'Dutch disease' builds healthier economy, economist says
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‘Dutch disease’ builds healthier economy, economist says

‘Dutch disease’ builds healthier economy, economist says

Economist Stephen Gordon argues resource boom strengthened manufacturing sector in Canada

By Laura Payton, CBC News

Posted: Sep 5, 2013

English: Bar Graph illustrating the Change in ...

English: Bar Graph illustrating the Change in Productivity within the Manufacturing Sector of industry in the United States, 1987 – 2010. To what extent could declining Manufacturing Productivity suggest a trend of deindustrialisation? (Photo credit: Wikipedia)

The concept behind “Dutch disease” — the idea that a resource boom is bad for the manufacturing sector — is entirely wrong, economist Stephen Gordon argues in a new report.

Federal politicians have argued over Dutch disease as part of the debate surrounding Canada’s oilsands and whether development should be slowed.

The argument says that a resource boom — like the one seen in the oilsands — drives up the value of the currency, making exports more expensive for customers outside of Canada and costing manufacturers some of their business.

That can in turn cause layoffs in the manufacturing sector, the theory holds.

But Gordon argues in a report released today by the University of Calgary’s School of Public Policy that job and wage numbers from 2002 to 2008 tell a different story.

Job losses in the manufacturing sector were mainly due to attrition, he says. Workers quit and weren’t replaced, but the jobs that were lost — mainly through attrition — were lower-paying jobs. And layoffs were in fact down compared to the 1990s, he writes. The companies were able to invest in more equipment and research and development, because most of the equipment comes from outside of Canada and cost less with the higher exchange rate.

“The question becomes why are we calling it a disease,” Gordon said in an interview with CBC News.

“Losing employment isn’t a bad thing if the jobs that were lost were low-paying and the jobs that replaced them elsewhere were higher-paying and more of them.”

In his report, Gordon writes the number of jobs paying $35 per hour or more was largely unchanged between 2002 and 2008. More than 60 per cent of the manufacturing jobs lost paid less than $19.05/hour — the median wage in 2002, the report said.

“The shift out of manufacturing was also accompanied by an increase in real wages, both in the economy as a whole and in the manufacturing sector…. The term ‘Dutch disease’ is a misnomer; the Canadian manufacturing sector was arguably healthier in 2008 than it was in 2002,” Gordon wrote in the report.

via ‘Dutch disease’ builds healthier economy, economist says – Politics – CBC News.

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