Canada’s Economic Health: Trending Upward
How does one evaluate the health of an economy? A simple, easily measured and, we would argue, reasonably comprehensive measure of success is the proportion of a community’s working age population that is employed. The employment ratio measures the fraction of those of working age (aged 15-64 years) who have found employment and so are able to support their families. It also provides insight into whether the community is able to fund government programs – such as a social safety net, a quality health care system, effective policing and courts, and more — without unduly high rates of taxation. A high employment ratio, then, is a good indicator of a successful economy along many dimensions.
The figure shows how the employment ratio in Alberta, Ontario, and Newfoundland & Labrador has changed from 1976 to 2012. The employment ratio rises and falls with the business cycle but it is on the trend over the past 36 years that we want to focus on here.
Alberta typically has the highest employment ratio amongst Canadian provinces. That ratio peaked at a remarkable 80% just prior to the last recession. That is, in 2008, 80% of those aged 15-64 years in Alberta were employed. Also impressive is that the long-term trend has been positive; in 1976 only 70% of Alberta’s workforce was employed. The growth in employment ratio has been particularly strong since the end of the recession of the early 1990s. Throughout the 1990s and up until the latest recession, Alberta’s economy was creating jobs at a pace that exceeded even the very rapid rate of growth in its population.
Other high-performers include Saskatchewan and Manitoba (not shown). In each of those provinces the employment ratio, currently sitting at around 77% has, as in Alberta, been on an upward trajectory for the past three plus decades.
Laggards amongst Canadian provinces are Ontario and British Columbia where the employment ratio has been more or less stagnant over the past 36 years. The result for Ontario is particularly remarkable because the employment ratio in neighbouring Quebec, a province with a similar industrial base to Ontario’s, has enjoyed a sustained rise in its employment ratio; from less than 60% in 1976 to about 72% in recent years. The employment ratio in Quebec has caught up to, and is about to pass, the ratio in Ontario.
But the biggest story is Newfoundland & Labrador. Starting from a woefully low level in 1976, when less than half those of working age were employed, the economy of Newfoundland & Labrador has undergone a remarkable transformation. Today 65% of the workforce is employed; a level not far below the Canadian average (72%). And it shows no signs of slowing down; while employment ratios in Alberta and Ontario have yet to fully recover from the 2008-09 recession, the ratio in Newfoundland & Labrador has blown past the level achieved prior to the recession and continues to climb. Perhaps most remarkable of all is that this transformation of the Newfoundland & Labrador economy has taken place in just the 15 years between 1997 and 2012.
The transformation of the economy in Newfoundland & Labrador corresponds to the development of off-shore oil fields and has occurred despite the collapse of the cod fishery in 1992. It is also, of course, the reason why Newfoundland & Labrador has recently lost its “have-not” status in the federal Equalization Grant program. This evidence speaks to the remarkable transformative powers that a well-regulated oil industry can have on a regional economy.
Researchers seeking explanations for these trends will find it helpful not only to compare information across provinces but also to compare Canadian circumstances to those in the rest of the world. The next figure shows how the employment ratio in Canada, the 10 provinces, and a sample of 11 OECD countries has changed since 1996. All Canadian provinces, with the exception of Ontario and British Columbia, have climbed the league chart and so improved their economic performance relative to international competition. Particularly strong has been the relative performance of the labour market in Quebec.
The real shocker in the figure is the performance of the labour market in the United States. The employment ratio in the U.S., ranked 3rd amongst the 22 jurisdictions in 1996, and has plunged to 18th place in just 15 years. If these trends continue the employment ratio of even the weakest performer in the Canadian economy – the rapidly improving labour market in Newfoundland & Labrador – will soon surpass the ratio in the United States.
These long term trends are suggestive that Canada’s economic health has increased both absolutely and relative to that of other industrialized countries, particularly since the mid-1990s. Understanding and explaining these trends, both in Canada and internationally, represents an important question for public policy analysts.