Tuesday, January 13, 2009

Going west no more

For my first post here this year, I'd like to bring up a recent article in The Globe and Mail by Gordon Pitts ("The Waning of the Boom", available here). In this article, Pitts explores how the the sharp fall in oil prices is likely to impact the wider Canadian economy, since much of Canada's economic growth is concentrated in an Albertan provincuial economy that had been driven by strong investment in the expensive extraction of oil from the oil shale deposits of Alberta. Without prices in excess of $US100 a barrel to drive continued investment, Alberta's labour market is no longer capable of attracting nearly the volume of workers, temporary and otherwise, that it once did.

In the past, rural communities could export their labourers, but they would not lose all the purchasing power. The normal routine for mobile workers is to spend 20 days in Fort McMurray and go home for 10 days, which means they can still buy new ATVs, pickups, and widescreen TVs in their home communities.

The mobile work force contributed about $150-million a year to the Fort McMurray economy, according to the Oil Sands Developers - in restaurant meals, hotel rooms, casino chips, and drinks in watering holes like the Diggers bar in the Oilsands Hotel ("Metal detectors in use" warns the sign on the entrance wall). And local homeowners could earn $1,200 a month by just renting out a room.

A lot of that income will dry up now, as will the wealth transfer to the rest of Canada. Assume the average mobile worker might bring home $25,000 in surplus cash to spend at home in Fredericton or New Glasgow, N.S. Those 24,000 jobs could potentially channel more than $600-million a year from Fort McMurray to the rest of Canada - or to Latin America and China, which contribute a small percentage of oil sands labourers. And that's not counting the vast oil sands supply chain of equipment and materials.

It is one of the best equalization mechanisms outside government transfers. But now the workers will be coming home and putting pressure on their home economies. Young men and women had put education on hold while grabbing six-figure incomes in the sands. Now, there will be increased demand for schooling and retraining.

The supply of skilled jobs is often controlled by major trade unions, which in the past, would make up for any scarce skills by phoning union locals across the country. There will be fewer of those calls now, and fewer travel cards giving non-Alberta workers access to plum oil sands jobs.

(Yes, you read the last sentence correctly. In certain respects, Canada's labour market is less integrated than the European Union's.)

I've blogged here in the past about how Alberta has become, per capita, Canada's wealthiest province with a 2005 GDP per capita 56% above the national average, continuing a long-standing trend. As for the migration it's a typical sort of labour migration, with temporary migrants' work earning them the money needed to subsidize consumption in their home communities.

One thing that I have been quite curious about is the question of whether or not there are other similar patterns of large-scale labour migration in other high-income countries, with people moving from one region to another. My first guess is that the scope of the movement to Alberta is unique because of the size of the economic gap--GDP per capita in Alberta, to take one metric, is twice that of the three Maritime provinces--and that, maybe, there might be similar movements from the former East Germany to West Germany. Are there, or are there others? I leave the comments to our readers.


Edward Hugh said...

Hello Steven,

"If it is all right to do so here, I would like to focus attention on other,larger-scale patterns as well as a global scope of observation."

Well, you certainly raise some very big issues, which are certainly of great general interest even if we here on Demography Matters don't really see things the way you do.

Since they don't really relate to the issues about Canada that Randy is raising, but at the same time I wouldn't want your points to be lost, so I have decided to put them straight up online for you as a special guest post here.

I urge any readers who would like to think about the very general issues Steve wishes to raise to go over to the post and have a read, and if they are interested discuss them with him.

And, by the way, a very Happy New Year to any readers who may happen to wander past, fear not, Claus and I will soon be back posting.


Anonymous said...

Dear Edward Hugh,

You are kind to have responded just as you have. Many thanks.