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Best labour markets in Canada found in the west, led by Alberta and Saskatchewan; Ontario and Quebec struggle

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Release Date: September 2, 2010

VANCOUVER, BC— Western Canadian provinces recorded the best performing labour markets in Canada between 2005 and 2009, led by Alberta and Saskatchewan, according to a new study released today by the Fraser Institute, Canada’s leading public policy think tank.

Alberta topped all provinces and American states, in the ranking reported in Measuring Labour Markets in Canada and the United States: 2010 Edition. The province recorded the highest level of employment growth over the five year span that was measured, along with high levels of employment growth in the private sector and low durations of unemployment.

Saskatchewan recorded the second-best performing labour market in Canada and third overall in North America, an improvement from its eighth place ranking in last year’s report. British Columbia is ranked third in Canada, sixth in North America, with Manitoba ranking fourth in Canada and eighth overall. Both provinces moved up in the 2010 report from ninth and 21st in North America respectively. “There’s a clear delineation in the labour market performance of the western provinces compared to Eastern Canada. Over the five years studied, western Canadian provinces are among the best performers in key areas of employment growth, private sector job creation, unemployment rate, low durations of unemployment, and high labour productivity,” said Niels Veldhuis, Fraser Institute vice president of Canadian policy research and co-author of the study.

New Brunswick had the highest ranking of the remaining provinces, 27th overall, followed by Ontario (31st), Nova Scotia and Prince Edward Island (tied at 39th), Quebec at 43rd, with Newfoundland and Labrador the lowest ranked province at 49th. “Ontario and Quebec’s labour market performance continues to be very poor, underscoring the need for labour policy reforms,” Veldhuis said.

Alaska was the top ranked American state, second overall behind only Alberta. Other states ranked in the top 13 (which includes five jurisdictions tied for ninth) are: Wyoming and Utah (tied at fourth overall), Texas (sixth), and Washington, South Dakota, North Dakota, Colorado, and Arizona all tied for ninth place overall.

The report notes that while the recession negatively affected labour market performance in both Canada and the U.S., the deterioration in the U.S. was more severe, at least partly because the financial crisis originated there. Although the economies of both countries now appear to be recovering, a complete assessment of the current condition of labour markets cannot be made since data for the past 12 months is only available on two of the five labour market performance indicators: total employment growth and unemployment rate. “Generally speaking, provinces and states that performed well in the past five years have, on average, also done well in the past 12 months. For example, the top 30 performers in the past five years have also generally experienced much better employment growth and lower levels of unemployment in the past 12 months than jurisdictions in the bottom half of the rankings,” Veldhuis said.

Measuring Labour Markets in Canada and the United States: 2010 Edition assesses the performance of labour markets and examines characteristics that affect performance. The study includes an overall measure of labour market performance based on five indicators: total employment growth, private sector employment growth, unemployment rates, duration of unemployment, and labour productivity over the years 2005-2009.

Improving Labour Market Performance

The report also examines four specific characteristics of provincial and state labour markets that can affect performance: public sector employment, unionization, minimum wages, and labour relations laws. In many of these critical areas, Canadian provinces trail almost all U.S. states.

“Many Canadian provinces have unfavourable labour market characteristics and regulations that lead to poor performance, resulting in fewer jobs, higher rates of unemployment, and lower productivity. All provinces should be re-examining these areas if they hope to improve their labour market performance and thereby improve overall prosperity,” said Amela Karabegovic, Fraser Institute senior economist and study co-author.

The study finds that public sector employment in Canadian provinces is markedly higher than in most U.S. states. High public sector employment tends to result in higher costs, lower average quality, less responsiveness to customers, and lower productivity. Lower productivity is particularly a concern since workers in the public sector tend to receive a wage premium relative to their private-sector counterparts.

Five provinces – Newfoundland and Labrador, Manitoba, Saskatchewan, Prince Edward Island, and Nova Scotia - had more than one-quarter of all workers employed by some level of government. In Quebec it was 21.6 per cent while Ontario had 18.6 per cent of its workforce employed by government between 2005 and 2009. Overall, Canadian provinces maintain among the largest public sectors, occupying seven of the bottom 10 spots on this measure.

The study also details how Canadian provinces tend to have much higher minimum wages than U.S. states, a factor that has an adverse effect on labour markets. Seven of the 10 Canadian provinces (Ontario, New Brunswick, British Columbia, Nova Scotia, Manitoba, Quebec, and Prince Edward Island) occupy the bottom 10 rankings overall. Other than Alberta and Newfoundland and Labrador, Canada’s provinces were in the bottom half of the rankings with minimum wages accounting for a higher percentage of GDP per worker. “High minimum wages have been shown to reduce employment opportunities for young and low-skilled workers and result in fewer fringe benefits and less on-the-job training,” Karabegovic said. “Unfortunately, in 2010 seven out of 10 provinces increased or plan to increase their minimum wages.”

Unionization is another aspect of the labour market where Canadian provinces and U.S. states diverge. High rates of unionization have been demonstrated to have an adverse impact on economic performance including reduced employment growth, profitability, and investment. Quebec, with 39.9 per cent of its workforce unionized, ranked last overall on this measure. Prince Edward Island, British Columbia, Saskatchewan, Manitoba, and Newfoundland and Labrador all had more than 30 per cent of their workforce unionized. Overall, Canadian provinces occupy the bottom nine spots on this measure.

“The high rate of unionization among Canadian provinces is the result of relatively biased labour relations laws. These laws inhibit the proper and efficient functioning of the labour market because they favour one group over another, prevent innovation and flexibility, and are overly prescriptive,” Karabegovic said.



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