Saturday, January 17, 2015

On what the attenuation of the Alberta advantage might mean

One of the most popular posts on Demography Matters is my November 2012 post "On the Albertan advantage over the United States". There, I noted that the exceptional prosperity of that Canadian province's oil-based economy was attracting very large number of migrants from across North America, including from the United States. A March 2014 Global News report drawing upon recent Statistics Canada data noted that the province's labour market was so strong that it was exerting a pull on the rest of the country.

In 2013, the rest of the country (save Saskatchewan) witnessed an exodus of folks from their province of origin[.]

Where did they go? Virtually all to Alberta.

“A whopping 43,000 people flocked to Alberta last year,” BMO economist Robert Kavcic said in note published Thursday.

The surge in inter-provincial migration – the biggest in 23 years – bumped Alberta’s population up by 1.1 per cent, according to Kavcic.

The demographic contrast between Alberta and the rest of the country is stark, but closely mirrors what’s happening on the jobs fronts [. . .]

[T]he [Conference Board of Canada] nevertheless expects the province to generate nearly 47,000 net new jobs which will push the province’s unemployment rate down to 4.4 per cent by the end of the year.

The national unemployement rate, meanwhile, is stuck at 7.0 per cent. In B.C., it’s 6.4 per cent, and in Ontario and Quebec, the rate is 7.8 and 8.7 per cent, respectively.

The population shift serves to underscore the “starkly different labour market conditions in different areas of the country,” BMO’s Kavcic said.

You'll note that I said Alberta's strong economy was based on oil. At a time when oil prices are collapsing worldwide and given Alberta's failure to diversify its economy away from oil, this is a vulnerability. (The provincial government has found its revenues cut back so severely that consideration is now being lent to instituting a provincial sales tax.) This vulnerability is especially problematic given that much of Alberta's investment, and many of the migrants, have been directed towards developing the environmentally problematic and high cost Athabasca oil sands (or tar sands in the north of Alberta. With lower prices for oil, as MacLean's' Andrew Leach notes, many of the projects aimed at extracting oil from the sands and exporting it to consumers might not even bee needed in the case of lower prices.

Alberta is now getting used to the idea that it may enter into a recession. As CBC's Kathleen Petty noted, while some hope that this might lead to a less oil-based economy that could lead to a weaker currency and potentially a stronger industrial sector, rebalancing the Canadian economy, this outcome is not at all clear.

Between 1995 and 2014 the average annual employment growth rate in Alberta dwarfed all the other provinces. Alberta's average employment growth over a 10-year period was 2.50 per cent a year; Ontario was a distant second at 1.44.

What now? As economists and politicians peer over the precipice, looking for the bottom for oil, Ontario's premier is predicting a turnaround for her province.

Kathleen Wynne says "we have a diverse economy and it can be a buffer in a time like this, against some of that volatility." Perhaps, but will it be enough?
[. . .]
As Todd Hirsch, the chief economist at Alberta's ATB Financial, points out, "many manufacturers in Ontario and Quebec have actually been tied into Western Canada's oil and gas sector.

"While the auto sector used to be the largest area of growth for manufacturing, over the past 10 years, it has been specialized equipment, boilers, pumps and other inputs used in the extraction of petroleum" that has kept Ontario's manufacturing sector alive.

Hirsch says Wynne is correct in saying Ontario can be a "buffer", but it won't "be enough to propel overall Canadian growth higher in 2015."

And as Petty goes on to note, without Albertan economy growth to drive national figures up, the Canadian economy and the Canadian labour market would be in a rather different place. With substantial layoffs expected and net migration to Alberta expected to drop, many Canadian job-seekers who could have found employment out west just won't have access to such a strong labour market. This will be a problem throughout the rest of Canada, but I would suggest--on the basis of my personal knowledge and acquaintances, granted--that the effect might be particularly strong in Atlantic Canada. There, over the past decade especially, in the absence of anything like a strong economy with high-paying jobs a whole culture of temporary migration has built up, people moving west to work and earn income for months on end before returning home to spend some time with their families in their home communities. Without the chance to earn this income, the future will be grim for these people.

The thousands of Cape Bretoners who work in the Alberta oil patch are bracing for a grim Christmas -- and even grimmer New Year -- if crude oil prices continue their downward sprial. The collapse in oil prices means tradespeople and labourers may not be called back after the holidays - and many may lose their homes.

Billy Joe MacLean, the mayor of Port Hawkesbury, Nova Scotia, says the impact could be devastating for Cape Breton depending on how long oil prices stay low. "There will be hundreds and hundreds of people, coming back to Cape Breton, who may be able to survive for four to five months," Mr. MacLean tells Carol.

"But that's the limit. And then you're going to see the tragedy and the devastation of foreclosures on houses, and the seizures of goods," he adds.

Melissa Blake, the mayor of Fort McMurray and the regional municipality of Wood Buffalo, acknowledges there will be an impact on her town as well, and that growth will stall, but the effect will not be as drastic as Atlantic Canada, where the visiting workers come from. "We've got two distinct workforces," she tells Carol. "We have the one that's involved in permanent operations and the one that comes to us as guest workers from other communities." The permanent workforce in Fort McMurray is much more stable, she adds.

More on this Monday.

1 comment:

Dwight Williams said...

If there was one thing I was absolutely sure of, it's that eventually the bust was going to come after the latest boom. That, aside from personal issues, kept me from considering the Alberta option for my own purposes overmuch.

The follow-on question for people like me who made such choices as well is "will our willingness to take the short-term pain in order to avoid the long-term pain be allowed to matter?"