Is Canada heading for a two-tier digital economy?

TD Economics report highlights divide that could see split economies

Is Canada heading for a two-tier digital economy?
Steve Randall

The growth of the global digital economy is creating great opportunities for Canadian cities but there is a risk that some may be left behind.

While the larger cities such as Toronto, Vancouver, Montreal, Ottawa, and Calgary are capitalizing on the fast-growing technology industries, smaller cities are seeing their core manufacturing industries decline.

A new report from TD Economics warns that, with the larger cities accounting for 70% of digital services jobs, the smaller cities could become poorer as those in manufacturing roles move into lower paid retail jobs.

The report from chief economist Beati Caranci and economists Shernette McLeod and Andrew Hencic, notes the experience south of the border where the ‘superstar cities’ such as San Francisco, Seattle, and New York, have seen exponential growth in digital services jobs while smaller cities are increasingly falling behind.

While the report says that Canada’s regional inequality appears less pronounced, there are signs that ‘fertile ground’ is being developed.

The economists say that the inequality that has been helped by the abundance of relatively well-paid manufacturing jobs has been diminishing since 2010.

They are calling on policymakers to have greater focus on ensuring regional divergence is addressed.

“Technology dynamics tend to form quickly and are hard to unwind once established. Strategies should seek to extend, and not stifle, the dynamism and efficiency of clustering to more regions and encourage convergence with the rising superstar cities,” the write.

Everyone loses
If the digital divide is not adequately addressed, the report warns that it is not only those individuals and companies in the lagging cities that end up worse off.

Although the weaker cities may suffer from employment challenges, a lack of high-growth businesses, and lower tax revenues; there is also risk for the thriving cities where workers may face burn-out, higher costs of living, and a tight talent pool.

The report highlights that the tech sector favours clusters with companies choosing to locate where others in the industry are already based.

The economists say that “policies need to be put in place which will allow a diverse range of communities to benefit from the agglomeration dynamics of tech industry growth. The dynamics need to spread beyond the current small group of digital driver cities to other cities and communities, so that they too may participate fully in all that a digitally driven economic expansion has to offer.”