Applied Research Bulletin - Volume 3, Number 1 (Winter-Spring 1997) - April 1997

Structural Change and Employment in Canada: Knowledge in the Driver's Seat

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Knowledge and technology are becoming the forces driving employment growth. The structure of employment in Canada is shifting toward knowledge- and technology-intensive sectors of the economy. That is the main conclusion of Employment Performance in the Knowledge-Based Economy, a recent study by Philippe Massé of Human Resources Development Canada and Surendra Gera of Industry Canada. The study represents the second half of a joint research project between Human Resources Development Canada, Finance Canada and Industry Canada that examines shifts in production and employment in the various industrial sectors of the Canadian economy.

The results of the first portion of this project, Changing Canadian Industrial Structure: Shifts in Output Growth, were reported in the Summer 1995 edition of the Applied Research Bulletin. This second study examines changes in the industrial structure of employment with a focus on the employment implications of the emergence of the "knowledge-based" economy.

How is the structure of employment changing in Canada?

The analysis of the changes in the structure of employment in Canada revealed that employment growth has been more rapid in knowledge-intensive industries - those showing the highest levels of R & D activity, high-skilled occupations and highly educated workforces - than in medium- and low-knowledge industries. Between 1971 and 1991, employment in high-knowledge industries grew by an average of 4.2 percent per year compared to only 1.7 and 2.2 percent per year in medium- and low-knowledge industries respectively.

Text version

Source: Gera, S. and P. Massé. Employment Performance in the Knowlege-based Economy. HRDC, 1996.

While the industrial structure of employment is shifting toward high-knowledge sectors, the pace at which this transformation is occurring does not appear to be rising. According to the study, the pace of structural change may have accelerated in the early part of the 1980s, but it actually decreased in the late 1980s to a level similar to that in the 1970s.

High-knowledge industries still account for only 15 percent of business-sector employment.

The study not only found that employment grew faster in high-knowledge industries, it also determined that employment in these industries is less sensitive to cyclical downturns than employment in the medium- and low-knowledge sectors. High-knowledge industries accounted for around 15 percent of business-sector employment, but they only accounted for about 1.5 percent of all jobs lost during each of the last two recessions. Despite their growth, however, high-knowledge industries still account for only a small share of the business sector - the Canadian economy is still primarily medium- to low-knowledge intensive.

Which factors are contributing the most to structural changes in employment?

In particular, what is the role of domestic demand, trade, technology and productivity? According to the study, domestic demand and labour productivity remain important engines of employment growth, particularly in services. However, trade and technology are becoming increasingly important determinants of changes in employment.

For example, exports have stimulated employment growth, particularly in high-knowledge, high-technology industries, while import penetration has adversely affected employment growth in low-knowledge, low-technology industries. In manufacturing, exports and imports together accounted for 55 percent of gross changes in business-sector employment over the 1986-91 period compared to only 31.1 percent between 1971 and 1981. Overall, the net impact of trade on employment in Canada was positive. Between 1971 and 1991, 719,000 jobs were created as a result of trade, accounting for 23 percent of new employment generated in the Canadian business sector over that period.

For its part, technological change has become an increasingly important determinant of employment changes in both manufacturing and services industries, particularly in the second half of the 1980s. For example, in service industries, technological change accounted for 12.9 percent of gross changes in employment over the 1986-91 period, up from 8.6 percent during 1971-81. It should be noted that the authors measure technological change somewhat indirectly as changes in input-output coefficients. This measurement essentially shows changes in the recipe of intermediate inputs going into an industry's production.

How has the emerging knowledge-based economy affected workers?

The authors argue that the increased importance of knowledge is associated with a shift in the structure of labour demand in favour of skilled workers as measured by the share of white-collar workers in total employment. The share of white-collar workers increased from 53.4 percent in 1971 to 68.3 percent in 1995, while the share of blue-collar workers fell from 46.6 to 31.7 percent over the same period. Most of the increase in the share of white-collar employment was due to a rise in the share of white-collar high-skilled jobs (management, scientific occupations, professionals, technicians and supervisors). According to the study, this phenomenon appears to be widespread, occurring within all industrial sectors, and not merely the result of employment shifting towards industries that tend to employ more white-collar workers.

Occupational Distribution of Employment
Occupational Group	1971	1981	1991	1995
White-Collar	53.4	60.3	67.8	68.3
Blue-Collar	46.6	39.7	32.2	31.7
White-Collar High-Skilled	24.0	27.0	32.8	33.1
White-Collar Low-Skilled	29.5	33.3	35.0	35.2
Blue-Collar High-Skilled	15.3	13.1	10.0	9.6
Blue-Collar Low-Skilled	31.3	26.6	22.2	22.1

Note: Shares exclude employment in postal services, religious services and public administration.
Source: Authors' calculations based on data from the Canadian Occupational Projection System

The increased demand for high-skilled workers has been reflected in the employment and wages of workers with different skills. The authors show that the wages of more experienced and educated workers have increased relative to younger and less-educated workers. In addition, high-skilled workers enjoy higher employment rates and lower unemployment rates. Thus, knowledge is not only increasingly important in determining how industries perform in terms of employment, it also appears to be an increasingly important determinant of how workers succeed on the labour market.

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