Taking sides: Is Alberta’s labour shortage a doomsday scenario?

Alberta, Canada’s hottest labour market, is experiencing explosive growth as the price of oil surges. The Conference Board of Canada has estimated Alberta could be facing a shortage of 330,000 workers in 20 years.
By
|Canadian HR Reporter|Last Updated: 07/13/2006

Yes. Labour demand and supply not sustainable

By Glen Hodgson

Alberta’s labour crunch is starting to make headlines far beyond the foothills and oil sands of Wild Rose Country. No sector of the economy seems exempt from labour shortages. Fast food restaurants and the hospitality sector are offering huge salaries by industry standards, but still find themselves shortening their hours because they don’t have enough workers. A recent Halifax job fair, ¬organized by Alberta-based grocery stores, saw one retailer offer jobs that pay up to $35,000 per year along with free airfare, a month’s free rent and moving expenses.

The Alberta economy is currently at full employment, causing wage inflation. Wages rose by 7.6 per cent in 2005 and are approaching eight per cent so far this year, more than double the national average. However, the current labour shortfall in Alberta may be just the tip of the iceberg. The Conference Board of Canada’s estimates are sobering — by 2025, Alberta would face a shortage of 332,000 workers if current trends continue.

Soaring wages in Alberta have proven to be an irresistible allure for workers from across Canada. In the Conference Board’s analysis, net migration into Alberta is assumed to average close to 30,000 people per year for the next 20 years.

The estimate of the gap between labour demand and the available supply is derived from standard economic analysis. A major component of the forecast for labour demand is estimating the province’s potential growth in real gross domestic product. The analysis assumes the Alberta economy — fuelled by an estimated $64 billion in oil sands investments from 2006 to 2010 — will continue to expand at a blistering pace until then. Investment in the oil sands, however, is expected to peak in 2010 and decelerate over the long term. In spite of historically high migration levels and slower growth in the economy, an aging population and declining participation rates will limit labour supply. Hence the labour shortage is expected to increase.

In reality, no economy can sustain such a large gap between labour demand and supply — something will have to give. Markets will adjust to compensate for the labour crunch. Wages will ¬continue to rise rapidly, driving companies to substitute capital investment for labour. Employers are also likely to respond to a tight labour market by improving productivity, investing in technologies and developing the skills of their existing workforces. Nevertheless, higher wages could make some projects so expensive they would not take place, thereby slowing growth and helping reduce the gap between labour demand and supply.

The recommendations outlined in

Alberta’s Labour Shortage: Just the Tip of the Iceberg

are intended to spark debate among business, union leaders and policy-makers within and beyond Alberta’s borders. While no one solution exists, several steps would ease the shortage. At the top of the list is improving apprenticeship programs and investing in skills training. Other pieces of the solution include:

•attracting more immigrants to Alberta;

•doing a better job of recognizing both interprovincial and international credentials;

•implementing labour mobility agreements with other provinces, beyond its recent pact with British Columbia; and

•making better use of underutilized potential employees by encouraging Aboriginal Canadians and older workers to enter or remain in the workforce.

These recommendations are not new — the Conference Board has repeatedly called for nationwide action in these areas for years. The pressing need to meet labour demand in Alberta should serve as a catalyst for both provincial and pan-Canadian attention to build a stronger, more integrated national economy. It’s time to get more creative.

Alberta’s labour problem could, in fact, become a Canadian opportunity. For example, Alberta businesses could look at outsourcing tasks that don’t need to be done within the province to other parts of Canada. Initiatives are required that would allow workers from other provinces to come to Alberta more easily, such as immediate eligibility for health benefits, paying relocation costs and allowing interprovincial arrivals to retain residency in their home province. Beyond these possibilities, it may also be time to look at expanding Canada’s foreign worker program to help fill certain gaps in the workforce, however, more study of this option is required before proceeding.

Alberta’s labour crunch will echo across Canada. Soaring wages and employment opportunities will continue to act as a magnet for workers from Canada’s other provinces. Furthermore, the labour shortage in Alberta will be unique only in its intensity. Within the next decade, Canada as a whole will experience a tightening labour market as the baby boomers begin retiring. The actions taken today to solve Alberta’s labour crunch will determine if the country will successfully navigate the coming national labour supply problem.

Glen Hodgson is vice-president and chief economist of The Conference Board of Canada, an Ottawa-based applied research organization that builds leadership capacity by creating and sharing insights on economic trends, public policy and organizational performance. Alberta’s Labour Shortage: Just the Tip of the Iceberg is available to Conference Board subscribers at www.e-library.ca.


No. The sky isn’t falling, if it’s managed properly

By Gil McGowan

When it comes to discussions about the labour force in Alberta, it’s hard not to be reminded of the old children’s fable, Chicken Little. No matter who you talk to — in government, business or media circles — they all seem to be saying “the sky is falling.”

Most recently, the Conference Board of Canada weighed in with a report predicting that Alberta will face a shortage of 332,000 workers annually by 2025. But is the situation really that bad? Is the future prosperity of Alberta really at risk?

High commodity prices have led to unprecedented levels of investment, especially in the energy sector. And the rapid pace of economic growth has created a very tight labour market.

But, to put it bluntly, some of the numbers that have been trotted out stretch the bounds of credibility. The Conference Board’s prediction of a shortage of 332,000 workers is based on the assumption the Alberta economy will continue to grow at roughly its current pace for the next 20 years with no significant dips, rough patches or recessions.

It also assumes Alberta’s workforce participation rates will decline and current levels of migration from other provinces will remain the same — even if Alberta’s economy continues to lead the country.

These “simplifying assumptions,” as the Conference Board calls them, fly in the face of the facts. Alberta has a history of economic booms and busts. It has the youngest workforce in the country and the highest levels of workforce participation. And there is a well-documented and accelerating rush of people moving from other provinces.

The Conference Board also hit a sour note by sounding the alarm about wage inflation in Alberta. After more than 20 years of stagnation or outright decline, the average after-inflation income of Albertans has been on the rise. But aren’t wage increases a good thing? What’s the point of having a strong economy if it doesn’t “raise the boats” of those who actually do the work? After all, attractive wages are one of the most effective recruitment tools employers have.

So shouldn’t higher wages be seen as part of the solution rather than part of the problem? Instead of demonizing long overdue wage increases and inciting unnecessary panic about labour shortages, those who would like to ensure Alberta’s goose keeps laying golden eggs should do two things.

First, come to grips with the basic question: is it possible to have too much of a good thing? The labour shortage crowd assumes the best, and only, course of action is for the Alberta economy to keep growing at a breakneck pace. They behave as if the oil will magically disappear if it’s not extracted immediately.

But do we really need to build all these projects at once? Most skilled workers would prefer to have 20 years of stable employment rather than seven or eight years of frantic development. More reasonably paced development would also allow public infrastructure to catch up with growth, it would make it easier to address the environmental concerns associated with development and it would help moderate wage growth.

The good news is the Alberta government has the power to make this happen. For one thing, they could simply stop doling out oil sands leases like they were water. And the time has clearly come to revisit Alberta’s infamous one-per-cent royalty rate for oil sands development, a so-called “investment incentive” that is completely unjustifiable now that oil is at $70 US per barrel.

Given the strong international demand for oil, even if steps were taken to slow the pace of development the Alberta economy would remain strong. The only difference would be that we would be talking about an economy that chugs along at a healthy pace rather than a runaway freight train.

That leads to the second part of the equation. If the freight train can be brought under control, then we can move past panicky, quick-fix solutions like dramatically increased use of temporary foreign workers and instead focus on long-term solutions.

On this score, we support many of the policy prescriptions advocated by the Conference Board. Tapping the labour force potential of Aboriginal communities, increasing permanent immigration levels (as opposed to using more temporary “guest workers”) and using government programs and incentives to convince workers to move from high unemployment regions like Newfoundland makes sense.

Most importantly, any labour force development plan can’t ignore apprentice training. We’ll never keep up with demand unless employers actually provide jobs for apprentices. Even in Alberta’s hot economy where so many employers are crying “labour shortage,” employers are not holding up their end.

According to the Alberta Construction Owners Association, there are more than 20,000 “trades” employers in the province but only 11,000 have taken on apprentices. The businesses that can’t find skilled workers and that are calling for permission to import thousands of guest workers are often the same ones that helped create the problem by not taking on apprentices.

In the end, policy-makers looking for ways to deal with Alberta’s labour market woes need to relearn the central lesson of the Chicken Little fable: don’t panic.

Gil McGowan is president of the Alberta Federation of Labour, an advocacy group representing 115,000 unionized Alberta workers from 31 different unions in both the public and private sectors.

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