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

Mike Robichaux

This month, Alberta hit a milestone. For the first time since oilsands production began its feverish twenty-first century expansion, unemployment in the province topped 7.4 per cent. Compared to the 7.0 per cent national average, this may not seem like such a catastrophe, but embedded in that figure is a bleak new economic reality: the door to upward mobility that the oil boom represented has slammed shut. 73,000 jobs were shed in the last year, and just as those with lower levels of education were disproportionately benefited by the boom, so too have they been disproportionately harmed by the crash. There have been some gains, however: the province added 38,000 part time jobs in the same period. In short, only a year into the crash, the Alberta labour market is starting to look a lot like that of Canada as a whole—with a declining quantity of stable, high quality jobs, and a perpetually growing service sector.

These numbers highlight an issue with aggregate employment statistics: they often fail to take into account the quality of the jobs they’re measuring. When the US Bureau of Labor Statistics reported that 151, 000 jobs were added to the economy last month, for instance, it failed to mention that a significant portion of these were part time service sector positions. What attracted so many workers to Alberta over the last fifteen years wasn’t just the prospect of getting a job, but of getting a good job. If federal and provincial governments want to tackle wage disparities, they should focus their job creation and employment strategies on quality, not just quantity.

A recent study found that one way of doing this is to devote resources to what’s called “social investment policies.” This means ramping up government spending on public and post-secondary education, trade certification programs, day care, skills training for marginalized workers, and unemployment benefits for those unable to find work. Social investment policies were found to be correlated with higher employment, and especially in skill intensive industriesSome of these policies are more intuitive than others—the link between education investment and employment in higher skill industries seems fairly straightforward, for instance. As for investing more in Employment Insurance, the reasoning goes like this: if you’re an electrician and you get laid off but don’t get enough E.I benefits to cover your bills, you’re likely to take the first job you find, even though it has nothing to do with the electrical business and pays less. You work that job for a while, get comfortable. When an electrician job finally comes up, you decide not to take it. You’ve forgotten too much about how the electrical business works, and don’t feel like starting a new job anyway.

The social science term for this is “skill atrophy.” The result is that a skilled worker downgrades to an unskilled worker and the economy loses a good electrician. If instead, the government gives you enough to cover your bills for a while, sticks with you, actually helps you find an electrician job, then in the end everyone’s better off.

With or without social investment policies, the fact of the matter is that the service sector is probably going to keep absorbing more and more of the job market, so it’s a good place to aim policy tools for addressing income inequality. As service and retail jobs make up the majority of minimum wage occupations in this country, raising the minimum wage seems on its face like an effective way to address inequality in the lower end of the wage scale, although the proposal is not without its detractors.

Unless you’ve been living on the surface of the moon for the last couple years, you’ve probably heard something about the fifteen-dollar minimum wage being phased in in Seattle, New York, Los Angeles, and, as of October 1st of this year, Alberta. When the provincial NDP government announced that it was hiking up the minimum wage, it wasn’t exactly scandalous. Even after the oil crash, wages were on average twenty-four per cent higher than in the rest of Canada, and for most jobs, the $3.80 bump from $11.50 to fifteen dollars isn’t a substantial pay raise (if it is at all). However, economists have been questioning the long term viability of Alberta’s relatively equitable wage structure given the province’s slowing economy.

No jurisdiction has yet completed its transition to a fifteen-dollar minimum wage, so it’s not really certain what the effects will be in Alberta if the energy sector continues to lag. Opponents in the US argue that, unlike capital intensive productive industries, labour is usually the single largest expense of service sector businesses, and if sales are weak, boosting its minimum price would cause some of them to fail or lay off employees. A famous 1994 study, however, found that employment in fast food restaurants actually rose after New Jersey raised its minimum wage in 1992, although they admit that the causal mechanism driving this change isn’t entirely clear. These results should be encouraging for Alberta given the province’s steadily rising unemployment rate.

As many of us learned during the last election campaign, a federally mandated minimum wage is impossible for industries that aren’t regulated by the federal government. However, the federal NDP proposal to raise the minimum wage for these industries brought to light another source of stable, middle income employment: the public service.

Government jobs can be a bulwark of middle class stability in polarizing job markets, but require higher levels of government spending and by extension higher levels of taxation for those working in the private sector. Ultimately, shoring up an economy’s middle class with more public sector jobs entails a trade off, and can be unpopular with private sector workers. Rachel Notley, for her part, appears to have come down decisively on the side of the public sector, pledging that her government will resist the fiscally conservative urge to slash government jobs in the hard economic times ahead. 

As it stands, the West is at a crossroads. Although it may be too soon to proclaim that the glory days of the resource boom are behind us, it’s unlikely that the second half of this decade will be any where near as lucrative for the energy sector as the first. For a time, the generous resource endowments of Alberta and Saskatchewan coupled with the business friendly policies of their respective provincial governments created an anomalous situation wherein market forces partially reversed—or at the very least slowed—the wage inequality polarizing the rest of the continent. Now that the market has cooled, it will require government intervention to prevent the region from backsliding into the familiar pattern followed in Ontario and British Columbia. As such, Alberta should look to strengthening its human capital. The province’s best resources might not be in the ground.

 

For Part I of this article, please click here.

 

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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