Alberta’s job recovery brings its own set of problems

Instead of a recovering private sector economy, Alberta has simply expanded its government sector

By Charles Lammam
and Brennan Sorge
The Fraser Institute

Premier Rachel Notley’s government has repeatedly pointed to total employ­ment figures as a sign that Alberta has recovered from the recent recession. For instance, the premier recently said “our economy is recovering … and created 90,000 new jobs last year.”

Charles Lammam: Alberta’s employment recovery brings its own set of problems
Charles
Lammam

But to better understand the state of jobs in Alberta, and whether the province is actually recovering, you can’t simply look at total employment figures. While it’s true Alberta’s total numbers have rebounded since the depths of the recession, government employment has driven much of that ‘recovery,’ not the private job market.

A recent Fraser Institute study analyzed Alberta’s employment situation, focusing primarily on July 2014 to May 2018. The study broke down total employment into government sector, private sector and self-employment. The results are not reassuring.

Since July 2014, a substantial shift has occurred between government and private sector employment. As of May of this year, there are 46,267 fewer Albertans employed in the private sector. That translates into a three per cent reduction in private-sector employment.

Brennan Sorge: Alberta’s employment recovery brings its own set of problems
Brennan Sorge

During the same four-year period, employment in Alberta’s government sector (including provincial, municipal and federal employees) grew substantially, by 78,733 employees – a 21.5 per cent increase. As a result, the government sector’s share of total employment (excluding the self-employed) increased from 19.5 to 23.2 per cent – a level not seen in Alberta since 1994.

Instead of a recovering labour market, Alberta has simply expanded its government sector.

Of course, the premier will likely argue this significant expansion of government employment was a necessary response to the oil price shock and recession. But neighbouring Saskatchewan, an­other energy-dependent province also affected by the drop in commodity prices, took a starkly different approach. In Saskatchewan, government-sector employment grew only 2.1 per cent over the same period – one-10th the rate of Alberta.

So what’s the problem?

Research suggests the approach taken in Alberta to dramatically expand government-sector employment will hurt the economy and reduce prosperity for Albertans. It’s not a sustainable model because a robust private sector is needed to generate the wealth to support government activity – including government jobs – through taxation.

And because taxpayers in the private sector finance government jobs, a crowding out can occur. Taxes leave individuals with less money to save and invest, and leave entrepreneurs and investors with less money to grow their operations, hire new workers or innovate. Taxes paid to fund growth in the government-sector come at the expense of potential innovation, productivity growth and employment growth in the pri­vate sector.

While there’s debate over the magnitude of this crowding out effect, evidence suggests it could be substantial. One study of 17 Organization for Economic Co-operation and Development (OECD) countries (including Canada) from 1960 to 2000 found that the creation of 100 govern­ment jobs led to the reduction of 150 private sector jobs – leading to fewer jobs on net.

With a nearly 79,000 increase in government-sector jobs in Alberta, the crowding out could substantially undermine the province’s private sector.

So while Notley is technically correct – Alberta’s total employment level has recovered – a more detailed analysis reveals that the true state of growth in Alberta is much less reassuring.

Private-sector jobs are down and the government sector is driving the jobs recovery her government keeps talking about.

Charles Lammam is director of fiscal studies and Brennan Sorge is a research intern at the Fraser Institute. The study, The Illusion of Alberta’s Jobs Recovery: Government vs. Private Sector Employment, is available at www.fraserinstitute.org.


Alberta’s employment recovery brings its own set of problems

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