Did stimulus spending save Ottawa’s economy?

Employment figures spiked, but industry observers say it came at a price

The financial meltdown of 2008 brought phrases such as “stimulus” and “shovel-ready” to the forefront of the business lexicon, along with injecting $401 million into Ottawa’s economy.

Road widenings, sewer replacements and building renovations formed the basis of governments’ fiscal response to the greatest economic downturn since the 1930s.

Governments wanted to pump money into construction because it was supposed to have the greatest impact on local businesses. Contractors would buy from local suppliers and subcontractors, whose employees would then go out and spend their wages in the city.

The precise impact on the economy is, of course, nearly impossible to determine in the absence of a similar but stimulus-free slowdown for comparison.

But analyzing the impact of massive public infrastructure spending to counteract an economic downturn is a critical part of evaluating such unprecedented public policy, especially given the apparent willingness of politicians to do it again.

Ottawa Centre Liberal MPP Yasir Naqvi said his party would take the same course of action if confronted with a similar recession in the future.

“The numbers are there in terms of job recovery and, if you look at the darkest moments of the recession, to avoid the kind of job losses that were anticipated,” said Mr. Naqvi, who is also president of the Liberal Party of Ontario.

Figures collected by Statistics Canada appear to back up the local MPP’s claims.

Both the overall number of jobs as well as construction-sector employment took a hit in 2009 before rebounding the following year and accelerating to pre-recession levels in 2011 (see sidebar).

Those in the industry say it’s difficult to establish a direct link between the money spent and the economic recovery, but they say they’ve emerged in good financial shape.

“All of our members are doing very well,” said Richard Zeidler, executive director of the General Contractors Association of Ottawa. “There’s lots of work so we haven’t suffered at all.”

However, that has come at a steep price.

Governments at all levels went heavily into debt to finance the stimulus spending. And local construction firms are now dealing with the effects of the inflated demand for labour and materials within a compressed period of time.

Workers became accustomed to the boom during the past few years and now expect commensurate pay increases.

“We’re paying the price, in a way, because expectations from this union are sky-high,” said John DeVries, president and general manager of the Ottawa Construction Association, of negotiations with a local carpenter’s union.

“They’ve had three good years in terms of total membership working (long) hours, so I think the settlements you’re going to see in labour are going to be higher than all other sectors.”

SIDEBAR: CONSTRUCTION NUMBERS

The provincial government says the proof that stimulus spending worked lies with numbers showing that Ontario has recovered all of the jobs it lost in the recession.

Economists continue to argue about how much of that is due to infrastructure spending but it’s clear that as government spending on building projects ramped up, the amount of work available in the Ottawa construction industry increased along with it.

Data from Statistics Canada show the total number of construction jobs in the city sat at 20,100 in July 2008, the period just before the downturn started.

In the months that followed, the federal government announced an ambitious package of stimulus funds designed to help stem the tide of job losses that had by then struck the global economy.

In July 2009, total construction employment stayed relatively steady at 21,000 even as the Ottawa economy continued to shed thousands of other jobs. (Overall employment was down to 504,300 in July 2009 from 515,200 during the same month a year earlier.)

By July 2010 – roughly a year and a half after the stimulus program was announced – both measures had increased even more. Total employment in Ottawa jumped to 534,000 while the number of construction jobs soared to 29,900, the highest level in at least eight years.

After slipping in 2011, the number of construction jobs once again climbed above 28,000 in the second half of this year. Similarly, overall employment figures softened last year before setting new records in 2012.

Some, however, argue the economy wouldn’t have been much worse off if spending had stayed where it was.

An analysis of Statistics Canada numbers from the right-leaning Fraser Institute shows stimulus spending only contributed a 0.2 percentage point change in Canadian gross domestic product during the second quarter of 2009.

The authors found instead that investment from private corporations and increased exports were responsible for the economy’s turnaround.

SIDEBAR 2: Top projects under the infrastructure stimulus fund

Hazeldean Road widening: $65 million

Widening 4.4 kilometres of road in the city’s west end. It was the only project the city expected would not be completed by Oct. 31, 2011 – the deadline for projects to be completed to qualify for federal funding – because of delays to the completion of the Carp River bridge. The city said in March it would be looking to recoup its costs from whoever was responsible for the missed deadline.

Southwest Transitway extension: $48.75 million

Work on the Transitway southwest of downtown from Fallowfield Road to Jockvale Road.  

Terry Fox Drive: $47.7 million

Four-kilometre extension of the road north of Highway 417.

Baseline Station Tunnel, College Avenue Overpass: $37.5 million

Construction of a tunnel for Baseline Station between Navaho Drive and College Avenue. The city also completed a pedestrian bridge between the main Algonquin College campus and the planned College Centre for Construction Trades and Building Sciences building.

Earl Armstrong Road: $34.5 million

Widening of the road in the city’s south end between Limebank and River roads to help with the flow of traffic onto the soon-to-be-completed Strandherd-Armstrong Bridge.