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Indeed, the increasing mechanization of the manufacturing sector goes a long way to explain why manufacturing employment has fallen over the years in all industrialized countries. Although we’re used to hearing stories about oil prices and an appreciating exchange rate, other industrialized countries have seen similar declines.

There’s also a supply-side explanation: the wages on offer in the manufacturing sector are not high enough to retain rich-country workers. Much of manufacturing has become a commodity business where firms produce standardized products and compete on price, and these competitive forces put downward pressure on both prices and wages. For example, while the Consumer Price Index has increased by 153 per cent since 1981, the Industrial Product Price Index for motorized vehicles has increased by only 61 per cent. The challenge for Canadian manufacturing firms has been to stay viable when the wages they are paying are rising faster than the prices they are receiving for what they produce.

The sharp depreciations in the 1980s and the 1990s offered temporary respite. Canadian wages — measured in U.S. dollars — fell, and this cost advantage provided a temporary boost to Canadian manufacturers exporting to the U.S. Of course, this also meant a weakening of Canadian workers’ buying power: the 1980s and 1990s were also a time of stagnant wages and declining median incomes.

To the extent that manufacturing is a low-wage business, we’d expect investment to flow to low-wage countries

This pattern reversed itself when the Canadian dollar appreciated in the wake of oil prices. Real wages increased across the board and Canadian manufacturers lost their position as low-cost exporters to the U.S. Manufacturing employment fell as workers took higher-paying jobs in other sectors. To the extent that this fits the “Dutch Disease” narrative, someone is going to have to explain to me why people leaving low-paying jobs in favour of higher-paying jobs is a problem that needs solving.

Much of the fretting about how manufacturing employment is falling and how manufacturing investment is flowing to places such as Mexico is misplaced. To the extent that manufacturing is a low-wage business, we’d expect investment to flow to low-wage countries. To suggest — as many have — that Canadian workers should accept lower wages as the cost of preserving manufacturing jobs in Canada is to succumb to the final stages of the manufacturing obsession. A race to see who can provide the lowest wages is a competition we don’t even want to enter, much less win.

National Post