly one manifestation of a broader shift ers, the hourly wage index displays no- in the relative power of capital and la- ticeable changes month-to-month, but bour—a shift which has lessened the failed to register any sustained longer power of labour—and workers have re- term increase over the January 2005 to acted in part by seeking better fortunes August 2006 interval. Here again, it has elsewhere. been only since the fall of 2006 that aver-

Canadian Centre for Policy Alternatives 19 IV. Manitoba Industries: A Closer Look

Figure 11 decomposes the Manitoba some recent developments in these sec- economy along the lines of the major tors of the provincial economy. industrial categories. As can be readily seen the service sector is dominant, com- Agriculture prising 72% of total provincial GDP. The other 5 categories comprise the Agriculture comprises less than 5% of goods producing industries. Manufac- provincial GDP, but this understates its turing is dominant here, with 12% of importance to the provincial economy. total provincial output. Primary indus- In addition to supporting the rural tries comprise two categories: 1) agri- economy in the southern half of the culture, forestry, fishing, hunting and province, outputs from agriculture com- trapping, and 2) mining, and oil and prise essential inputs for numerous gas production. Utilities and construc- manufacturing industries in the prov- tion complete this composite industrial ince, as well as shaping and supporting set. This section of the report provides much of the transportation industry, a closer look at the performance and and providing the historic base for the emergence of the finance, insurance and commercial Figure 11: Manitoba Economy by Industry Share 2006 sectors in the province.

Total cash receipts for Mani- toba agricultural producers amounted to $3.69 billion in 2006.42 Of this total, roughly half (48.5%) were earnings from sales of livestock, and slightly more than a third (35.2%) came from sales of crops. The remaining 16% comprised direct payments from income stabilization programs and crop insurance programs. Canola is by far the most valuable crop, bringing in $395 million in 2006. Next in importance is wheat ($270 million), followed by potatoes ($128 million) and oats ($96 million). Note that canola and wheat together constitute over 50% of the value of all Manitoba Source: Statistics Canada, CANSIM series v21418635, crops sold in 2006. v21418636, v21418641, v21418647, v21418651, and v21418661. 20 Report on the Manitoba Economy: 2007 Livestock production is dominated by of pigs per farm increased from 1,174 to hogs. Hog sales delivered $834 million to 2,313. This average far exceeds that of Manitoba producers in 2006. Even other Canadian provinces. Quebec, On- though lower hog prices reduced these tario and Saskatchewan, which along 2006 receipts from the $955 million mark with Manitoba are the leading pork pro- registered in the previous year, the 2006 ducers in Canada, average only 1,661; 902 hog revenues comprised about 47% of the and 1,016 pigs per farm, respectively. total livestock receipts for the province. This sector has expanded rapidly. Inven- This strong growth and the establish- tories of hogs on Manitoba farms have ment of the hog industry as the leader risen from 2.15 million hogs at the be- of livestock production in the province, ginning of 2000 to almost 3 million by along with the increasing degree of con- July, 2006,43 an increase of almost 40%. centration among hog producers, have Slaughter levels have risen from 2.9 mil- heightened concerns regarding the en- lion hogs in 2000 to 3.36 million in 2006. vironmental impact of the industry. The Even more dramatic has been the increase provincial government has reacted by in international hog exports, which saw announcing in November 2006 that it 5.4 million hogs exported in 2006, which was imposing a moratorium on new or is more than double the 2.3 million ex- expanded hog barns so as to provide ported in 2000. This aggregate growth some time to further assess the environ- has simultaneously involved a reduction mental implications.44 Consequently, in in the absolute numbers of pig farms, the near future it is likely that the in- resulting in a rise of the average number dustry will consolidate around its of pigs per farm. Specifically, the number present level of production, a plateauing of pig farms in Manitoba between Janu- that will be reinforced by the weaken- ary 1, 2000 and January 1, 2007 fell from ing of hog prices—a weakening that 1,830 to 1,280 while the average number reaches back to 2004.

Figure 12: Manitoba Cattle and Calf Price Index

Source: Statistics Canada, CANSIM series v1811668.

Canadian Centre for Policy Alternatives 21 After hogs, next in importance in terms Farm Income of livestock cash receipts is cattle, with The $3.7 billion in cash receipts that Mani- receipts in 2006 of $450 million, up 20% toba farmers earned in 2006 is, by his- from the previous year. Calves generated torical standards, very high, not with- a further $82 million in 2006. The cattle standing the fact that these receipts are industry is still recovering from the BSE down slightly from the peak levels of crisis of 2003, and the adjustment proc- 2002, 2004 and 2005, each of which ex- ess is not yet complete. That crisis, ceeded $3.8 billion. Operating expenses, sparked by the discovery of a case of BSE on the other hand, rose to a record $3.27 in Alberta, led to the closing of the US billion in 2006. As a result, the net an- market for live Canadian cattle from May nual cash income for provincial agricul- 2003 until July 2005. The loss of this pri- tural producers was only $417 million, mary export market led to plummeting which was the lowest level since 1995. prices for Canadian cattle and the accu- When depreciation charges of $405 mil- mulation of the number of cattle on Ca- lion are subtracted from this sum, the nadian ranches and farms. With the reo- remainder (plus $12 million reflecting the pening of the border, international ex- value of income in kind—i.e., non-cash ports have rebounded. Manitoba produc- income), which is defined as realized net ers exported 171,700 head of cattle in 2006, income, shrinks to a meager $25 million but this is still below the 262,200 head (see Table 2). This is the lowest level since that were shipped south in 2002.45 Prices, 1935. Fortunately, this extremely low level as indicated by Figure 12, responded rap- of realized net income is somewhat com- idly to the reopening of the border and pensated by an unusually large increase in fact exceeded the pre-BSE levels in late in the value of farm inventories. The 2006 2005 and throughout much of 2006, be- inventory increase, which amounted to fore weakening at the end of the year. $331.5 million, can be viewed as poten- Producers have been reducing their stock tial cash income. Including these positive of cattle as they move towards reestab- inventory values, total net income for 2006 lishing desired levels of inventory. As of comes to $356.6 million. This is an im- January 1, 2007, Manitoba producers had provement over the figures for 2004 and 1,380,000 head of cattle, down 7.4% from 2005, but it is below the levels recorded a year earlier. for the 2001-2003 period, which peaked

Table 2: Net Farm Income

2004 2005 2006 $ millions $ millions $ millions + Total cash receipts 3,863 3,805 3,686 – operating expenses (after rebates) 3,139 3,055 3,269 = Net Cash Income 714 750 417 + Income in kind 9 12 12 – Depreciation 404 409 405 = Realized Net Income 318 352 25 + Value of inventory change -58 -228 332 = Total Net Income 260 125 357 Source: Statistics Canada, CANSIM Table #20009 22 Report on the Manitoba Economy: 2007 at $540 million in 2003. Furthermore, prices also depressed cash receipts. Fig- none of these figures make any allowance ure 12 charts the monthly price indices for rises in the cost of living. Conse- in Manitoba for crops and for livestock. quently, on balance, 2006 can enter the As shown in the figure, the crop index books as another difficult year for many for 2005 and 2006 was well below the lev- Manitoba farmers. els of the previous 3 years.

Further analysis of these broad income For crop producers, the prospects for 2007 statements brings to the fore a number have improved as shown in the sharp rise of features, both structural and contin- in the crop price index since the fall of gent, that characterize and shape agri- 2006. Drought conditions in other ma- cultural production in the province. jor grain producing counties, such as Growing conditions were better in 2006 Australia, have adversely affected global compared to 2005, when wet weather grain production. On the demand side, impaired yields and even prevented seed- the U.S. government announced in the ing in parts of the province. The decline fall of 2006 a strong commitment, backed in cash receipts in 2006 is not attribut- by tax incentives, to increased use of able to lower output levels. Lower yields biofuels, and especially ethanol.46 The in 2005 led to inventory depletion, and result has been a surge in world prices part of the 2006 output was directed to- for grain and other crops, such as canola, wards replenishing inventories. Poor which are used for biofuel production,

Figure 13: Manitoba Farm Product Price Index 2002–2007

Source: Statistics Canada, CANSIM series v1811660 and v1811667.

Canadian Centre for Policy Alternatives 23 leading some analysts to argue that expenses in 2006 is the highest on record, prices for crops such as grains and and constitutes an increase of 7% over oilseeds are now in fact linked to the 2005. Part of these higher expenses can prices for oil.47 be attributed to higher production levels, especially for crop producers who These price increases are significant, but were able to avoid a repeat of 2005 where the benefits accruing from the rise in wet conditions limited acreage for seed- world crop prices have, for Canadian ing and harvesting,50 but input prices producers, been tempered in part by the seem to be rising across the board. Ris- recent rise in the Canadian dollar. With ing energy prices have resulted in in- world prices denominated in terms of US creased expenses by farmers for fuel for dollars, the higher Canadian dollar will heating and for machinery. Machinery reduce the revenues received by Canadian fuel expenses for Manitoba farmers have, sellers once the revenues are converted for example, risen from $193 million in to Canadian currency. For example, 2004 to $231 million in 2005 (an increase Wheat Board spokesperson Kevin of over 19%), and then another 11% in Kolisniak reported that a one-cent rise of 2006, reaching $256 million.51 Heating the Canadian dollar relative to the US fuel costs also increased by more than 10% dollar reduces returns to prairie wheat in 2006, reaching $33.2 million. Higher farmers by just under $2 per tonne. With petroleum prices are also passed on to top-grade wheat selling around $205 per producers in the form of higher prices for tonne, the one-cent rise of the dollar re- various fertilizers. Total spending for fer- sults in slightly less than a 1% decrease tilizers and lime rose 9.6% in 2006, reach- 48 in revenues from wheat sales. In the ing a record value of almost $410 million. first half of 2007, the Canadian dollar has moved from $0.850US in January to $0.938 in June. As of July 3, 2007, it was Debt servicing charges constitute another trading at $0.944US.49 Increases of this substantial expense. Here, the increases magnitude (10% in six months) are not in 2006 were particularly large. Due to unprecedented in foreign exchange mar- rising interest rates in conjunction with kets, but the onus of adjustment weighs increased debt loads, interest payments heavily on direct producers who sell in by producers rose 21.5% in 2006 to $278.2 international markets. Large organiza- million. Among other expenses, crop and tions can adopt strategies to cover or hail insurance (up 17% over 2005), com- hedge against currency market risk. mercial seed (up 7.5%) and pesticides (up The Canadian Wheat Board, for exam- 7.4%) all posted significant increases. ple, is able to do that on behalf of wheat and barley producers, but other agri- In contrast to the payments of these com- cultural producers, lacking the advan- modities and services, expenditures for tages of economies of scale, are left more agricultural labour posted only a very exposed to the vagaries of international modest increase of 2.9% in 2006. Going currency markets. back to 2003, the increase in labour expenses, which include room and board Regarding operating expenses, the trend along with cash wages, have risen less has been inexorably upward. As noted than 6% over the full 3-year interval. This above, the $3.27 billion bill for operating exception reflects not only the relatively

24 Report on the Manitoba Economy: 2007 slow rise in wages for workers in gen- ing debt-capital ratio reflects the under- eral, and for unskilled, manual labour- lying struggle for economic competitive- ers in particular, in the Manitoba ness and economic survival in the agri- economy, but also the specific effect of cultural sector. The lack of robustness in selected temporary migrant worker pro- annual net farm income suggests that a grams that are targeted to provide sea- number of producers are being pushed sonal low wage labour for the agricul- ever closer to the margin. Debt accumu- tural sector. It also suggests that labour lates as producers weather another lean is one element in the agricultural produc- year in the hopes that the next one will er’s cost structure on which producers be better. More active strategies involve are able to exercise some control. As em- increased capital investment, including ployers, they can have more influence the acquisition of additional acreage in over the price of labour inputs, than as an effort to realize economies of scale. buyers of other commodities and serv- Both of these options, however, can in- ices that are in turn provided and mar- volve assuming higher levels of debt. keted by corporations which in many cases have considerable monopoly power. Alternative off-farm sources of income constitute an important supplement to The squeeze reflected in the recent annual earnings from agricultural production. levels of total net income of Manitoba Manitoba farm families operating as un- agricultural producers has resulted in incorporated producers earned, on aver- ongoing adjustment and transformation age, $48,668 in 2004 from off-farm income in the agricultural sector. In terms of the sources. This figure is up dramatically balance sheet, the value of farm capital from the $33,299 earned in 1997, and, as in Manitoba continues to rise. Table 3 of 2004, comprises almost 70% of the to- marks the growth of the components of tal income earned by unincorporated farm capital over the last decade. As the farm families.52 About two-thirds of this data shows, however, this growth has off-farm income is earned through em- been greatly superceded by the parallel ployment of members of the farm family, growth of farm debt. As a result, the debt- which underscores not only the impor- to-capital ratio for agricultural produc- tance of the labour market for these fami- ers has climbed from 20% in 1996 to 36% lies, but also the importance of the unin- last year. While credit conditions have corporated farm households as a source been relatively favourable to borrowers of labour supply, including part time and over this 10-year span, especially when seasonal labour, for the wider economy. compared to the previous decade, this ris-

Table 3: Value of Farm Capital and Farm Debt 1996-2006

1996 2001 2006 1996-2001 2001-2006 ($billions)($billions)($billions)(% change)(% change) Land & Buildings 8.4 9.9 10.8 16.8 9.5 Machinery & Equipment 3.0 3.4 3.6 13.3 5.9 Livestock & Poultry 1.1 1.9 1.5 72.7 -20.6 Total Farm Capital 12.6 15.2 15.9 26.9 4.6 Farm Debt 2.6 3.9 5.8 50.0 48.7 Debt-Capital ratio 0.20 0.26 0.36 N/A N/A Source: Statistics Canada, CANSIM series v8597, V8598, V8599, V8600 and v383137.

Canadian Centre for Policy Alternatives 25 For some families, however, economic the unincorporated sector alone also adjustment culminates in exit from the charts the decline in the number of farm industry. Farm bankruptcies, which families. From 1997 to 2004, the size of cover both incorporated as well as un- this group slipped from 15,600 to incorporated producers, increased in 12,110.55 Furthermore, the demographic 2006, but these numbers are, on a yearly age profile reveals a corresponding in- basis, quite small (27 bankruptcies in crease in the average age of farmer op- 2004, 26 in 2005 and 36 in 2006).53 More erators. For Manitoba, this average age common is exit through sale of the farm, rose from 47.4 years in 1996 to 49 in 2001, precipitated by retirement or the toll and had reached 51.2 in 2006.56 exacted by years of low returns. Buyers The advantages of size and increased are often existing operators seeking to capitalization have encouraged corporate expand the size of their operations. The production in agriculture, and this is the flow of new entrants is below the rate flip side to the declining prominence of at which existing farm families are leav- the family farm. Figure 14 illustrates the ing and, as a result, the total number of extent of this transformation over the last farms is decreasing. In 2006, there were 15 years. As a percentage of net value 19,054 farmers in Manitoba. This is a added in Manitoba agriculture, corporate decrease of 9.6% from 2001.54 Data for profits, which comprised less than 5% of

Figure 14: Relative Returns in Agriculture 1991–2006

Source: Statistics Canada, CANSIM series v1939588, v1939592, v1939595 and authors calculations. 26 Report on the Manitoba Economy: 2007 net value added in the early 1990s, are significant downturn in over the 2000- now above 20%. The net returns to un- 2002 period, responding in part to the incorporated farm operators, by contrast, mild economic recession (especially pro- have fallen from shares exceeding 30% of nounced in the US) that marked the end net value added in the early and mid- of “the roaring nineties.” The subse- 1990s, to levels well below 15% in the quent upturn produced strong growth 2004-2006 years. The chart shows that rates in excess of 8% per year in 2004 the net returns to both the corporate and and 2005, before taking off in 2006 with the unincorporated sectors continue to a stratospheric growth rate in excess of exhibit considerable variability, but the 26%. These growth rates refer to the real emergence of corporate agriculture as the value, in terms of GDP, produced by this dominant form of agricultural produc- sector. This value (measured in 1997 dol- tion appears now to be well established lars) amounted to a record $888.1 mil- in the province. lion in 2006, and constituted 2.6% of provincial GDP.

Mining and Oil Extraction The strong upturn that characterizes the Primary industries are prone to extreme current situation of this industry in the cyclical fluctuations, and, as shown in province has been driven primarily by Figure 15, the recent performance of the soaring international prices for oil and mining and petroleum industries in metallic minerals. The rise in oil prices Manitoba exemplifies that characteristic. has been considered earlier in this report. Specifically, the industry experienced a For the Manitoba industry, this rise has

Figure 15: Growth Rates in the Mining and Oil Industry: Manitoba 1998–2006

Source: Statistics Canada, CANSIM series v21418641.

Canadian Centre for Policy Alternatives 27 resulted in increases in the volume and of India and China. Manitoba has sig- value of production, as well as unprec- nificant endowments of nickel, copper edented increases in exploration and and zinc ore and, as shown in Figure drilling activities. Specifically, the number 16, the prices for each of these commodi- of new wells drilled in the province rose ties have surged upwards in 2006. Es- from 94 in 2003 to 285 in 2005 to a record pecially dramatic is the rise in nickel 476 in 2006. Production levels have in- prices which has continued strongly creased from less than 4 million barrels into 2007. As of May 2007, the Canadian in 2003 to 5.1 million in 2005 to 7.8 mil- price for nickel concentrate was roughly lion in 2006, and the market value of oil 5-and-one-half times the price that pre- sold grew from $158 million in 2003 to vailed in January 2002. $530 million in 2006.57 The exceptionally strong conditions pre- As spectacular as the developments in vailing in international commodities the Manitoba oil industry have been, markets are the primary reason why 2006 their economic impact remains consid- was a “record year” for the mining in- erably less than that of metallic mineral dustry in Manitoba. The market value of production. Globally, metal prices have production reached $2.1 billion in 2006, also moved sharply upwards in recent up from $1.3 billion in 2005, reflecting not years, driven in part by the combina- just the higher price per unit of ore mined, tion of low global stockpiles of these but also, in some cases, increases in the metals and strong and growing demand volume of production levels. For exam- from the large high growth economies ple, copper production levels rose 54.3%

Figure 16: Price Indices for Selected Metals 2002–2007

Source: Statistics Canada, CANSIM series v1576493, v1576494 and v1576496. 28 Report on the Manitoba Economy: 2007 in 2006, and gold production increased refining processes, combined with the 20.4%,58 the latter reflecting the reopen- high prices currently being commanded ing of 2 gold mines in the Bissett region by these commodities, enable profitable by San Gold Corporation. exploitation of lower grade deposits, especially in areas with supporting infra- Particularly noticeable is the stimulus structure already in place. Securing ad- given by these high prices to mineral ex- equate supplies of skilled and experienced ploration and development activities. workers are and will continue to be a Exploration spending in the province challenge, but this is a relatively high- exceeded $52 million in both 2005 and paying, capital-intensive sector,63 and is 2006. Gold prices, which have risen to therefore able to compete effectively with their highest levels in over 25 years, have other industries for labour. Cyclical induced interest in the resumption of booms are, however, temporary. The con- gold mining in the Lynn Lake area, pos- ditions generating this boom in the prov- 59 sibly as early as 2008. Soaring nickel ince are highly vulnerable to changes and prices have boosted plans by Crowflight adjustments in the world economy. The Minerals Inc. for the development of a rising commodity prices are inducing new nickel mine at Bucko Lake, in the supply responses around the world Thompson nickel belt, with the intention which, especially in the case of metals, is 60 of the mine opening in late 2007. In likely to eventually produce a period of October, 2006, CVRU Inco initiated pro- oversupply and falling prices. If signifi- duction from a new ore body in its cant new supplies come available at the Thompson operations. The company has same time as a slowdown in the rate of also announced plans to spend $150 mil- growth of the economy, and especially in lion annually in 2007 and 2008 on infra- the torrid growth rates currently being 61 structure at its Thompson facilities. racked up in China and India, an easing Copper and zinc producer HudBay Min- of commodity prices could easily turn erals, Inc. intends to spend $26 million into a collapse. Problems of adjustment on exploration in Manitoba in 2007, as in the face of pronounced cyclical tenden- well as invest in further preliminary de- cies in the non-renewable resource sec- velopment or their copper and zinc de- tor will remain. posits near Snow Lake. They are reportedly considering opening a mine there for a short term (possibly 3 years) pro- Utilities duction run.62 Utilities contributed approximately $1.1 billion (in 1997 dollars) to provincial GDP The upshot of this is that the mining and in 2006, which works out to just over oil & gas industry in Manitoba is cur- 3% of the provincial total.64 This sector rently enjoying very favourable boom is dominated by electric power genera- conditions, and it is facing the likelihood tion which comprises 85% of the $1.1 bil- that this boom will be sustained lion,65 and the significant player here is throughout 2007. The industry is built Manitoba Hydro. upon non-renewable resource deposits, but producers are not facing the spectre In Manitoba, over 97% of electric power of supply exhaustion in the immediate generation is hydraulic. Given the exist- short term. Moreover, improvements in ing capacity, the output generated de- the technology applied to extraction and pends critically on water flow, which in

Canadian Centre for Policy Alternatives 29 turn is dependent upon precipitation Preliminary figures indicate that water across the drainage basins. The value of flows for the 2006-07 fiscal year were down the electric power depends on market substantially from the record levels of prices as well as output levels. 2005-06. In its quarterly report of Decem- ber 2006, Manitoba Hydro reported that, The impact of the variability of water in the first 9 months of the 2006-07 fiscal flows on hydro production and revenue year, hydraulic electricity generation was has been vividly illustrated by the expe- down 12.6% from the same period in the riences of the past few years. Table 4 previous year. As a result, for this 9 presents some of the telling figures. Low month period, extra provincial energy water conditions for the 2003-2004 fiscal sales amounted to $534 million, down year resulted in a drop of electric power 30% from the corresponding period in generation to 19.3 billion kilowatt-hours 2005, and purchases of fuel and power (kWh) from the 29.2 billion level of the increased 50% to $202 million. As a re- previous year. Low production also ne- sult, net income from electricity opera- cessitated higher expenditures on imports tions was, for the April 2006 to Decem- of energy from outside the province, re- ber 2006 period, only $70 million, com- sulting in a huge energy purchase bill pared to $296 million for April-December for the corporation of $569 million. The 2005.68 Relatively low earnings for the 2004-05 year was a return to more nor- entire fiscal year are likely to be confirmed mal levels, but 2005-06 proved to be an when Hydro’s 2006 Annual Report is re- exceptionally good year, resulting in “un- leased in the summer of 2007. However, 66 precedented electricity generation” of a wet conditions that have visited the record 37.6 billion kWh. High produc- drainage region in May, June and early tion combined with stable provincial de- July of 2007 have once again raised wa- mand allows for high extra-provincial ter levels above their norms. On this ba- sales. As the table indicates, these exports sis, the financial prognosis for the cur- soared to an unprecedented $881 million rent fiscal year is extremely promising. in 2005-06, a 60% increase over the previous year, shattering the previous peak While seasonal and yearly fluctuations of $588 million in 2001-02. For the cor- in net earnings are inevitable due to vari- poration this impacted very favourably ability in weather and water conditions, on the bottom line, as overall net income longer term plans for the utility entail for 2005-06 came to $415 million.67 expanding generating capacity in the province, improving the transmission

Table 4: Manitoba Hydro: Selected Production and Financial Statistics, 2003-2006 2002-03 2003-04 2004-05 2005-06 Energy Generated (kWh) 29.2 billion 19.3 billion 31.5 billion 37.6 billion Total Revenues $1,354 million $1,287 million $1,508 million $1,882 million from Electricity Sales Revenues from $463 million $351 million $554 million $881 million Extra-provincial Electricity Sales Fuel and Power $151 million $569 million $135 million $179 million Purchased Net Income $71 million -$436 million $136 million $415 million Source: Manitoba Hydro, 55th Annual Report for the year ended March 31, 2006. 30 Report on the Manitoba Economy: 2007 and distribution infrastructure, and lin- members, but is particularly notable for ing up solid export markets for the an- the provision which gives the NCN an ticipated surplus power that the increased opportunity for acquiring up to a 33% capacity is expected to produce. In terms equity stake in the generating station. of capacity, wind power generation has Initial construction on access roads be- now been established with the construc- gan in August 2006. Completion is sched- tion and operation of wind farms by in- uled for 2012.73 dependent private companies, and with Manitoba Hydro subsequently purchas- The Wuskwatim project, which Hydro ing the power and integrating it into the described as the “largest construction provincial power grid. A significant ex- project in Manitoba in decades,”74 would ample is the completion in March 2006 of be dwarfed if the plans for the Conawapa 63 wind turbines near St. Leon, Mani- Generating station on the Nelson River toba. AirSource Power invested $210 mil- are realized. This project would have an lion to construct the towers. The farm, estimated 1250MW generating capacity. which has since been sold to Algonquin Its estimated cost is listed in the Power Income Fund69, has a generating neighborhood of $5billion. Construction capacity of 99-megawatts and has entered is expected to take between 8 and 9 years, into a 25-year power purchase agreement and would, according to Manitoba Hy- with Manitoba Hydro.70 In total, for the dro, create approximately13,000 person 9 months ending December 31, 2006, years of direct and indirect employment.75 Manitoba Hydro has purchased 260 The implications of this mega-project are gigawatt-hours of wind generated elec- substantial, and can only be briefly iden- tricity, up from 55 gigawatt-hours over tified here. Firstly, the creation of such a the same period in 2005. None was pur- substantial increase in generating capac- chased prior to 2005.71 The 260 gigawatt- ity requires securing strong, stable mar- hours of electricity is comparable to the kets outside the province. The province 297 gigawatt-hours produced by thermal has been lobbying hard for the erection means in the province, although both of an inter-provincial east-west power comprised only about 2.2% of the total grid, especially with a view to achieving electricity generated in the province in major power sales to Ontario. Federal 2006. Wind production is expected to in- money has been tagged for this project crease, however, with reports that, as of through the ecoTrust fund, established May 2006, the province had received “36 in early 2007, and, in the provincial elec- proposals from various groups” seeking tion campaign, Manitoba Premier Gary to develop wind generating capacity.72 Doer committed $40 million of Manito- Much more substantial are Hydro’s plans ba’s portion of the fund to furthering the to augment its hydraulic generating ca- negotiations and planning associated pacity. Agreement has been reached with with this project.76 Also notable is the the Nisichawayasihk Cree Nation (NCN) announcement on November 2006 of a for a $1 billion, 200 megawatt (MW) $2.2 billion power sale to Xcel Energy of Wuskwatim Generation Project on the Minnesota. The tentative agreement, Burntwood River. The community rati- which is structured to commence in 2015, fied the Project Development Agreement has sales of 375MW of power per year in June 2006. The agreement includes from 2015 to 2021, followed by 500MW employment opportunities for NCN of sales annually from 2021 to 2025.77

Canadian Centre for Policy Alternatives 31 This is especially significant since Min- political and philosophical debates nesota is the major export market for among northern residents and their rep- Manitoba power. resentatives, has affected the marketing and promotion of electrical power as an The marketing of hydro electric power export commodity. This is well illustrated emphasizes the renewable and carbon- by a new Minnesota law that requires free aspects of this energy source, but Manitoba Hydro to explicitly account on damming waterways, flooding land and a yearly basis for the impact of its north- constructing access roads and transmis- ern projects on First Nations people and sion corridors have their own impact on the environment. Failure to do so can the natural environment and on the peo- jeopardize export sales to the Minnesota ple and communities that reside in the market. Federal and provincial officials areas affected. The environmental and have criticized the law and raised the cultural damage done through previous possibility that it violates NAFTA, but it construction projects has not been is significant that there is also support wholly ameliorated, and that legacy con- for the law by at least one First Nation tributes to the debates within northern community.80 First Nation communities about not only the terms of any new agreements with The impact and implications of hydro Manitoba Hydro, but also about whether development in the north cannot be sepa- or not hydro development and its spinoff rated from the pricing policy for electric- effects are desirable at all from the per- ity throughout the province. In its Quar- spective of local residents. The commu- terly Report of September 2006, Hydro nity-approved agreement of the stated that Manitobans enjoy the lowest Wuskwatim Generating Project, the an- monthly electricity rates in Canada.81 nounced Process Agreement between These low rates suggest that consumers Hydro and the York Factory First Na- are not being charged full market rates tion concerning planning and participa- for electricity. Electricity demand can tion in the proposed Conawapa project,78 warrant higher domestic prices, and any and the “comprehensive settlement agree- reduction in provincial sales due to these ments” with 4 of the 5 communities that higher prices can be recouped in the ex- were signatories to the Northern Flood port market. The benefits from the lower Agreement79 are all recently announced rates flow to provincial users. Most of instances of working agreements be- these are in the south, however, while tween Hydro and First Nations. These the environmental and cultural costs of agreements suggest that there is con- increased hydro production are prima- siderable support for further hydro de- rily borne by residents in the north. The velopment, and that the content of the bulk of the economic benefits that accrue agreements themselves have evolved, to northern residents stem from employ- but they do not imply that there is any- ment associated directly and indirectly thing approaching consensus among with construction of new generating First Nation people concerning these plants. The employment is valuable, and crucial issues. training can impart lasting skills to northern workers, but the construction The sorry historical record of past flood projects themselves tend to be of 8 years agreements, in Canada as well as in duration or less. Consequently, once the Manitoba, along with the existing real construction phase is completed, the flow

32 Report on the Manitoba Economy: 2007 of direct benefits to northern communi- the approval of the $1 billion Wuskwatim ties drops. Taking a longer view, there Generating Project will sustain growth would seem to be considerable scope for in this sector over the projected 5-year the transfer of more financial resources construction period. Preliminary con- to the north by capturing and redirect- struction work on this project got ing some of the implicit rents that Mani- underway in August 2006. Looking be- toba electricity consumers are enjoying yond this, the possibility of the mammoth from hydro production. Implementing $5 billion Conawapa project hovers on policies along these lines may also act to the horizon. undermine and dissolve the negative as- sociations that foreign consumers may Construction is a relatively labour inten- have regarding this economically impor- sive industry, and it also draws upon lo- tant export commodity. cal and regional suppliers for a range of building materials and services. In regard Construction to materials, concrete, sand and gravel, metals, glass, wood products, and win- The construction industry in Manitoba dows all have local suppliers, while ar- has been consistently outpacing the chitectural and engineering firms are growth of the provincial economy for a important on the services side. Thus, lo- number of years now. As a result, its cal multiplier effects from construction share of provincial GDP has increased activity are significant. from just under 4% in 2000 to 5.3% in 2006 (i.e., $1.8 billion of the $34.3 billion Employment in the industry has in- provincial economy, as expressed in 1997 creased 38% since June 2002, and stood dollars).82 As noted above in the exami- at 23,723 as of April 2007.83 The problem nation of investment, residential con- of securing the requisite supply of labour, struction has been a major source of ac- however, poses some challenges due tivity, with the value of residential con- partly to the torrid construction boom struction expenditures rising 54% be- in the Alberta economy, but demographic tween 2000 and 2005. The aforementioned factors are also a factor. A construction relative slowing in 2005 and 2006 of this industry report states that almost 4,600 high rate of expansion in housing has, construction trades workers are expected however, been more than offset by the to retire in Manitoba between 2007 and surge in non-residential construction. 2015.84 Part of the response has been re- For example, business investment in newed attention given to apprenticeship non-residential structures increased by programs across the province. Specific more than 32% in 2006. Underlying these responses within the Manitoba construc- strong figures are the broader set of fac- tion industry include initiatives to uti- tors that are driving consumer spending lize more extensively the latent labour and private sector business investment supply of the aboriginal population. This in the province. These have been dis- is reflected in the increased commitment cussed previously in Section II of this to provide training and employment op- report. Also significant is the renewed portunities for First Nations peoples that public investment in infrastructure, in- comprise an important aspect of newly cluding increases in the budget for pro- announced hydro developments in the vincial highways, and the expansion of north, such as the Wuskwatim project. the Winnipeg Floodway. In the north,

Canadian Centre for Policy Alternatives 33 As noted in Part III of this report, wage culations show that for the 2-year period adjustment as a response to tight labour covering 2005 and 2006, real wages (i.e., market conditions has been relatively wages that are adjusted for increases in sluggish. Mention has already been made the consumer price index) rose 4.2%. of the contractual wage agreements for Since employment increased about 11.2% construction workers that are embedded over the same period, the real wage bill in the PMA of the Manitoba Floodway in construction increased about 16% over Authority. In general, however, employ- the 2005-2006 interval. Real value added87 ment growth in the industry prior to the in the industry, however, grew about latter half of 2006 has not been premised 27%. This implies that a larger share of upon significant wage increases. Average the value added in the industry is going weekly earnings for construction work- to non-labour incomes, including corpo- ers in the province increased only 3.0%, rate profits and the net earnings of un- 1.8% and 3.4% annually in 2003, 2004 and incorporated businesses. The evidence 2005, respectively.85 The 5.3% increase suggests that the bottom line for opera- that was recorded in 2006 is more sub- tors in the construction industry has stantial, and reflects increased tightening been enhanced substantially since 2005. of market conditions for construction labour. However, this increase raises Manufacturing their average weekly earnings to $831.74. Compared to the provincial average of In 2006, manufacturing constituted $676.83 for all industrial sectors together, slightly less than 12% of the provincial there is evidently a healthy premium for economy and employed over 60,000 construction workers in the province, workers.88 Measured in 1997 constant which encourages a flow of labour into dollars, manufacturing GDP was $3.98 this sector and constitutes incentives for billion, down slightly from the record workers to avail themselves of training $3.99 billion level reached in 2005. In programs that are tailored to meeting the terms of the entire provincial economy, needs of this industry. Nevertheless, the however, the relative share of output lure of the Alberta economy remains. In from the manufacturing sector has con- Alberta, average weekly earnings in continued to fall, as illustrated in Figure 17. struction were $988.90 for 2006,86 which This declining share reflects, in part, a is almost 20% higher than the Manitoba continuation of the larger long-term rates. With the strong provincial demand sectoral transformation of advanced in- for construction expected to continue dustrial economies in which the expan- throughout 2007, combined with the sion of the service sector runs parallel to expected extension of the construction the declining share of manufacturing. boom Alberta, construction workers in However, the last few years have served Manitoba are in a good position to real- up additional challenges for Canadian ize wage increases at a rate exceeding the manufacturers. In particular, the sharp provincial average for the remainder of rise in the Canadian dollar, especially rela- 2007 and into 2008. tive to the US dollar, has undermined the Recent data indicates, however, that de- competitiveness of Canadian producers spite the wage increases in 2006, labour’s in both domestic and foreign markets. share of the value added in construction This has accentuated the other competi- has been falling. For example, rough cal- tive advantages that producers exploit

34 Report on the Manitoba Economy: 2007 through reorganizing production on a Manufacturing employment has borne a global basis so as to make use of low cost substantial portion of the adjustment opportunities, especially in the form of that the industry is experiencing. At the lower labour costs. Firms throughout end of 2002, employment in this indus- Canada have responded in various ways, try was 1.97 million, but the employment including shutting down domestic pro- levels have been decreasing throughout duction, shifting more production off- the subsequent period. As of April 2007, shore, repositioning themselves in high- they had fallen to 1.81 million90—a net value product niches, increasing produc- loss of approximately 160,000 jobs in tivity through technological upgrades only four and one-half years. and capital investment, restraining and reducing labour costs, and seeking gov- When viewed in this larger national con- ernment assistance in a variety of forms, text, Manitoba’s manufacturing sector ranging from import protection to sub- has actually performed quite well. Mani- sidies and tax breaks. toba lost about 7000 manufacturing jobs between 2000 and 2004, but much of that The cumulative impact of these economic reflected the cyclical growth of manufac- forces on Canadian manufacturing is turing employment in the late 1990s and apparent in the latest output and employ- the readjustment in the wake of the ter- ment figures for the industry. Manufac- mination of the economic upswing in turing GDP has not been able to match 2001. Since 2004, employment levels have the record levels achieved back in 2000. more or less been holding steady, and, as The sector has shown some recovery from of April 2007, the 60,544 manufacturing the aftermath of the 2001 downturn, but workers in the province constitute a after some growth in 2004 and 2005, real slight increase above the 60,476 figure manufacturing GDP fell 1.3% in 2006.89 from April 2006.91 The value of manu-

Figure 17: Manitoba: Manufacturing Share of Output 1997–2006

Source: Statistics Canada, CANSIM series v21418635 and v21418661.

Canadian Centre for Policy Alternatives 35 facturing shipments in Canada fell in decade, as its GDP (in 1997 dollars) rose 2006, but in Manitoba, they increased from $162.8 million in 1997 to $197.4 mil- over their 2005 levels. The monthly fig- lion in 2005, and then to a record $243.5 ure for May 2007 amounted to $1.32 bil- million in 2005, before falling back to lion.92 This was down from the record $207.9 million in 2006.98 Nevertheless, $1.49 billion set in March 2007, but the pressure for further adjustment has in- early figures for 2007 indicate strong ac- tensified. Palliser Furniture, a major tivity throughout much of this sector, manufacturing employer in the province, and, based on the first 5 months of the has significant foreign production sites, year, shipments for 2007 promise to sur- and in 2005 the company announced the pass the mark set in 2006.93 closing of one of its Winnipeg upholstery plants, layoffs of about 200 Winnipeg Manitoba manufacturers have not been workers, and the shifting of “most of its exempt from the larger forces, such as leather cutting and sewing” to Mexico. adverse exchange rate movements and The appreciation of the Canadian dollar low cost production offshore, that are was explicitly mentioned by Palliser’s pressuring the Canadian manufacturing president and CEO as the reason for this industry as a whole, and the process of restructuring.99 The company’s wood adjustment is continuing. For some furniture division in Winnipeg, however, firms, such as those in clothing manu- was targeted for expansion and equip- facturing, much of the adjustment has ment upgrade,100 a decision which re- 94 already occurred. This sector, which flects in part the positive influence of comprised 6.3% of Manitoba’s manufac- Manitoba’s and Canada’s natural resource turing GDP in 1997, and 5.6% in 2003, base in supporting downstream manu- contributed only 2.7% in 2006. Its in- facturing activity. ternational exposure was heightened with the WTO sanctioned removal of The importance of agriculture in the pro- quotas for clothing in January 2004 and vincial economy is evident in the size and further tariff removals in January 2005. expansion of food product manufactur- The adjustment continues to squeeze ing in Manitoba. This burgeoning sec- blue collar production jobs, resulting in tor has increased its share of provincial the loss of a further 450 jobs in 2005,95 manufacturing from around 11% in 1997 and the closing of a Nygard factory in to 17% as of 2006. Of particular note April 2007.96 Activity has shifted to place within this industry has been the increas- more emphasis on white-collar service ing importance of meat product manu- work, with particular emphasis on de- facturing, reflecting the expansion of the sign and marketing,97 along with in- hog industry and the operation of the creased capital investment and higher- Maple Leaf packing plant in Brandon. end specialty products. The GDP generated in meat product manufacturing has risen from $132 mil- Other segments of the manufacturing lion (in 1997 dollars) in 1997 to $355.1 industry are facing similar pressures but million in 2006, which is almost 9% of have avoided the longer-term decline that total provincial manufacturing GDP.101 characterizes the garment trade. Furni- Plans for further expansion in Manitoba ture manufacturing, for example, has were announced in 2005 in the form of experienced growth and expansion in the the proposed $200million OlyWest hog- province throughout most of the last processing plant for Winnipeg. The pro-

36 Report on the Manitoba Economy: 2007 posal, aided by incentives from both the generated by the industry a mere decade province and the city, has generated con- ago.103 Looking ahead, this sector will siderable opposition, much of it on envi- be affected by some cooling of the con- ronmental grounds, among residents and struction boom, as well as by the effects businesses in the city. Furthermore, the of the rising Canadian dollar. This ex- rising Canadian dollar has adversely af- change rate increase has probably con- fected the international export market for tributed to the negative GDP growth of Canadian pork. This has affected pork wood product manufacturing in 2006, producing and manufacturing opera- and the further escalation of the value of tions across the country, and it induced the dollar between April and July 2007 one of the major companies in the can be expected to negatively affect this OlyWest consortium, Olymel of Quebec, sector’s GDP for 2007 and into 2008. to pull out of the Manitoba project. The Manitoba’s aerospace industry is a spe- combination of local opposition, falling cialized, high-value segment of the pro- hog prices and the continued rise of the vincial economy and relies upon a Canadian dollar has put the future of the highly-skilled, experienced workforce. As OlyWest proposal in doubt.102 a result, the industry is less exposed to Primary and fabricated metal produc- exchange rate movements and to low- tion is only slightly behind the agrifood wage offshore competition. It is not, how- industry in terms of its contribution to ever, immune to cyclical fluctuations and the province’s manufacturing industry. sudden exogenous shocks, as was dem- This metal sub-sector contributed almost onstrated with the drop in air travel in $600 million (1997 dollars) to provincial the aftermath of the 9/11 tragedy. Within GDP in 2006, which works out to ap- the provincial aerospace industry, the proximately 15% of Manitoba manufac- manufacturing division had been expe- turing. The sub-sector, riding a strong riencing a significant decline since the late demand for metal products—a demand 1990s. In terms of GDP, aerospace prod- that is fuelled by robust construction ucts and parts manufacturing had de- activity in Canada, in North America, creased from $314.5 million in 1997 to and in the high growth Asian econo- $216 million in 2004, followed by another mies of China and India—has contin- dramatic drop in 2005 to $122.1 mil- ued to expand, showing 5% growth in lion.104 In addition to the post-9/11 2005 and an especially impressive downturn in aviation travel and produc- growth of over 10% in 2006. tion, the declining fortunes of the Mani- toba industry also stem from the Manitoba’s natural resource base has fulfillment of previous contracts cover- helped generate a significant wood prod- ing the supply of parts for large aircraft uct manufacturing industry in the prov- manufacturers—a phenomenon that oc- ince. The sector has in recent years also curs as existing aircraft production runs been favoured by the construction boom. move into the late stages of the product Comprising 7% of total provincial manu- cycle. Since 2005, however, the situation facturing, its 2006 GDP output of $282 in Manitoba has been rejuvenated. This million was down from the record $310 is primarily due to the success of the Win- million of the previous year, but it is nipeg Boeing plant in securing a new higher than the 2003 and 2004 levels, and contract to supply parts for Boeing’s new is more than twice the value that was 787 passenger airliner. Employment at the

Canadian Centre for Policy Alternatives 37 Winnipeg plant, which had sunk to 861 reportedly increased production in the employees in the period following 9/11, two U.S. plants to make up for produc- has rebounded sharply as production tion losses sustained during a strike by for the 787 got underway in 2006.105 workers in the Winnipeg production By mid-2007, increasing production lev- plant.110 These developments illustrate els had pushed employment to around some of the tactical advantages a com- 1400, exceeding the pre-9/11 peak of 1368 pany can enjoy with even a modest de- employees, and inducing the company gree of multi-national production capa- to cancel its annual two-week summer bility. They also suggest that the degree shutdown.106 The turnaround in pro- to which Manitoba workers will benefit duction registered in the GDP statistics from future contracts is unclear. The fur- for aerospace manufacturing with 2006 ther rise in the Canadian dollar (up figures rising 22% to $149.8 million,107 about 5% between May 2006 and July but the value for 2007 can be expected 2007), will not improve their prospects. to easily surpass that. The other prominent company produc- In transportation equipment manufac- ing transportation equipment in Mani- turing, two prominent Winnipeg-based toba is Motor Coach Industries, which companies experienced increases in orders manufactures buses primarily for tour and production in 2006. New Flyer In- companies and inter-city travel. The dustries consolidated its position as company was also adversely affected by “North America’s largest manufacturer of the downturn in the North American heavy-duty transit buses” with an- travel industry after 2001, but recovery nouncements in May 2006 of new orders in the travel industry and renewed de- for 857 buses worth approximately $342 mand by intercity bus companies and million (US).108 The company has 2 pro- public municipalities seeking to upgrade duction plants in Minnesota in addition and expand their fleets induced a sharp to its Winnipeg plant. The US plants give increase in bus sales in early 2006. In the company a means by which the ad- addition to the Winnipeg plant, the com- verse effects of the rising Canadian dol- pany has a production facility in North lar can be substantially avoided. Further- Dakota. In contrast to New Flyer, Mo- more, since many of the customers for tor Coach responded to the resurgence transit buses are American urban transit in demand with increased production authorities, maintaining a prominent rates in both its Manitoba and US plants. role for US-based production may also Employment in the Winnipeg plant in- help secure sales to those US customers. creased by 130 workers in the first 3 Nevertheless, it is significant that, with months of 2006, and had risen from 900 the announcement of the first 15 new workers in early 2004 to almost 1500 by orders for 416 buses, the company indi- March 2006.111 This strong upturn has cated that its anticipated 30% increase in a decidedly cyclical character to it, how- production levels will occur primarily at ever, so that the strong growth and high the two American plants, despite the fact production levels of the last couple of that the new orders “are almost split years can be expected to moderate and evenly between Canada and U.S. custom- decline somewhat in the near future. The ers”109 and that the Winnipeg plant pos- future prospects of the company suffered sessed additional productive capacity. a setback in July 2007 when the federal Furthermore, in April 2006, the company government announced that a $14 mil-

38 Report on the Manitoba Economy: 2007 lion contract to provide buses to the the province, which saw its annual GDP Department of Defence was awarded to (in 1997 dollars) increase from $29.6 mil- a German company.112 lion in 1997 to $113.8 million in 2004, has since suffered something of a reversal. Other major components of the manu- The GDP for this category of manufac- facturing sector in Manitoba include tures fell in both 2005 and 2006, with its machinery manufacturing (approxi- value for 2006 down to $97.5 million. The mately 7% of total provincial manufac- rising Canadian dollar will have played turing), printing and related support ac- a role in this mild reversal, but future tivities (6%), and plastic product manu- prospects will depend heavily upon re- facturing (slightly less than 5%). The sults of ongoing research and develop- GDP of machinery manufacturers has ment activities of firms in the industries, been increasing since 2003, a develop- as well as upon the success of product ment which is aided by the recent trials. A biotech industry spokesperson strength of investment expenditures and has stated that biotech products tend to the construction industry in Manitoba have a seven or eight-year cycle, and that and beyond, but provincial machinery the last big year was 2000.113 This would manufacturing has not recouped the suggest that a new production cycle may losses it sustained between 1997 and lie just ahead, and some recent announce- 2003, when the end of the roaring nine- ments by provincial producers support ties coincided with restructuring and this prognosis. For example, in 2006, consolidation in the industry. Winnipeg-based Medicure was in the late Finally, the explosive growth of pharma- stages of field trials for two heart ceutical and medicine manufacturing in drugs,114 DiaMedica was conducting a

Figure 18: Manitoba Service Sector 2006

Source: Statistics Canada, CANSIM series v21418706 to v21418743.

Canadian Centre for Policy Alternatives 39 clinical trial for a new drug to improve increase in furniture stores.119 These lat- treatment of diabetes,115 and Cangene ter figures are further confirmation of the Inc. received a $362 million contract to strength of the real estate market, reflect- supply an anti-botulism drug to the US ing not only the consequences of new government, with shipments expected to residential construction, but also home begin in the second half of 2007.116 In renovation and its connection to the this industry, and especially for new prod- value of existing residential structures. ucts, effective research and development, patent protection and securing regula- Although the retail and wholesale indus- tory approval weigh more heavily as fac- tries are roughly comparable in terms of tors affecting production levels than do their contribution to the province’s GDP, the relative price effects resulting from there is a huge disparity between them exchange rate movements. in regard to employment. The wholesale sector employs approximately 23,500 workers, but this is little more than one Service Sector third of the 66,900 workers employed in The industries comprising the service sec- the retail trade.120 Employment levels in tor employ over 430,000 workers117 and both retail and wholesale trades rose sub- are responsible for 72% of provincial GDP. stantially over the last year, increasing This sector, however, is very diverse, 6.5% and 5.7% between April 2006 and ranging from retail sales to scientific re- April 2007. When viewed over a longer search. A breakdown of Manitoba’s serv- period, however, the employment trajec- ice industries in terms of their relative size tories of these two service sector indus- is provided by the pie chart in Figure 18. tries are quite different. Wholesale trade, as of April 2007, had grown only about Since 2003, the retail sector has comprised 4.2% over a 10-year period, and its a larger share of provincial GDP than its present level of employment is well be- wholesale counterpart. In 2006, retail gen- low the 26,400 employed at the end of erated approximately 6.6% of provincial 2000. By contrast, retail employment has GDP and, as shown in Figure 18, 9% of moved fairly steadily in an upward di- the GDP attributed to the service sector rection, increasing approximately 35% as a whole. Unlike the relatively sluggish over the last decade. wholesale trade, the retail industry has enjoyed strong growth throughout the The strong retail employment figures are last decade, and this is one of the mani- not matched on the earnings side. Aver- festations of the growth in consumer age weekly earnings of retail workers spending that has been significant at the averaged only $448.95 in 2006,121 which macroeconomic level of the provincial is substantially below the provincial av- economy. The 4.5% real growth in retail erage of $676.83. Retail earnings posted trade in 2006 exceeded the 3.6% growth an increase of only 1.1% over the 2005 rate for the province as a whole.118 level—an increase which fails even to keep pace with the rate of inflation.122 The market value of retail sales also in- These 2006 results are consistent with a creased 4.5% in 2006, rising to $12.9 bil- longer term pattern. For example, an ex- lion. Within this total, especially notable amination of the last 10 years reveal that was a 17.6% increase in sales at home cen- average weekly earnings of retail sector tres and hardware stores, and a 13.7% workers in Manitoba have increased 13%,

40 Report on the Manitoba Economy: 2007 but the Consumer Price Index (CPI) for The other service sector industry that is Manitoba rose 19% over that period.123 characterized by low employee earnings Thus the retail sector is providing in- is the accommodation and food services creased employment opportunities for industry. Average weekly earnings in this Manitobans, but most of these opportu- sector have in recent years been rising nities are relatively low paying, and the slightly above the rate of inflation (with strength and expansion of the retail sec- a 2.6% increase in 2006), but the average tor in Manitoba rests to a considerable weekly earnings of $288.96 for 2006127 degree on the relatively low earnings of makes this sector the lowest earnings sec- its workforce. Furthermore, this relative tor in the province. This industry also disparity is growing. For example, aver- draws heavily young workers to meet its age weekly earnings in the retail sector labour requirements, along with a high were 72% of the provincial average for incidence of part-time jobs. In regard to all industries in 1997, but 2006 this had the latter, average weekly hours for em- fallen to 66%. ployees in the accommodation and food services industry in 2006 amounted to Part of the explanation for lower relative 23.6 hours. Breaking this down to con- earnings for retail workers will be due to sider just food services and drinking the higher incidence of part time work, places, the average drops to 22.8 hours. but this will not explain the “growing This figure is substantially below the 28.6 gap” between these workers and the hours average for the service sector as a majority of those employed elsewhere in whole, and the 30.6 hours average for all the province. Highly elastic labour sup- industries in the province.128 Employ- ply is also part of the story, and in par- ment in accommodation and food serv- ticular the ability of the retail sector to ices was 36,391 as of April 2007. Employ- utilize students and youths, but other ment has been increasing over the last factors include the difficulties faced by two years, but is down slightly from the unions in organizing workers in the sec- 2000-2002 period when employment fluc- tor, exacerbated by the hostility and anti- tuated around the 37,000 level.129 union strategies employed by some of the larger retail employers, such as Wal-Mart. Finance, insurance and real estate (FIRE) A sector with low earnings also raises the comprise the largest chunk (29%) of the issue of the role of minimum wage legis- service sector in the province. GDP for lation. In Manitoba, minimum wages these industries was $6.9 billion (1997 have been increasing steadily over the last dollars) in 2006, which works out to one- decade, rising from $5.40 per hour in fifth of provincial GDP. The Manitoba 1998124 to $8.00 as of April 1, 2007.125 industry, not unlike its counterparts else- This increase of about 48% over 10 years where in North America, was adversely does not appear to have had any palpa- affected by the end of the financial exu- ble impact on average earnings in the berance that characterized the late 1990s, retail sector. This would support the con- and especially by the collapse of the tention that, over this period, the level dot.com boom in 2001 and the conse- of the minimum wage, despite its nomi- quences of the revelations of financial nal increases, has remained too low to impropriety throughout much of the significantly improve the earnings of corporate world in the early years of the many workers in low income sectors of new millennium. In Manitoba, the FIRE the labour force.126 industry actually sustained negative

Canadian Centre for Policy Alternatives 41 growth rates in 2001 and 2002, and vir- as a whole has seen its direct contribu- tually no growth in 2003. Since that time, tion to provincial GDP fall from 5.4% in the sector has recovered, posting solid 1997 to 5.0% in 2006.132 growth rates of 4.9%, 2.4% and 3.7% in Both of these sectors are major sources 2004, 2005 and 2006 respectively.130 As of of employment in the province. As of April 2007, over 37,500 Manitobans were April 2007, there were 68,776 workers employed in the finance and insurance in health and social assistance, and a fur- industries, and another 8500 in real es- ther 44,441 in education. Employment tate, rental and leasing.131 in health and social assistance increased by about 2600 workers since June 2006, Health and social assistance, education, and is up about 20% since 1997. By con- and public administration comprise 10%, trast, in education employment actually 7% and 10%, respectively, of Manitoba’s fell by about 750 workers since June service sector. In each of these 3 indus- 2006, and had risen by less than 6% over tries the public sector is instrumental and, the last ten years.133 These comparative as a result, growth and employment are differences in GDP and employment closely tied to policy priorities and the growth largely reflect the effects of the budgetary decisions of the various levels changing demographic profile of the of government. Provincial responsibility population, as an aging population is pre-eminent in health and social assist- places will tend to make greater use of ance and in education. The health and services in the health care sector, and social assistance industry has been grow- relatively less upon education.134 ing but, as a proportion of the provincial economy, it has been remarkably con- Workers in both the health and social stant since 1997, hovering around 7.4%. assistance and education industries bore In education, the direct contribution of a substantial portion of the costs associ- the universities to provincial GDP has ated with the fiscal retrenchment and debt remained roughly constant at 1.1% over and deficit fighting priorities which the last decade, but the education sector gripped all levels of government in the

Figure 19: Employee Earnings in Health & Social Assistance , Education: 1991–2006

Source: Statistics Canada, CANSIM series v1742048, v1742053 and v1742134. 42 Report on the Manitoba Economy: 2007 1990s. Draconian fiscal initiatives, and the riers to secure favourable rates, placing associated restructuring of workplaces the burden of adjustment resulting from and employment practices in these sec- fuel cost increases largely on the operators exacted a toll from workers. Part of tors themselves. In light of this recent this cost is revealed in the very limited rise in gasoline prices, it is significant pay increases received by these workers that although average weekly earnings through the better part of that decade. for Manitoba employees in the trucking As illustrated in Figure 19, that era is industry had increased handsomely over, and in recent years average weekly from $608.17 in 1997 to $732.94 in 2002 earnings for workers in the health and (an increase of over 20%),138 there were social assistance and education industries no further increases over the 2002-2006 have posted strong gains. interval. Another development affecting the industry is the sharp increase in the The $2.3 billion GDP of the transporta- value of the Canadian dollar. This dra- tion and warehousing industry com- matic exchange rate appreciation fa- prises 9% of the service sector and 6.7% vours imports over exports. The result of the provincial total. As of April 2007, has been increased imbalances in loads this sector directly employed 31,103 to and from the US, resulting in prob- 135 workers. This sector has been enjoy- lems of unused capacity in southbound ing solid growth over the last 3 years, vehicles, with consequent intensification with its GDP rising 3.7% in 2006. This of competition among carriers for exist- performance rests on the underlying ing export cargo.139 strength of the provincial economy, including exports of primary and manu- Despite a limited shipping season (July facturing goods, and the imports that are to November) and a low volume of traf- absorbed by consumer spending and fic, the northern port of Churchill is of business investment. value to the Manitoba economy. Statis- tics Canada reports that in 2004 the port The trucking industry makes up about handled 29 vessels cargo vessels, of which one-quarter of the transportation and 14 were for international shipments. The warehousing sector in the province. GDP international shipments were the most for this industry increased almost 6% in significant in term of tonnage, with ap- 2006, but the benefits of strong demand proximately 13 times the tonnage of the for trucking services are offset by a domestic shipments. In 2004, interna- number of other factors. Especially sig- tional shipments were 400,000 tonnes, nificant are fuel costs which have risen but this total was down 35% from the 136 sharply since 2003. The ability of op- 615,000 tonnes shipped out in 2003.140 erators to pass on these higher costs in Figures for 2006 are better, with ship- the form of higher prices is constrained ments of 488,500 tonnes of grain and by the relatively competitive conditions other crops.141 within the industry. Manitoba alone has around 450 trucking companies, and In the context of total Canadian mari- companies from outside the province can time shipments, the contribution of also effectively compete for loads.137 Large Churchill scarcely registers.142 Inbound customers requiring trucking services international cargo into Churchill is vir- can consequently take advantage of the tually zero, causing ships to arrive only availability of numerous competing car- with ballast and imposing the cost of

Canadian Centre for Policy Alternatives 43 unused capacity on carriers. However, nance and Supply Agency to overhaul the port has been a significant outlet for and repair engines ($2 million to $3 mil- agricultural crops, and especially wheat lion per year); and 3) an agreement with from regions in northwestern prairies of Lockheed Martin’s Kelly Aviation Centre Manitoba and northeastern Saskatch- to continue services the U.S. Air Force ewan. Approximately 70% of the wheat (worth more than $200 million annu- and durum shipped through Churchill ally).147 In addition to its Winnipeg is Canadian Wheat Board (CWB) grain, plant, Standard has facilities outside the and CWB shipments rose to 384,000 province, notably in Texas, and work on tonnes of wheat in 2006, up from 353,000 these contracts will be allocated between and 361,000 in 2005 and 2004 respec- these locations. The Winnipeg facility tively.143 In comparison to the Thunder employs about 1350 employees.148 These Bay—St. Lawrence route, the Churchill are primarily high skilled, high-paying outlet provides a cost advantage to prai- jobs. As the recent Standard Aero con- rie farmers of $15 to $20 per tonne.144 It tracts indicate, the defence industry and, is unclear what the full impact on the port more generally, government policy con- and on the economic viability of the cerning defence expenditures and pro- northern rail link will be from the pro- curements, play an important role in in- posed changes to the CWB and the ter- fluencing the demand for aerospace serv- mination of its single desk selling status ices. The industry is also affected by the for Canadian wheat. Major grain com- standard economic forces shaping corpo- panies have terminal facilities in Thun- rate restructuring. The interplay of stra- der Bay, and, to the extent that they tegic/military, political and corporate con- would displace the Wheat Board in pur- siderations comprise the larger backdrop chasing prairie wheat, they would have upon which the fortunes of local plants an incentive to direct their own wheat and employees are played out. Standard shipments to utilize the Thunder Bay fa- Aero was bought by the private equity cilities.145 The consequences thus point firm Carlyle Group on 2004, but Carlyle to a decrease in grain shipments to has recently announced that it is selling Churchill, impairing the supply of the Standard to Dubai Aerospace Enterprise port’s most important export commod- Ltd, a move which raises sensitive politi- ity. This is reportedly a matter of some cal issues in the United States.149 The concern for port officials in Churchill.146 impact of this on the performance and prospects of the Winnipeg facility cannot Among other service sector industries, be ascertained at present. notable is the aircraft overhaul and maintenance industry. These services combine A similar situation has developed at an- with manufacturing in the overall com- other major aerospace firm. Air Canada position of the aerospace industry in the Technical Services (ACTS) has a large province. On the service side, recent de- maintenance facility in Winnipeg, em- velopments include the announcements ploying approximately 675 workers. in 2006 by Winnipeg-based Standard However, in January 2007, Air Canada’s Aero of: 1) a partnership with Sikorsky parent company announced that it was Support Services Inc. to service U.S. acquiring maintenance facilities in El Sal- Navy training planes (which could be vador, and also that it was preparing to worth $67 million over 5 years); 2) a 3- sell the heavy-maintenance division.150 year contract with the NATO Mainte- This sale was realized in June 2007, with

44 Report on the Manitoba Economy: 2007 two US private equity firms obtaining ists local in the Winnipeg plant reports 70% of the ACTS.151 The El Salvador that his union members “earn between plant is reported to specialize in the same $1,700 and $5,500 a month” compared to sort of maintenance as that performed by the $350 to $1,200 received by the El Sal- the Winnipeg operation, and the pros- vador workers.152 With the existing col- pect of transferring service activities to a lective agreements for the unionized cheaper offshore location, as has occurred workforce are set to expire in mid-2009, widely throughout the North American the immediate future looks cloudy for manufacturing sector, has now become ACTS’s Winnipeg employees. very real. A spokesperson for the machin-

Canadian Centre for Policy Alternatives 45 V. Conclusion

2007 will likely go down as a very good comes are placed in a wider historical year for the Manitoba economy. Real eco- context, it is apparent that there has been nomic growth is strong, employment lev- no reduction of income inequality in els remain high, and finally there is evi- Manitoba over the last quarter century. dence of some upward movements in In fact, the highest quintile has seen its wage rates and earnings for workers after-tax share increase from 40.9% in across the province. These positive as- 1980 to 42.2% in 2005. This 2005 portion pects, however, do not cancel out the very had inched up past its share from the real economic challenges and hardships previous year, and was only slightly less that face many Manitobans. Statistics than the 42.4% received in 2002, which Canada reports that, as of 2005, approxi- was the highest share recorded in the last mately 139,000 Manitobans, or 12.6% of 25 years. Using another indicator of in- the population, were in families with af- come inequality, the GINI coefficients for ter-tax incomes below the poverty line.153 after-tax income in 2004 and 2005 were These figures are down from the high 0.369 and 0.373, which again are the levels that plagued the 1990s, but the pro- highest ratios generated by the data set, portion seems to have stabilized around which began back in 1980.156 the 12% mark since 2001. Perceptible increases in real family income over the last Strong economic growth at the provin- ten years have not reduced income in- cial level has directly contributed towards equality. The structure of the economy is the improvement of the fiscal position of such that the average market income re- government, especially at the federal and ceived by the highest 20% of Manitoba provincial levels. Improved fiscal per- families rose from $106,900 in 1997 to formance has resulted in balanced budg- $122,900 in 2005 (measured in constant ets, and even budgetary surpluses and 2002 dollars). The average market income reduction of the public debt.157 Public of the lowest quintile also increased, surpluses have, however, a counterpart moving from $4600 to $5900 over the in rising levels of consumer debt, fuelled same period,154 but, as the figures indi- in part by favourable lending rates and cate, the real gap separating these groups rising home equity values, but also by a has widened. Despite recent fiscal relatively long period of stagnant real changes, the tax and transfer system that earnings for many workers, the subtle is in place in Manitoba still retains its but persistent pressures exerted on low progressive character, with the result that and middle income households by the the inequality in household incomes that sustained structure of income inequality, are generated by the market are tempered and the growing gaps between the seg- through the intervention of the state. ments within that structure. Through the combination of taxes and transfers, the average 2005 after-tax in- Strong economic growth, high employ- comes of the top quintile were reduced ment levels, low inflation and relatively to $99,100. The bottom 20% of families low interest rates have contributed to the had their income raised to an average level presence of favourable levels of consumer of $12,500, or 5.3% of the provincial to- and business confidence in the province, tal.155 Nevertheless, when these out- and some industrial sectors, buoyed by

46 Report on the Manitoba Economy: 2007 high commodity prices, robust business these very real political and economic investment and public infrastructure forces, the Manitoba economy is also spending, are doing exceptionally well. highly sensitive to the capricious effects However, given the structure of the Mani- of weather. Crop production is obviously toba economy, many of the key factors very sensitive to vagaries of the weather, that determine the province’s economic but the fortunes of hydro-electric power performance are entirely exogenous, i.e., generation are similarly linked to precipi- beyond the direct control of Manitobans. tation levels across the drainage basin. For example, the high commodity prices This is not a complete list, but it under- prevailing in mid-2007 are determined in lines the dependence, and consequently international commodity markets. Low the vulnerability, of the Manitoba interest rates are the consequences of the economy on external forces. It is the na- bank rate set by the Bank of Canada in ture of most of the forces listed here that light of its assessment of national infla- they can, and have, exhibited significant tionary pressures. International export variation within a very short period of sales depend heavily on the health and time, and that the timing, direction and expenditure levels of foreign economies, magnitude of the variation is in practice especially the United States. Exports and very difficult to foresee. Institutions and imports are also sensitive to exchange rate communities involved require time and movements, which are the result not only resources for adjustment, and there is of national monetary policy, but also of scope for further policy development global economic developments, and the along these lines. At the macro level, psychological outlook of major players while acknowledging the wide range of in international financial markets. Politi- possible but potent external sources of cal factors, including trade disputes or disruption, it also needs to be recog- security concerns, can suddenly squeeze nized that these factors do not affect all or even halt flows of goods and services industries in a similar fashion, and that across national boundaries. In the cor- it is highly unlikely that all or even porate world, the investment and pro- most of these factors will align in an duction decisions made in head offices— adverse way within any given time pe- head offices that are in the majority of riod. There is, for Manitoba, consider- cases situated outside the province—are able strength in diversity. often made with an eye to rationalizing operations in the national or interna- The boom in Alberta is another exog- tional context, with local operations enous development that affects Mani- viewed as little more than pawns on a toba. As noted above, the pull of the Al- chessboard. Corporate acquisitions and berta economy, and its high demand for attendant consolidations and/or labour, has been felt in Manitoba, with divestitures are driven by a complex set the resulting out-migration of workers of efficiency, financial and regulatory fac- from the province and increased efforts tors, are often played out on a national by Manitoba employers to secure neces- or, increasingly global scale, and can place sary labour supplies. Also significant are short term financial considerations and the indirect effects of the Alberta jugger- managerial interests above longer run naut. The boom economy has created production values and community com- shortages in Alberta of labour, materials mitment. Finally, in addition to all of and various other goods, such as hous-

Canadian Centre for Policy Alternatives 47 ing. The result has been rising prices, Manitoba, rather than operating in the which in turn feeds back into the aggre- Alberta market. A recent but significant gate price levels throughout the coun- instance of this phenomenon is the an- try. These national levels are keenly nouncement by Palliser Furniture to watched by the Bank of Canada, and mothball its manufacturing facility in have induced the Bank to raise its bench- Airdrie, outside Calgary, and reallocate mark interest rate. Higher rates raise the most of the plant’s work to the compa- cost of borrowing and servicing debt ny’s Winnipeg facility.160 across the country, thereby adversely affecting Manitobans. Higher interest rates The Alberta boom generates demand for will also support the value of the Cana- a wide range of goods and services. Geo- dian dollar, thereby reducing the pros- graphically, Manitoba is not far from Al- pect of relief for Manitoban exporters berta, and this relative proximity can be through moderation or reversal of the utilized to produce for and export to the upward trajectory of the exchange rate. Alberta market. For many services, trans- The Alberta phenomenon also has politi- port costs can be quite low, so geographic cal consequences. Massive surpluses ac- proximity may be less of a determinant cumulated by the Alberta government158 than it is for goods, but personnel move- have provided a fiscal basis for low tax ment may be important, and easy and rates while simultaneously expanding rapid transportation of personnel into services and enhancing public infrastruc- and out of the Alberta market is feasible ture. This sows the ground for invidi- from a Winnipeg location. Note that the ous comparison with other provinces, rapid growth and consequent excess de- and puts pressure on other governments mand for materials, goods and services to emulate the practice in Alberta. This is in Alberta is relatively recent, suggesting especially evident in regard to tax rates, that unexploited business opportunities which lend themselves to inter-provin- may have only begun to emerge. cial comparison and which are a peren- Finally, even the out-migration of labour nial topic of interest and declamation by from Manitoba to Alberta is not neces- the business community and right-lean- sarily an unmitigated or irreversible loss ing think tanks.159 to Manitoba. Specific data on many eco- The situation is not all one-sided, how- nomic aspects of the recent Manitoba- ever, and the economic fortune currently to-Alberta labour flow is not available, visiting Alberta also confers some ben- but the larger, more general literature efits and opportunities for Manitoba. on labour migration indicates that many For some Manitoba workers, the Alberta of these workers send remittances back demand for labour has made the threat to their home families, and also that, to leave by Manitobans more credible, after an interval, some of these workers which should enhance their own bar- may return back to their place of ori- gaining power when negotiating with gin. Workers may seek to profit from local employers. Furthermore, labour favourable labour market conditions shortages and the rising labour costs existing in Alberta, but some will do so that are evident in the Alberta market with the understanding that this is only provide an incentive for firms to main- a temporary relocation. Manitoba can tain and even relocate their production reap future benefits from this in the facilities in lower cost areas, such as forms of the accumulated wealth of those

48 Report on the Manitoba Economy: 2007 workers, and in the package of skills and urban and recreational areas and runoff experience that they will have acquired from agricultural land, have potentially and developed through their out-of- significant impacts on fisheries, on rec- province employment stints. reational activities, on tourism, on the value of recreational and lakefront prop- Thus Manitoba should be able to with- erty, and on public health. stand the effects of the Alberta boom. Furthermore, the diversity of the Mani- The economic consequences for agricul- toba economy and the institutional ture, for other industries, and for the fis- mechanisms designed to foster cal burden of cities and municipalities stabilization and facilitate adjustment have only begun to be noticed, and it is should help the economy absorb the im- significant that the provincial govern- pact of sharp, sudden changes in the con- ment has already established a separate stellation of external factors. However, department of Water Stewardship. Other lurking behind this resilience is the larger environmental issues, notably the prob- and potentially more intractable issue of lem of greenhouse gas emissions, will the environment. Environmental con- also have substantial economic implica- cerns, and the changing economic and tions. Successful mobilization of the political context that they produce, have province’s human and material resources already had a noticeable impact on the in order to satisfactorily manage these hog industry, resulting in a moratorium issues will require broad-based participa- on the establishment of new hog barns tion and a strengthening of community and the resistance to the proposed and democratic institutions. Tackling the OlyWest meatpacking facility in Winni- problems of poverty and income inequal- peg. Water quality issues, ranging from ity, improving the health of communi- the potential contamination of ground ties and augmenting the scope and capa- water due to agricultural activity, to the bilities of our public services are all means increasing concern for the quality of riv- to this end. This is the challenge for to- ers and lakes affected by effluents from day and tomorrow.

Canadian Centre for Policy Alternatives 49 VI. References

1 The volume of final goods and services cludes crown corporations. Crown corpora- produced in the economy in a given time tions are included in the aggregate figures period is conventionally referred to as real for the business sector. gross domestic product (real GDP). 12 Statistics Canada, CANSIM series 2 Statistics Canada, CANSIM, Table v759361. 3840002, selected series. 13 Note, however, that in the national 3 The consensus consists of an average of income accounts, crown corporations are the following forecasters: BMO, Scotiabank, considered as part of the business sector, TD Bank, CIBC, Nesbitt Burns, and The so that investment spending by these crown Conference Board of Canada. All of these corporations, such as Manitoba Hydro, forecasts were made in the fall of 2006. would be recorded under business invest- 4 Statistics Canada, CANSIM series ment. v15855779. 14 Province of Manitoba, Department of 5 These ratios are calculated from data on Finance, Budget 2006 and Budget 2007. personal disposable income and total 15 Province of Manitoba, Department of household credit, available from Statistics Finance, Budget 2007. Canada, CANSIM series v498186 and 16 Winnipeg, 2007 Preliminary Capital v36408. Budget. http://www.winnipeg.ca/FinEXT/FPR/ 6 Bank of Canada, Monetary Policy Report, files/2—7_preliminary_capital_budget.pdf. October 2006, at http:// 17 Katz, Sam and Mike O’Shaughnessy, www.bankofcanada.ca/en/mpc/pdf/ “Letter from the Mayor and Chairperson of mproct06.pdf. the Standing Policy Committee on Finance,” 7 Survey of house prices by Royal LePage 2007 Preliminary Capital Budget. Winnipeg, Real Estate Services, quoted in the Winni- 2007, p.2. peg Free Press, 15 December 2007, p.B5. 18 Province of Manitoba, Budget 2007: For newly constructed homes, Statistics Budget Paper A, The Economy, p. A.22. Canada reports that Winnipeg prices increased 9.2% between November 2005 19 Statistics Canada, CANSIM series and November 2006. See Statistics v37426. Canada, “New Housing Price Index,” The 20 Canadian Association of Petroleum Daily 10 January 2007, at http:// Producers, StatsHandbook. http:// www.statcan.ca/Daily/English/070110/ www.capp.ca/SHB/ d070110c.htm. Sheet.asp?SectionID=5&SheetID=291. 8 Statistics Canada, CANSIM series 21 MMBTu refers to million British thermal v691678 and v691690. units. 1million MMBTu is equivalent to 9 For example, the conventional 1-year 1,000 cubic feet (1Mcf). These and other mortgage rate offered by chartered banks conversion figures are provided by Natural has risen from 4.8% in January of 2005 to Resources Canada, Natural Gas: A Primer, 6.5% in February 2007. See the Bank of March 2006. http://www2.nrcan.gc.ca/es/ Canada webpage on “Rates and Statistics” erb/CMFiles/Natural_Gas_Facts209JLL- at http://www.bankofcanada.ca/en/rates/ 06032006-3651.pdf. interest-look.html. 22 Canadian Association of Petroleum 10 This and the following data on business Producers, StatsHandbook. http:// investment levels are taken from Statistics www.capp.ca/shb/ Canada, CANSIM series v15855789 to Sheet.asp?SectionID=5&SheetID=292. v15855792. 23 Satistics Canada, CANSIM series 11 Private sector business spending ex- v15855798.

50 Report on the Manitoba Economy: 2007 24 These figures, and the ones that follow, 41 Statistics Canada, CANSIM series are from Statistics Canada, Labour Force v1606275. Survey, April 2007, available at http:// 42 These and the following figures are from www.statcan.ca/Daily/English/070511/ Statistics Canada, CANSIM table #20009. d070511a.htm. The employment and unemployment figures are seasonally 43 These and the following figures on hog adjusted. production and exports are from Statistics Canada, Hog Statistics 2007. Catalogue # 25 Statistics Canada, CANSIM series 23-101-XIE. Tables 1, 3, 4, 5, and 8. v391140. 44 Murray McNeill, “Hog farmers resent 26 Statistics Canada, CANSIM series barn ban,” Winnipeg Free Press, 24 Novem- v391111 and v29768554. ber 2006. 27 Province of Manitoba, Budget 2007: 45 Figures on cattle production, exports and Budget Paper A, The Economy, p. A24. prices are from Statistics Canada, Cattle 28 Province of Manitoba, “News Release, Statistics 2007, catalogue # 23-012-XIE, January 18, 2007.” Available at http:// tables 1, 4 and 10. news.gov.mb/news/ 46 Martin Cash, “Commodity prices are now index.html?archive=&item=941. hitched to the price of oil,” Winnipeg Free 29 Martin Cash, “Tight labour called econo- Press, 28 February 2007. my’s top hurdle,” Winnipeg Free Press, 10 47 Martin Cash, Winnipeg Free Press, 28 November 2006. February 2007. 30 Murray McNeill, “Labour shortage hits 48 Larry Kusch, “Rising dollar casts dark crisis,” Winnipeg Free Press, 28 November cloud,” Winnipeg Free Press, 25 May 2007. 2006. 49 Bank of Canada, “Exchange Rates— 31 Province of Manitoba, Budget 2007 and Rates and Statistics.” Available at . Budget 2007. 50 Statistics Canada, Farm Operating 33 Jacquelin Luffman and Deborah Expenses and Depreciation Charges. Cata- Sussman, “The Aboriginal Labour Force in logue #21-012-XWE. Available at http:// Western Canada,” Perspectives on Labour www.statcan.ca/english/freepub/21-012- and Income 8:1 (January 2007). Available XIE/2007/061/bfront1.html. at http://www.statcan.ca/english/freepub/ 51 These and the following figures for farm 75-001-XIE/art-2.htm, p.7. expenses are from Statistics Canada, 34 Luffman and Sussman, p.1. CANSIM table 20005. 35 Luffman and Sussman, p.2. 52 Statistics Canada, CANSIM series 36 Luffman and Sussman, Table A7. Avail- v29302831 and v29302842. able at . (NAICS) Canada, By Province and Enterprise, 37 Luffman and Sussman, p.3. 2006,” available at http://www.gov.mb.ca/ 38 Mary Agnes Welch, “Floodway wages agriculture/statistics/pdf/ keep going up,” Winnipeg Free Press, 20 bankruptcy2006.pdf. April 2007. 54 Larry Kusch, “They’re not staying down 39 Murray McNeill, “Forestry firm cuts new on the farm,” Winnipeg Free Press, 17 May deal with workers,” Winnipeg Free Press, 29 2007. November 2006. McNeill reports that wood 55 Statistics Canada, CANSIM series preservation plant workers in Neepawa have v29302814. a similarly structured contract. 56 Larry Kusch, Winnipeg Free Press, 17 40 Satistics Canada, CANSIM series May 2007. v1606271.

Canadian Centre for Policy Alternatives 51 57 Province of Manitoba, Department of numbers for this sector as of December Science, Technology, Energy and Mines, 2005 as 2,418 (CANSIM series “Manitoba Petroleum Statistics.” Available at v1596958). http://www.gov.mb.ca/iedm/petroleum/stats/ 64 Statistics Canada, CANSIM series index.html. Note that these figures for the v21418635 and v21418647. market value of the oil sold are necessarily different from the value added of oil produc- 65 Statistics Canada, CANSIM series tion, which captures the value the contribu- v21418648. tion of this sector to provincial GDP. In 66 Manitoba Hydro, 55th Annual Report for regard to the latter, when measured in the year ending March 31, 2006. Available 1997 dollars, oil production in Manitoba in at http://www.hydro.mb.ca/corporate/ar/ 2006 contributed $118.3 million (up from 2005/annual_report_2005.sthml. $87.2 million in 2005) towards the total 67 This figure for net income includes provincial GDP of $34.3 billion. The GDP income for both electricity and gas divisions figures can be found at Statistics Canada, of Manitoba Hydro. On the segmented CANSIM series v21418642. accounts, the gas operations register a 58 Province of Manitoba, “News Release: small net loss (less than $20 million). Manitoba’s Mining Industry Posts Record 68 Manitoba Hydro, Quarterly Report for the Year.” Available at http://news.gov.mb.ca/ nine months ended December 31, 2007. news/index.html?archive=2007-03- Available at http://www.hydro.mb.ca/corpo- 01&item=1304. rate/qr/2006/qrtly_rpt_06_12_31.shtml. 59 Martin Cash, “Gold-Mining to be revived 69 “Wind farm changes hands,” Winnipeg in Lynn Lake,” Winnipeg Free Press, 17 Free Press, 12 May 2006. February 2007. 70 Manitoba Hydro, Annual Report for the 60 Murray McNeill, “New nickel mine next year ending March 31, 2006. year,” Winnipeg Free Press,30 August 2006. 71 Manitoba Hydro, Quarterly Report for the 61 Province of Manitoba, Department of nine months ended December 31, 2006. Science, Technology, Energy and Mines, “Exploration and Development Highlights 72 Winnipeg Free Press, 12 May 2006. 2006.” Available at http://gov.mb.ca/iedm/ 73 Manitoba Hydro, Quarterly Report for the mrd/busdev/exp-dev/index.html. three months ended June 30, 2006 and 62 Geoff Kirbyson, “Metal magic boosts Quarterly Report for the six months ended HudBay,” Winnipeg Free Press, 13 May September 30, 2006. 2006. 74 Manitoba Hydro, Quarterly Report for the 63 As noted above, the mining and oil & gas three months ended June 30, 2006. industry produces 2.6% of Manitoba’s GDP. 75 Manitoba Hydro, Quarterly Report for the However, the less than 4000 workers nine months ended December 31, 2006. directly employed in this sector comprise 76 Mary Agnes Welch, “Doer promises a less than 0.7% of total provincial employ- $40-M grid jolt,” Winnipeg Free Press, 10 ment. There is some ambiguity regarding the May 2007. precise levels of employment in this sector. The province’s Department of Science, 77 Manitoba Hydro, Quarterly Report for the Technology, Energy and Mines states that nine months ended December 31, 2006. 3,500 workers are directly employed in 78 Manitoba Hydro, Quarterly Report for the mining in Manitoba (see the Department’s nine months ended December 31, 2006. “Manitoba Mining Facts” at . The employment figures for the entire mining and oil & gas extraction 80 Winnipeg Free Press, “Minnesota de- industries in Manitoba that are provided by mands accounting from Hydro,” 10 May Statistics Canada are incomplete, but their 2007. CANSIM data base gives the employment

52 Report on the Manitoba Economy: 2007 81 Manitoba Hydro, Quarterly Report for the State of the Manitoba Economy Report six months ended September 30, 2006. 2004. Winnipeg: Canadian Centre for Policy 82 Statistics Canada, CANSIM series Alternatives, 2005. P.26. v21418651. 95 Alexandra Paul, “Ailing garment industry 83 Statistics Canada, CANSIM series hoping to sew up government help,” Winni- v1596960. peg Free Press, 29 March 2006. 84 Larry Kusch, “Demand rising for skilled 96 Murray McNeill, “Nygard shuts city workers: study,” Winnipeg Free Press, 21 garment factory,” Winnipeg Free Press, 17 June 2007. April 2007. 85 Statistics Canada, CANSIM series 97 Murray McNeill, Winnipeg Free Press, 17 v1741971. April 2007, and Larry Kusch, “Rebirth for wounded industry,” Winnipeg Free Press, 24 86 Statistics Canada, CANSIM series November, 2006. v1742290. 98 Statistics Canada, CANSIM series 87 Real value added is calculated as the v21418704. contribution to GDP from construction, 99 Martin Cash, “Palliser to lay off up to calculated in 1997 dollars at basic prices. 200 staff,” Winnipeg Free Press, 30 March, 88 Statistics Canada, CANSIM series 2005. v21418661 and v1596961. For April 100 Martin Cash, Winnipeg Free Press, 30 2007, Statistics Canada gives the manufac- March 2005. turing employment figure for Manitoba as 60,544. 101 Statistics Canada, CANSIM series v21418666. 89 Statistics Canada, CANSIM series v14183521. 102 Barley Kives, “OlyWest plant in jeop- ardy?” Winnipeg Free Press, 5 December 90 Statistics Canada, CAMSIM series 2006. v1596771. These Statistics Canada figures are derived from the survey of employment, 103 Statistics Canada, CANSIM series payroll and hours. Statistics Canada’s v21418677. Labour Force Survey (LFS) estimates paint 104 Statistics Canada, CANSIM series an even more dramatic picture of employ- v21418700. ment losses. The LFS records manufacturing 105 Murray McNeill, “Boeing Canada employment in Canada at the end of 2002 Technology plans to start hiring in ’07,” as 2.32 million, and in April 2007 as 2.07 Winnipeg Free Press, 28 June 2006. million, which gives an employment reduction of 250,000 workers. The LFS figures 106 Murray McNeill, Winnipeg Free Press, for June 2007 record further employment 28 June 2006, and Murray McNeill, “Boeing losses, with the number down to 2.02 too busy for summer holiday,” Winnipeg Free million. The LFS figures are available in Press, 17 July 2007. CAMSIM series v2057609. All figures are 107 Statistics Canada, CANSIM series seasonally adjusted. v21418700. 91 Statistics Canada, CANSIM series 108 Geoff Kirbyson, “New Flyer lands orders v1596961. for 441 buses,” Winnipeg Free Press, 19 92 Statistics Canada, “Monthly Survey of May 2006. Manufacturing, May 2007,” The Daily, July 109 Murray McNeill, “New Flyer lands 16, 2007. Available at http:// $184M in contracts for new buses,” Winni- www.statcan.ca/Daily/English/070716/ peg Free Press, 9 May 2006. d070716a.htm. 110 Murray McNeill, Winnipeg Free Press, 9 93 Statistics Canada, CANSIM series May 2006. v806121. 111 Murray McNeill, “Bus maker in fast 94 See, for example, Fletcher Baragar, lane,” Winnipeg Free Press, 16 March 2006.

Canadian Centre for Policy Alternatives 53 112 Joe Friesen, “German company gets 122 The Consumer Price Index (CPI) for defence deal,” Globe and Mail, 17 July, Manitoba increased 1.9% in 2006 (Statis- 2007. Friesen reports that the difference tics Canada, CANSIM series v738449). between the Motor Coach and the German Thus the real purchasing power of the bids was less than $2000 per bus. With earnings for retail sector workers fell 0.8% each bus costing about $500,000, the in 2006. difference works out to 0.4% of the pur- 123 Statistics Canada, CANSIM series chase price. Friesen notes that the Defence v1742028 and v738449. Department already operates 13 Motor Coach buses, so the German purchase will 124 Errol Black and Jim Silver, Submission require the Department to “buy parts and to the Manitoba Minister of Labour on the supply technical and maintenance support Minimum Wage, December 1, 2003, for another brand of vehicle, and will lose available at http://policyalternatives.ca/ the tax dollars and related spending on documents/Manitoba_Pubs/ Canadian supplies for the manufacturer.” mb_minwage_submission.pdf. Part of these latter spinoff effects would 125 Province of Manitoba, Department of have been realized within the Manitoba Labour and Immigration, “Fact Sheet,” economy. However, as Friesen reports, the Employment Standards webpage. Available government defended its decision on the at http://www.gov.mb.ca/labour/standards/ analytically dubious grounds that the Ger- doc,minimum-wage,factsheet.html. man bid “offered the best value to the 126 In 2005, Black and Silver argued that a Canadian taxpayer.” “realistic” and effective minimum wage 113 Martin Cash, “Diabetes drug firm set to should be set at the $10.00 per hour level. offer shares,” Winnipeg Free Press, 7 March See Errol Black and Jim Silver, “Manitoba’s 2007. Minimum Wage? Be Realistic,” Canadian 114 Larry Kusch, “Medicure raises $25- Centre for Policy Alternative-MB, Fast Facts, million US for drug trials,” Winnipeg Free August 4, 2005. Press, 9 May 2006. 127 Statistics Canada, CANSIM series 115 Martin Cash, Winnipeg Free Press, 7 v1742064. March 207. 128 Statistics Canada, series v1803918, 116 Larry Kusch, “Cangene confident of v1803921, v1803869 and v1803817. lucractive U.S. deal,” Winnipeg Free Press, 129 Statistics Canada, CANSIM series 15 June 2006. v1596970. 117 Statistics Canada, CANSIM series 130 Statistics Canada, CANSIM series v1596964. Service sector employment in v21418719. Manitoba was 430,603 in April 2007. 131 Statistics Canada, CANSIM series 118 These figures are annual growth rates v1596975 and v1596976. of real GDP. The growth rates are calculated 132 Statistics Canada, CANSIM series from Statistics Canada, CANSIM series v21418730, v21418731 and v21418733. v21418635 and v21418707. 133 Statistics Canada, CANSIM series 119 Lucy Chung, Mark Switzer and Paula v1596968 and v1596980. Thomson, Retail Trade: How the Provinces Fared in 2006. Ottawa: Statistics Canada, 134 Statistics Canada, in its presentation of cat. no. 11-621-MIE, 2007. Available at the data from the 2006 Census, reports http://www.statcan.ca/english/research/11- that in Manitoba, as in every other province 621-MIE/11-621-MIE2007057.htm. and territory in Canada, “the proportion of people aged 65 and over increased between 120 These and following employment 2001 and 2006, while the percentage of figures are from Statistics Canada, CANSIM children aged 14 and under continued to series v1596966 and v1596967. decline.” Statistics Canada, “2006 Census: 121 Statistics Canada, CANSIM series Age and sex,” The Daily, July 17, 2007. v1742028. Available at http://www.statcan.ca/Daily/

54 Report on the Manitoba Economy: 2007 English/070717/d070717a.htm. 149 Globe and Mail, “Dubai firm to pur- 135 GDP figures are from Statistics Canada, chase Winnipeg’s Standard,” 3 April 2007. CANSIM series v21418708. Employment 150 Brent Jang, “ACE aims high with spinoff figures are from CANSIM series v1596973. of repair unit,” The Globe and Mail 31 136 Fuel prices fluctuate a good deal, but January 2007. the average yearly price of gasoline in 151 Martin Cash, Winnipeg Free Press, 28 Manitoba has increased almost 40% be- June 2007. tween 2003 and 2006. See Statistics 152 Brent Jang, Globe and Mail, 31 Canada, CANSIM series v738524. January 2007. 137 Martin Cash, “Border blues for trucking 153 Statistics Canada, CANSIM series industry,” Winnipeg Free Press, 10 Novem- v1561957 and v1561958. The poverty line, ber, 2006. as defined here, is the after-tax low income 138 Statistics Canada, CANSIM series cutoff line. v1742088. 154 Statistics Canada, CANSIM series 139 Murray McNeill, “Truckers hurt by v25744613 and v25744617. loonie,” Winnipeg Free Press, 21 June, 155 Statistics Canada, CANSIM series 2007. v25944619 and v25744623. 140 Statistics Canada, Shipping in Canada 156 Statistics Canada, CANSIM series 2004, Catalogue no. 54-205-XIE. Ottawa, v21152629. As a measure of income Minister of Industry, 2007. Pp. 48, 53 inequality, the GINI coefficient ranges from a and 58. value of 0 to 1. The lower the value of the 141 Larry Kusch, “Churchill shipping season coefficient, the more equal the distribution ends with flurry of activity,” Winnipeg Free of income. A value of 0 means that all Press, 10 November 2006. recipients (which in this particular case 142 Churchill’s 14 vessels with cargo bound would be all Manitoba households) receive for international destinations in 2004 is an equal share. By contrast, a value of 1 about 0.05% of Canada’s total of some means that one single recipient receives the 30,000 ships. See Statistics Canada, entire income, with the rest of the popula- Shipping in Canada 2004. tion getting nothing at all. 143 Larry Kusch, Winnipeg Free Press, 10 157 At the provincial level, Manitoba’s November 2006. Budget 2007 indicates that the government anticipates adding $110 million to its debt 144 The Prairie Producer Coalition, “The retirement fund for the last fiscal year Impact of Removing Single Desk Marketing 2006-2007, and a further $110 million for on Your Farm,” in Terry Pugh and Darrell 2007-2008. The Minister of Finance noted McLauglin, eds, Our Board, Our Business: that the government has contributed more Why Farmers Support the Canadian Wheat that $814 million to debt retirement and Board. Halifax: Fernwood Publishing and pension liability funds since entering office the National Farmers Union, 2007, in 1999. See Province of Manitoba, Budget pp.117-118. 2007: The 2007 Budget Papers, available 145 The Prairie Producer Coalition, p.118. at http://www.gov.mb.ca/finance/budget07/ 146 Larry Kusch, Winnipeg Free Press, 10 papers/finstats.pdf and The Honourable November 2006. Gregory F. Selinger, The 2007 Manitoba Budget Address, April 4, 2007. Available at 147 Geoff Kirbyson, “Standard signs NATO http://www.gov.mb.ca./finance/budget07/ deal,” Winnipeg Free Press 28 June 2006, speech/speech.pdf. and Geoff Kirbeyson, “Standard Aero wins back contract servicing U.S. jets,” Winnipeg 158 University of Manitoba economist Ian Free Press, 14 July 2006. Hudson has pointed out that a very significant portion of the revenues of the Alberta 148 Martin Cash, “Fears fly in aerospace,” government are derived from their re- Winnipeg Free Press, 28 June 2007.

Canadian Centre for Policy Alternatives 55 source base. As noted by Professor Hud- demonstrate that, with regard to personal son, the provincial take from oil revenues living expenses and/or costs of doing in Alberta is larger than the entire Mani- business, Manitoba compares very favour- toba government budget. For the fiscal ably to its counterparts elsewhere in year 2006/07, Alberta government rev- Canada and parts of the US. The analysis enues from non-renewable resources there rests on a wider set of “costs” than amounted to $11.7 billion which is about simply taxes, but constructing wider meas- one-third of the total revenue intake of ures for inter-provincial or inter-city com- the Alberta provincial government. parisons is necessarily a more complex 159 To offset this pressure, it is significant exercise than the crude but straightforward that the provincial government feels com- comparisons of taxes. pelled to include in its provincial budgets a 160 Geoff Kirbyson, “Palliser shifts work to section explicitly titled “The Manitoba Winnipeg,” Winnipeg Free Press, 28 June Advantage” The section is designed to 2007.

56 Report on the Manitoba Economy: 2007