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Ontario falters while Michigan prospers: Report

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TORONTO

It’s a tale of two jurisdictions — one that saw a dramatic increase in manufacturing jobs and one where the sector shrunk.

A new Fraser Institute study argues that a decision by recession-ravaged Michigan to reform its business tax and labour laws is responsible for that state’s higher-than-average private sector job growth since 2012 and an annual average growth rate in manufacturing employment of 6.1% between 2011-14.

Meanwhile, in Ontario, which followed a very different plan of high government spending and traditional labour laws, the average annual rate of manufacturing job growth was negative 0.5%, meaning job losses.

In Ontario versus Michigan: Lessons from the Wolverine State, authors Robert Murphy, Joel Emes and Ben Eisen credit the game plan formulated by state Republican leaders for its remarkable turnaround.

Michigan created a lower, flat corporate tax rate of 6%, “right-to-work” legislation that weakened unions, and cut government spending to bring public debt under control.

“Taken together, this economic package constituted a bold policy experiment that had enthusiastic boosters, as well as harsh detractors who warned of severe negative economic consequences for the state,” the report, released Thursday, says.

While it’s been just a few years, the early evidence supports the position that these changes have strongly boosted Michigan’s economic power, according to the authors.

Over the same time period, Ontario’s manufacturing output fell outright and as a share of the Canadian economy, the report notes.

The Michigan experience suggests that Ontario’s own manufacturing malaise could find a cure in new policies, such as right-to-work legislation, which allows employees to negotiate directly with their boss despite the existence of a union shop, the study says.

“Even steep economic downturns such as that experienced in Michigan early this century can be reversed,” the study says. “If Ontario wishes to break out of its prolonged slump and resume its historical place as the economic engine of Canada, it should study Michigan’s example and embark upon a similarly ambitious pro-growth policy reform agenda.”

A statement from officials with the Ontario Ministry of Economic Development said the province’s unemployment rate is at an eight-year low, and the economy has posted stronger GDP growth than Canada, the U.S. and other G7 countries.

“Private sector economists project that Ontario will continue to lead the country in growth and that we will continue to see increases to our manufacturing exports,” the statement said. “Within Ontario’s auto sector, monthly sales of goods manufactured here were higher each month in 2016 compared to the same months last year (other than June).”

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MICHIGAN VS. ONTARIO

Net debt as share of state/provincial economy

  • Michigan: 3.7%
  • Ontario: 38.5%

Average annual growth in manufacturing employment (2011-14)

  • Michigan: 6.1%
  • Ontario: -0.5%

Growth of manufacturing output as share of economy (since 2009)

  • Michigan: Up 44%
  • Ontario: Up 0.5%

Average annual economic growth (2011-14)

  • Michigan: 2.1%
  • Ontario: 2%

— Source: Fraser Institute report: Ontario versus Michigan: Lessons from the Wolverine State)

 

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