The changing geography of the Canadian manufacturing sector in metropolitan and rural regions, 1976-1997

Abstract

Introduction It is often argued that new technologies and improvements in transportation are making it easier to decentralize manufacturing away from the centres of large metropolitan centres to their fringes (Coffey 1994) or away from large cities to smaller urban centres and rural regions (Kilkenny 1998). Alternatively, it is argued that there may be strong centralizing tendencies associated with the advantages of large labour pools and advantageous interactions that take place in large cities, as well as the benefits that their large markets provide to producers (Krugman 1991; Fujita et al. 1999). Despite this interest in the changing importance of manufacturing in cities and rural regions, we know surprisingly little about the changing location of manufacturing production in Canada. This paper fills this gap in out knowledge by tracking the actual course of economic development in the manufacturing sector of Canadian cities over the last quarter century. Using longitudinal data on output and wages along with a specially constructed fixed geographic code, this paper provides a picture of changes in the manufacturing sector that have occurred across various units in the rural/urban hierarchy--large central cities, their suburban fringes, medium and small cities and rural areas. The objective of this paper is to measure not only shifts in aggregate manufacturing employment across the rural/urban hierarchy, but also the industrial composition of these changes. That is, we are interested in whether these shifts are broad-based, encompassing a wide selection of industries, or whether they are driven by a small selection of industries. Broad-based change may reflect structural shifts in the economy that favour one or more parts of the rural/urban hierarchy over others. For example, falling transportation and communication costs can make rural parts of the country a more attractive location for a broad selection of manufacturing industries (Kilkenny 1998). On the other hand, change may be more industry-specific. For example, large urban regions may provide the access to skilled workers and specialized suppliers necessary to attract and keep more knowledge-based manufacturing industries. Aggregate employment levels are only one measure of economic performance. Production worker wages offer an alternate and important measure because of their relationship to the economic base (1) provided by industry. There is evidence that wages decline substantially moving down the rural/urban hierarchy. For example, in the United States, production worker wages in rural areas are markedly lower than those paid to workers in urbanized places (Gale 1997, 1998). In this study, we are interested in whether there are substantial differences in wage levels across the rural/urban hierarchy in Canada and whether we observe a similar urban-rural wage gradient seen in the United States. We should add that the analysis concentrates on the manufacturing sector because of its central importance in the economic system. While manufacturing only accounts for about 20 percent of total employment, it is still one of the largest sectors in most areas. (2) As of 1986 in Canada, the percentage of the rural labour force in manufacturing was only slightly behind the percent in the primary sector (Ehrensaft and Beeman 1992). By 1992 in the United States, manufacturing had replaced agriculture as the primary economic base for much of the rural Midwest (Bernat 1997). Therefore, even in predominantly rural areas, manufacturing is a significant source of employment. The remainder of the paper is organized as follows. Initially, we review and place into empirical context several formal and informal theories that attempt to explain shifts in the location of manufacturing employment and wage differences across metropolitan and rural regions. A description of the methodology for defining the rural/ urban hierarchy is then presented. …