Study: Head office employment

1999 to 2005

Foreign takeovers have had little impact on employment in Canadian head offices, a new study shows. Domestic firms taken over by foreign firms created about as many new head offices as they closed. On average, those head offices that continued after a domestic firm was taken over maintained their level of head office employment.

Foreign controlled firms were the dominant force driving growth in the number of head offices in Canada and head office employment between 1999 and 2005. Foreign controlled firms accounted for about two-thirds of the net increase in head office employment, and all the growth in the number of head offices.

The study also shows that Toronto has reinforced its position as Canada's leading centre for head offices in the business sector during the past six years, while Calgary experienced the strongest head office employment growth of Canada's four major head office centres.

Calgary has now surpassed Vancouver by a wide margin as Western Canada's leading head office centre.

Montréal remains Canada's second most important head office centre, but it has been losing ground to both Toronto and Calgary.

Head office employment in Canada increased 10.7% to 174,882 from 1999 to 2005, slightly less than the 14% growth rate for the business sector as a whole. The number of head offices in Canada rose 4.2% to 4,161.

Head office employment largely unaffected by foreign takeovers

Analysts continue to be concerned as to whether foreign control is associated with the "hollowing-out" of corporate Canada. One particular concern is that when Canadian firms are taken over by foreign firms they shed head office employment, which is being moved abroad.

On balance, foreign takeovers have had little impact on employment in Canadian head offices, the study found.

Of the 4,061 head offices in Canada in 1999, some 164 subsequently switched from domestic to foreign controlled by 2005. Of the 164 that switched, 34, or about one-fifth, were closed, resulting in the loss of 1,709 jobs.

While some foreign firms closed head offices, others created them. Foreign firms gained control of many Canadian firms that did not have a head office unit in 1999.

These were firms with head office functions that were typically too small to be identified as separate from their other operations. These firms established 38 new head offices that housed 2,346 jobs in 2005.

Of those head offices that continued under foreign control, head office employment increased marginally. Their employment amounted to 3,487 in 1999 (when they were under domestic control) and 3,547 in 2005 (when they were under foreign control).

Foreign firms dominate head office growth

Foreign controlled firms were a dominant force driving the growth in the number of head offices and head office employment between 1999 and 2005.

Foreign firms accounted for all the growth in the number of head offices and nearly two-thirds, or 10,693, of the net increase of 16,888 in employment over the period.

In 1999, foreign controlled firms accounted for 17% of head offices and 32% of Canadian head office employment. By 2005, foreign-controlled firms represented 22% of head offices, and 35% of head office employment.

All of the job gains attributable to foreign controlled head offices resulted from the jobs in new foreign head offices outnumbering those lost in head offices closed by foreign firms. None of the jobs gained by foreign head offices resulted from the reclassification of head offices from domestic to foreign control.

During the six-year study period, the number of head offices in Canada increased from 4,061 to 4,161. This resulted from a net gain of 191 foreign-controlled head offices, most resulting from births of new head offices outnumbering exits, and a net decline of 91 in the number of domestic head offices.

Some 419 foreign head offices were created while 281 foreign head offices closed, for a net gain of 138. The remaining increase in foreign head offices resulted from head offices that switched from domestic to foreign control.

Loss of a head office a common occurrence

While losses of head offices occur frequently, for Canada as a whole, these are balanced by the addition of new head offices.

Of the head offices that existed in 1999, fully 37% were no longer in existence in 2005. These lost head offices accounted for 27% of head office employment in 1999.

But losses are only part of the story. New head offices are constantly being created. Of the head offices operating in 2005, 38% did not exist in 1999. These new head offices made up 36% of head office employment in 2005.

Head office employment concentrated in four metro centres

Canada's head office employment is concentrated in four metropolitan areas — Toronto, Montréal, Calgary and Vancouver. They accounted for 38% of Canada's population in 2005, but 73% of the nation's head office employment.

Toronto dominates head office employment, but growth in Calgary has been much faster. Between 1999 and 2005, head office employment in Calgary rose 64.4%, more than triple Toronto's growth rate of 19.2%.

Still, Toronto's share of head office employment edged up from 31% to 34% during this period, while Calgary's share rose from 7% to 11%.

Head office employment in Montréal was flat over the period, while total head office employment grew. As a result, Montreal's share fell from 23% in 1999 to 21% in 2005. Despite Vancouver's buoyant economy, head office employment has plunged, reducing Vancouver's share of the total from 11% to 7%.

Vancouver was Western Canada's most important head office centre in 1999, with employment levels well above Calgary's. Since then, these two cities have reversed positions.

The analytical paper "Head office employment in Canada, 1999 to 2005", is now available as part of the series Insights on the Canadian Economy (11-624-MIE2006014, free), from the Our Products and Services page of our website.

A shorter version of this article can also be found in the July 2006 internet edition of Canadian Economic Observer, Vol. 19, no. 7 (11-010-XIB, free), that is now available. The annual publication Canadian Economic Observer, Historical Statistical Supplement (11-210-XIB, free) is also available.

More studies related to multinationals and economic geography are available free of charge in the analytical series Update on Economic Analysis (11-623-XIE) on our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Mark Brown (613-951-7292) or Desmond Beckstead (613-951-6199), Micro-economic Analysis Division.