Ontario: Canada’s Former Engine of Economic Growth

In 1969, Ontario was the engine that drove the Canadian economy.  It had the highest level of average income, it was a mainstay in the club of “have” provinces, and its unemployment rate was well-below the Canadian average. 

Things have changed.  In the four decades since 1969, the Canadian economy has undergone significant changes along many dimensions.  An interesting barometer of change is what is defined as the social assistance rate: the percentage of the non-elderly population (those aged 0-64 years) who rely on social assistance.  This includes single adults, couples, and the children in those families.  Thus, a 15% social assistance rate would indicate that 1 in 7 people, aged less than 64 years, rely on the income support provided by social assistance.

I picked 15% for my example because that is what the social assistance rate was in Ontario in 1994.  It was the highest rate in Canada that year, eclipsing the rates of 13% in Nova Scotia and 12% in Newfoundland and Labrador.

Of course, in 1994 Ontario, along with the rest of the country, was still recovering from the 1990-91 recession.  From 1994 to 2008, just before the latest recession, social assistance rates across Canada fell at a remarkable rate; the percentage of the non-elderly population drawing social assistance dropping by half during that 14-year period.  Economic growth and the jobs that come with it can have a powerful effect on the social assistance rate.

Ontario is the only province where the fraction of the population reliant on social assistance was higher in 2012 than it was in 1969.

Something else happened in the mid-1990s: the federal government stopped an explicit 50-50 sharing in the cost of providing social assistance.  No longer able to spend “50-cent dollars,” provincial governments introduced changes in the rules and regulations determining eligibility for receiving social assistance benefits.  In Ontario, the Harris government introduced significant cuts to social assistance incomes – undoing significant increases introduced by the Rae government — and made the conditions for receiving income support more stringent.  These changes also had an impact clearly observed during the last recession.  Four years after the 2008 recession the social assistance rate in Ontario was only 1.3 percentage points higher.  This compares to the 7.1 percentage point increase in the social assistance rate four years after the start of the 1990-91 recession.  Clearly, the social safety net in Ontario is different from what it was before. 

Another interesting comparison our data allows is to observe how the social assistance rate has changed over time and across provinces.  Despite being subject to similar economic forces, Ontario and Quebec have seen very different patterns in their respective social-assistance rates.  In Ontario, social assistance use was traditionally much lower than in Quebec but this changed in the 1990s.  Although both provinces suffered from the recession in the early 1990s, the social assistance rate increased more, and did so more quickly, in Ontario than in Quebec.  In recovery, the social assistance rate has fallen steadily in Quebec and by 2012 had fallen well below what it was in 1970.  In Ontario, the social assistance rate fell after peaking in 1994 but plateaued at a level higher than pre-recession levels.  Today the rate in Ontario is higher than in Quebec and, at 7.6%, is well above what it was in 1969 (4.0%).  These two provinces, with similar economies but having quite different movements in social assistance use, offer an interesting comparison for those interested in evaluating each province’s policies toward social assistance.

In the West, social assistance rates have also fallen since the mid-1990s.  By 2012, the social assistance rates in Alberta (3.2%) and BC (4.7%) were well below those in Ontario (7.6%) and Quebec (7.0%).  But here again, the evolution of change is interesting.  The graph shows the social assistance rate in Ontario and Alberta since 1969.  Up until 1990, the social assistance rate was similar in the two provinces but since then a wide gap has opened and remained more or less unchanged since 2000.

Perhaps the most dramatic changes have occurred in the Maritime Provinces where social assistance rates are only half what they were just 15 years ago and currently sit below any level observed in those provinces since 1970.  Remarkably, the social assistance rates in Nova Scotia, New Brunswick and PEI are all currently below that in Ontario.

The bottom line is this: Ontario is the only province where the fraction of the population reliant on social assistance was higher in 2012 than it was in 1969 and, from having the lowest social assistance rate in Canada in 1969 Ontario had, by 2012, the second highest rate in the country.  By these metrics, Canada’s economic engine has fallen on hard times.

Like the proverbial canary in a coalmine, the social assistance rate can be used as an indication of economic health.  The fact the social assistance rate is rising in Ontario while falling everywhere else suggests that the canary is falling quiet in Ontario.