The Centre Cannot Hold: What the Oil Crash Means for Wage Disparity, Part I

Mike Robichaux

 

This piece is the first instalment of a two part series

 

When I thought up the idea of writing a piece on the post-oil crash Western Canadian labour market, I knew I was wading into dangerous waters. I had recently come across some research suggesting that the western resource provinces had been spared the worst of the rampant wage inequality polarizing labour markets in the US and UK this century. Like so much of the academic research on inequality it was dry, long-winded, done by people with little connection to the phenomena they described –in a word, it was academic. My idea was to turn this into something more qualitative, more accessible. The problem was that, as a small town western Canadian kid turned central Canadian urbanite, it’s almost impossible for me to publicly say more than a couple sentences about the oil sands without alienating some of my friends.

How does somebody with a foot in both camps approach a debate—over pipelines, jobs, climate change—that so often feels like a shouting match between rural western and urban central Canada? By treading lightly, I suppose, and through the effective use of disclaimers.

The following article isn’t arguing that the job market implications of oil sands development trump the environmental implications. Nor is it arguing against this position. It’s simply saying that the bottoming out of oil prices and attendant energy sector slowdown will be a serious hit for wage equality in this country—a country that has remained relatively equal compared to its southern neighbour despite waves of economic de-regulations. The only argument I wish to make is that, if the current global oil glut extends into the coming years, provincial and federal governments will need to design concrete, workable policies to address inequality in the long term. Without these, Canada is almost certainly fated to slip further down the wage disparity rabbit hole as oil jobs dry up with nothing to replace them but an ever expanding, low paying service sector.

 

 

“I ended up in welding because I did CTC (Career Technical Centre). I wanted to be a pilot but didn’t have money for flight school or university. I took CTC simply because it was my only option…I grew up in a family that didn’t have much and I didn’t want my future to be like that so I took what was given to me and made the best of it.”

Kyle writes to me from across the vast geo-cultural gulf separating northern Alberta from downtown Toronto. Apart from the occasional Facebook interaction, it’s probably the first real contact we’ve had since high school.

Like so many others from my hometown—and hundreds of thousands across the country—Kyle headed for the oil patch shortly after school.

We grew up in a former resource town undercut with abandoned coal-veins and surrounded by failing mills and a failing logging sector. The scenery was nice, so tourism was one of our few viable industries, and as the stable, middle income resource jobs disappeared, the service sector swallowed up the labour market like a hungry god.

You could find work at a bar or restaurant serving tourists and vacationing retirees, but there were no benefits, of course. In the winter the tips would dry up, your hours might get cut back—maybe they’d lay you off. Nothing was certain.

Kyle left for greener pastures, as did I.

In a sense, the story of our town encapsulates a meta-narrative of the North American economy as a whole. The “disappearing middle class” is a concept we’re all familiar with at this point—recent electoral campaign speeches have been peppered with so many references to it that the phrase is starting to sound like a catechism. On a continent where the vast majority of voters identify themselves as middle class—even when they aren’t—it’s a popular refrain. It drums up the kind of vague, existential fear that translates so easily into electoral support, and it’s been taken up ad nauseam by politicians on both side of the ideological spectrum.

But for however worn out the line’s getting, it’s grounded in an all too real phenomenon. Median wages haven’t kept pace with the sky rocketing super salaries of financiers and high level executives, and an ever growing number of workers are being forced into low paying, non-unionized jobs. This is the result of long-term shifts in the labour market for which the causes are multiple and complex. The headline version is that changing technology and the mechanization of manufacturing and agriculture—as well as the increasingly global nature of goods and capital—have eroded away many of the middle income, middle skill jobs that used to form the backbone of the North American labour force. A few highly specialized fields saw a lot of growth—finance for instance, and jobs in the tech sector—and steadily rising incomes. These are occupations that demand a very specific set of competencies and, importantly, at least one university degree. As industrialized countries shifted from production to consumption economies, the service and retail industries expanded, but not fast enough to absorb all of the workers bleeding from the manufacturing sector. The outcome was that the supply of workers outstripped demand, and wages in many these jobs fell in Canada relative to those in higher skill occupations.

Most of this happened in the 1980s and 1990s. At the same time, financial de-regulation and changing business norms resulted in massive pay gains in the upper limits of the wage distribution. In the US, this has led to some of the greatest disparities of wealth since the gilded age of 19th century rail road magnates and robber barons.

In Canada, the situation isn’t a whole lot better—nationally, our level of economic inequality lies somewhere between that of the US and the more egalitarian welfare states in Western Europe. But if we zoom in and focus on the province level wage equality data from the last fifteen years we get a different story.

It is useful here to draw a distinction between economic inequality and earnings, or wage inequality. Economic inequality measures the difference in wealth, earnings and consumption between a jurisdiction’s richest and poorest inhabitants, whereas earnings inequality measures the difference in wages alone. Although in economic terms, Alberta was only somewhat more equal than Ontario and British Columbia in 2011, its wage dispersion, and the structure of its labour force are markedly different. For instance, Alberta’s median income is roughly 23% higher than the Canadian average, and skilled trades account for a much larger portion of its labour force.

The province bucked the national trend-line in the period between 2000-2005, when pay gains for workers earning incomes below the median wage grew faster than incomes above it. This is evidence of what anyone who’s spent time in the province during the last fifteen years will tell you: with so many workers going into the energy sector, the only thing employers like McDonald’s could do to attract applicants was to offer more competitive wages. In short, the flow of workers in Alberta was moving in the opposite direction than it was on the rest of the continent: from the service sector to production oriented, middle skill occupations. Supply fell, demand increased. Salaries rose.

Wages in the lower tail of the distribution began to stabilize after 2005 as the growth of above median salaries picked up speed, but the years between 2000-2011 in general were characterized by a steadily rising average wage and falling inequality. In the years between 2000-2013, the difference in the wages of university grads compared to non-university grads shrunk considerably in Alberta and Saskatchewan, dragging down the national average so that the gap for Canada as a whole went down during that period.  In contrast, the Ontario labour market has been characterized by steadily rising income inequality and a more or less stagnant university/non-university pay gap since 2000.

The picture of Alberta’s economy that I’ve painted so far has been a fairly rosy one. This isn’t the whole story. If we use economic, rather than wage, inequality as our measure we get a somewhat different view. Because of the province’s tax structure and ungenerous redistributive policies, Alberta’s rich tend to be some of the richest in the country, and its poor—those earning no wages at all, for instance—the poorest. I will address this in part two of this piece. For now it is enough to say that Alberta’s employment and labour force participation rates were consistently amongst the highest in Canada before the oil crash, and its median income the highest of any province. Although not everyone shared equally in the spoils, the resource boom tended to favour disproportionately middle skill workers and those with lower levels of education.

To say that these trends were confined to resource rich provinces would be a misstatement. Alberta and Saskatchewan were a sieve into which workers from across the country poured.

“I think that a lot of people came from out of province because of the lack of opportunity at home. I know a lot of guys from Newfoundland that say you literally can’t get a decent job unless you make minimum wage,” says Kyle, “These people sometimes sacrifice going home for the holidays because it’s so expensive to fly. Instead they stay and work and gather the overtime then send it home to their families just so they can have decent lives. Not everyone comes from a background where they can afford a post-secondary education as well. So apprenticeships are the only route to a decent life.”

In sum, the resource provinces were a path to upward mobility for many less educated Canadians who may have otherwise been relegated to low paying service sector jobs. It was a place where low skill workers went to become middle skill workers, where the middle class—that rare endangered species that politicians pine for—had pastures to graze as green as spring.

 

 

Alexis speaks to me from a salon chair while a stylist touches up her roots. It’s an hour of merciful quiet for her: downtime between her duties as a city custodial technician and a step mother of three rambunctious pre-teens. Like Kyle, she came to the prairies—to Estevan, in her case—for work, and like Kyle, most of our contact these days is regrettably through Facebook, although we do catch up once a year or so over the holidays. She grew up in my hometown as well, and on the same street that I did. In the same house, in fact: she’s my older sister.

“When I first came out here I was working as a server at a bar. The money was good, a lot better than back home—some Friday nights I’d walk out of there with four-hundred dollars in tips…Yeah, things have slowed way down. I was serving at the Elks Club after that, but they had to lay me off because there wasn’t enough business. A bar in town, it’s been open for—how long? Forty-years?” she asks, confirming with her hair dresser “they’re having their closing party tomorrow night. They can’t afford to keep it open now that everyone left town.”

Estevan is Saskatchewan’s Fort McMurray: the nexus of the province’s resource industry. Like Fort McMurray, it has been hit hard by the oil crash. During the peak of the boom, Alexis and her husband rented out three rooms in their converted basement suite to workers from out of province to supplement their family income.

“We used to have to turn people away every week, we just didn’t have enough space.” she tells me, “Now it’s been three months since we’ve had a renter and we’re asking for half as much rent. It’s been a punch in the gut.”

Her husband has worked in the energy sector for much of his life, through several boom and bust cycles. This, he attests, is the worst downturn he’s seen, and employers haven’t had the money to keep workers on part time through work share programs as they normally do.

It isn’t clear what the future has in store for Canada’s energy sector. Financial services firm Morgan Stanley has forecasted a recovery to 70$ a barrel (compared to 100 in 2011) by the end of 2018, but if the last two years have taught us anything it’s that oil market forecasts should be taken with a grain of salt. Some have speculated that OPEC’s ramped up production is motivated by the belief that a global “end to oil” is looming in the not so distant future. Pumping it out quickly and cheaply while it’s still worth something may be the organization’s long game. If this is indeed what’s happening, then higher cost North American producers are in for a rough ride. Like the coal beneath my hometown, much of Canada’s oil might end up staying underground.

Whatever the case, a rug has been pulled out from underneath the Canadian labour market. The downturn has called attention to the precarious situation of much of Canada’s middle class. What’s needed are policy mechanisms to ensure that Canadians have access to good jobs and upward mobility. Part two of this piece will be a discussion of how this might be done.

Mike is a graduate student at the University of Toronto (previously McGill). He grew up on Vancouver Island but now sticks mostly to the ten square blocks surrounding his Toronto apartment. His interests include politics, post-punk, and 80s slasher flicks. He can’t believe he’s thirty.

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One response to “The Centre Cannot Hold: What the Oil Crash Means for Wage Disparity, Part I

  1. Pingback: The Centre Cannot Hold: What the Oil Crash Means for Wage Disparity, Part II | The Public Policy & Governance Review·

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