Led by Alberta and Saskatchewan, Canada’s Western provinces are among the best-performing labour markets in North America, concludes a new report from the Fraser Institute, Canada’s leading public policy think-tank.
The study, Measuring Labour Markets in Canada and the United States: 2012 Edition, compares the performance of labour markets in the 10 Canadian provinces and 50 U.S. states based on five indicators: total employment growth, private-sector employment growth, unemployment rates, duration of unemployment, and labour productivity over the years 2007-2011.
Alberta ranked first overall with Saskatchewan second. Manitoba rounded out the strong showing for the Prairies, ranking third in Canada and fifth in North America, while British Columbia placed fourth among the provinces and seventh in North America.
"Western Canada continues to dominate North America in terms of labour market performance, leading the country in key areas of employment growth, private-sector job creation, and low unemployment rates," said Amela Karabegović, Fraser Institute senior economist and co-author of the report.
Of the remaining provinces, Quebec is fifth in Canada (11th overall), followed by Newfoundland and Labrador (sixth in Canada, 13th overall), Ontario (seventh among provinces and 16th overall), and Prince Edward Island (eighth in Canada, tied for 19th overall). New Brunswick and Nova Scotia were the worst-ranked provinces, tying for 21st overall.
"While Ontario, Quebec, and Atlantic Canada fare well compared to many U.S. states, they are far behind the Western provinces in important areas such as private-sector job creation and total employment growth," Karabegović said.
"The situation in Ontario is worrisome, given its population and importance to Canada’s overall economy."
The report found that Alberta had the highest average total employment growth among all provinces; it was first among the provinces for private-sector employment growth, third among the provinces for average unemployment rate, and fourth among the provinces for low duration of unemployment.
Ontario, on the other hand, lagged behind most provinces in terms of total employment growth (eighth among provinces) and private-sector employment growth (seventh among the provinces). Ontario also recorded the lengthiest durations of unemployment among all provinces.
"Ontario may be Canada’s largest economy, but right now its labour market is slightly more attractive than that of only three Canadian provinces: Prince Edward Island, Nova Scotia, and New Brunswick," Karabegović said.
The report notes that while the recession adversely affected labour market performance in both Canada and the U.S., the deterioration in the U.S. was more severe.
"In general, jurisdictions that performed well before the recession have, on average, also done well over the past five years," Karabegović said.
Improving Labour Market Performance
The report also examines four specific characteristics of provincial and state labour markets that have been proven to affect performance: labour relations laws, public-sector employment, unionization, and minimum wages.
"Many Canadian provinces have unfavourable labour market characteristics and regulations that have been shown to lead to poorer performance. With Labour Day around the corner, now is a good time for provinces to re-examine these areas if they wish to improve their labour market performance and overall prosperity," Karabegovic said.
On labour relations laws, all Canadian provinces trail the U.S. states, with Alberta ranking as the best province and Quebec the worst.
"Labour relations laws in Canadian provinces tend to be unbalanced, favouring one group over another, resulting in higher rates of unionization," Karabegovic said.
"Balanced labour relations laws provide workers with a choice of whether they want to become union members and pay union dues. Many U.S. states have implemented such regulations and as a result, they have reaped the benefits of increased investment, employment, and economic growth."
Unionization is another aspect of the labour market that has an impact on performance. Studies have shown that high rates of unionization adversely affect economic performance by reducing employment growth and investment.
Quebec, where 39.5 per cent of the workforce is unionized, ranked last overall on this measure. All other provinces except Alberta had a unionization rate exceeding 25 per cent. Overall, Canadian provinces occupy the bottom nine spots in North America on this measure.
Canadian provinces also experience high levels of public-sector employment. High public-sector employment results in higher costs, lower average quality, less responsiveness to customers, and lower productivity. Lower productivity is particularly a concern since workers in the public sector tend to receive a wage premium relative to their private-sector counterparts.
In five provinces — Newfoundland and Labrador, Saskatchewan, Manitoba, Prince Edward Island, and Nova Scotia — more than 25 per cent of all workers were employed by various levels of government. Newfoundland and Labrador had 29.5 per cent of its workforce employed by government between 2007 and 2011, compared to Ontario at 19.2 per cent and Quebec at 21.8 per cent. Overall, Canadian provinces have the largest public sectors in North America, and occupy seven of the bottom 10 spots on this measure.