Ontario's economic decline hurting household incomes

The 21st century has been an era of economic decline for Canada’s most populous province. Although there have been brief periods of improved growth, Ontario’s economic performance in recent decades has generally been dismal.

While Ontario suffered a severe economic shock during the 2008-09 recession, the province has been mired in a much longer era of economic weakness. For example, Ontario's important manufacturing sector was already struggling in the preceding years, with manufacturing employment falling by 12 per cent from 2003 to 2008 before the global financial crisis hit and accelerated those trends while driving Ontario's broader economy into a steep recession.

Ontario's economic problems persisted in the following years as the province’s economic recovery was remarkably tepid given the severity of the recession that preceded it. Job growth was slow (especially outside Toronto and Ottawa) and incomes bounced back only slowly. As a result of this weakness before, during and after the 2008/09 recession, the period from 2007-2016 was a "lost decade" for the provincial economy. Across a range of economic indicators, including overall economic growth, debt accumulation and private-sector employment growth, Ontario was either at or near the bottom of the Canadian pack.

Additional research has helped further illustrate the persistence of these trends and the extent to which Ontario has underperformed nearby peer jurisdictions. For example, one recent analysis comparing Ontario to nine nearby provinces and American states found that per-person economic growth in Ontario lagged almost all of its neighbours and was well behind the regional average. Clearly, Ontario faces a large and growing “prosperity gap” compared to its nearby American competitors and trading partners.

Ontario's slow rate of economic growth isn’t just a matter of academic concern. It has had a profound impact on the lives of Ontarians. Household incomes have been particularly affected. From 2005-2019, the inflation-adjusted before-tax median income for Ontario households increased by just 5.4 per cent—less than half the overall rate of growth across Canada (11.1 per cent). Ontario lagged well behind Quebec and the Maritime provinces, historically low-growth jurisdictions.

The studies and data paint a grim picture of Ontario's economic performance since the turn of the century. Ontario is in a state of relative economic decline compared to many of its nearby peer jurisdictions, and this is hurting Ontarians, as the province was dead last in household income growth from 2005 to 2019.

The evidence that Ontario has experienced a prolonged period of stagnation and relative economic decline is clear. Provincial policymakers should recognize these disturbing and long-lived trends and develop a policy agenda focused on increasing economic growth to help create more good jobs that can boost household incomes in the years ahead.