OTTAWA – Canada’s capital city is already feeling the effect of thousands of federal service job cuts, although no pink slips have been handed out.
Businesses are reporting slowing sales; economists are forecasting paltry growth; fewer houses are being built; and, city officials ramping up efforts to diversify the local economy.
It all comes as the federal government’s axe looms over thousands of public service jobs.
“One hundred per cent of the civil service is worried they are going to lose their job,” said Erin Kelly, the executive director of the Ottawa Chamber of Commerce. “It is the fear itself that is having an impact on the economy.”
Federal cabinet ministers are reviewing proposals from government departments on how to find $4-billion in annual savings by 2015-2016, in an effort to balance the budget.
The result could be thousands of job losses, and in a region where 20 per cent of employees get a paycheque from the federal government, any cuts will be felt.
“The cuts in the public service are going to ripple through the rest of the economy and lead to lower domestic demand,” said Alan Arcand, a principal economist at the Conference Board of Canada.
While the federal government is mum on how many jobs will be affected, the Conference Board has forecasted losses of 9,000 public service jobs over the next two years.
Economic growth in Ottawa-Gatineau is expected to be 1.8 per cent in 2012, compared to the 2.4 per cent growth projected nationally.
“It’s a little on the disappointing side. Any time growth is below two per cent in Ottawa-Gatineau it is usually not great news.”
Spending, construction in capital slowed through 2011
A large number of job cuts would likely mean a corresponding hit to spending in Ottawa, according to Kelly.
Eighty-six per cent of the Chamber of Commerce’s members experienced a decline in Christmas sales, and Kelly said the trend seems to be continuing.
While there could be other factors contributing to slower sales, Kelly said it is driven by fear of layoffs in the public service, exacerbated by a city with a risk-adverse population.
“A lot of people that go to government go there because they are risk adverse. They want the job for life,” she said. “In the private sector, lay-offs, we are used to that and people know who is going to get it more or less.”
The National Capital Region is known for having one of the most stable local economies in Canada, with a low unemployment level rivaled only by boomtowns Calgary and Edmonton. The region’s unemployment rate came in at 5.3 per cent in December 2011, compared to a national average of 7.5 per cent.
The local economy was further bolstered by federal economic stimulus during the 2008 recession, as people were hired to help funnel money into job-creating construction projects.
Job cuts in 2012 will keep employment growth in Ottawa-Gatineau to a minimum, according to the Conference Board, which is forecasted growth will drop to 0.6 per cent in 2012 from 0.9 per cent last year.
Ottawa’s housing market also slowed by 10 per cent throughout the course of 2011, another sign that people are keeping their cash in the bank.
Fear is real: unions
Fear is also fuelling a serious morale crisis within the public service, according to union leaders.
“People certainly first and foremost want to do the best in providing services to Canadians, but that’s not easy with the person in the office next to you is not there anymore and you are wondering what is next,” said Gary Corbett, president of the Professional Institute of the Public Service of Canada.
Larry Rousseau of the Public Service Alliance of Canada urged the government to dispel fears before this year’s budget by letting public servants know the plans for cuts.
“There is nothing worse than fear. If you can’t see what your threat is, if you can’t visualize it, if you can’t assess it and analyze it, it is going to have much more power over you because of the fear factor,” he said.
Cuts won’t be devastating: economists
Ottawa’s economy has survived massive public service cuts in the past; most recently in the 1990s when the Liberal government undertook a massive spending review to eliminate its $38.5-billion deficit and curb its growing $487.5-billion debt. The cuts resulted in $17 billion in cuts and 45,000 in jobs.
Many of those public servants were re-hired as employees or as expensive consultants.
Between 1998 and 2010, there were 70,000 jobs created in the public administration sector in Ottawa-Gatineau, according to Arcand.
“If we are predicted cuts of 9,000, it doesn’t even come close to matching those gains. Ottawa-Gatineau will remain ahead," he said.
Earlier this year, Ottawa Mayor Jim Watson said the city would do what it can to ease the blow of federal job losses, by linking people with retraining programs, attracting new businesses to the capital and letting laid-off workers know about companies hiring or relocating to Ottawa.
Even if the economy slows temporarily, Carleton University economics professor Christopher Worswick said the city will be resilient.
“My sense is the Ottawa economy is pretty robust,” he said. “If this coincides with a general improvement with the world economy then I’m not sure we will see a big impact beyond the individuals directly involved.”
Temporary pain from possible cuts may have a silver lining by releasing talent into the local economy, if the feds do it right, according to Kelly.
“If you are doing the cuts and you want to think about the local economy, think about what business needs…They need a variety of skills, a variety of experience,” she said. “(The economy) can only absorb so many senior directors.”
Ultimately, Kelly said the Chamber of Commerce is supportive of the cuts.
“We understand it has to happen and ultimately it is good for business for the federal government get its fiscal house in order.”
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