Economic power shifts West

Weak investment climate and pro-union labour laws make Ontario less attractive: Report

The country’s economic engine is shifting away from Central Canada toward the West because of more business-friendly policies, according to a new report.

“Businesses are now moving from the traditional hub of Canada, which is Ontario, to the West. Unless Ontario straightens out its investment climate, that’s going to continue to happen,” said Neils Veldhuis, director of fiscal studies at the Fraser Institute.

Measuring Labour Markets in Canada and the United States, released by Vancouver-based think-tank the Fraser Institute, studied 10 provinces and 50 states from 2002 to 2006 and found Alberta, Saskatchewan, British Columbia and Manitoba have the strongest labour market performance in the country. Alberta came in first of all 60 jurisdictions while Saskatchewan ranked 10th, B.C. 12th, Manitoba 20th and Ontario 21st.

The report looked at five variables of labour market performance: total employment growth, private sector employment growth, unemployment rate, duration of unemployment and gross domestic product (GDP) per worker.

The report stated that high unionization rates, high public-sector employment, high minimum wages and labour relations laws that favour unions all negatively affect labour market performance.

Ontario’s union-friendly labour relations laws, coupled with higher income and business taxes, make the province less attractive to investors, said Veldhuis, author of the report.

However, of the four Western provinces, only Alberta has the ideal labour market climate according to the report, said Erin Weir, an economist with the Canadian Labour Congress in Ottawa.

Compared to Ontario, the other three Western provinces had higher public-sector employment, higher minimum wages, higher unionization rates and more progressive labour relations laws during the time of the study, said Weir.

Most of the labour market performance in the West can be attributed to high oil and gas prices, said Weir.

But the idea that commodity pricing is the only factor driving labour market performance is a common misperception, especially in the East, said Veldhuis.

“Even in a commodity boom, if you don’t have the right policies, people are not going to want to invest. If it was just about commodities, Venezuela would be the richest country in the world,” he said.

Saskatchewan, Manitoba and British Columbia all have lower taxes on personal income and lower business taxes, which make them more attractive to investors, said Veldhuis.

There’s more to Ontario’s dip in economic prosperity than just the good fortune of Western provinces, agreed Weir, it just doesn’t have much to do with the factors measured by the Fraser Institute.

“I think (Ontario’s ranking) does speak to the manufacturing crisis in Ontario, the fact that large numbers of quite good jobs have disappeared in this province. There’s no question that the ranking is pretty consistent with that trend,” he said.

According to a new report from the Conference Board of Canada in Ottawa, the high value of the Canadian dollar — which at press time was on par with the dollar in the United States — is to blame for the poor labour market performance in Ontario, and specifically Toronto.

“The strong Canadian dollar wreaked havoc on industries sensitive to foreign trade, in particular the manufacturing sector, dampening overall economic growth in Canada’s largest census metropolitan area,” stated the report Metropolitan Outlook – Autumn 2007.

As a result, Toronto’s GDP growth is at 2.7 per cent compared to Saskatoon at 4.7 per cent and Calgary at 4.4 per cent.

Another bone of contention for Weir is the assertion made in the Fraser Institute’s report that the goal of a well-functioning labour market is high wages, but none of the variables included in the index is a direct measure of wages.

“Fundamentally the reason that people go out into the labour market is to earn income. They’re not just concerned about the number of jobs available but how well those jobs pay,” said Weir.

However, productivity is tied to wages so the report’s measurement of GDP per worker is an indication of wages, said Veldhuis. For example, Alberta has the highest GDP per worker and it also has the highest wages in Canada, he said.

“We’re looking at the drivers of wages instead of wages themselves.”

Alberta’s tops

Ontario’s performance tumbles while West surges

The Fraser Institute released a report of labour market performance in 2007 and 2004, with each report measuring performance in the 50 U.S. states and 10 Canadian provinces over a number of years. Alberta climbed from second to first place while Ontario dropped from 18 to 21. Saskatchewan and British Columbia made the most startling gains (from 47 to 10 and 51 to 12 respectively).

Province2007 ranking2004 ranking
Alberta 1 2
Saskatchewan 10 47
British Columbia 1251
Manitoba 2027
Ontario 21 18
New Brunswick 34 43
Nova Scotia 38 40
Prince Edward Island3926
Quebec 41 49
Newfoundland and Labrador50 56

Source: The Fraser Institute

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