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How bad is Alberta's labour market?

How bad is Alberta's labour market?

Statistics Canada released the July Labour Force Survey last week. After hitting a low of 6.6% late last year, the normalized unemployment rate remains stuck at 6.8% across the country.

Alberta, however, paints a different picture. Despite little change in the number of unemployed, the overall unemployment rate rose to 6.0% last month, the highest since October 2010. The increase was attributed to more people re-entering the labour market.

SEASONALLY ADJUSTED UNEMPLOYMENT RATE

SEASONALLY ADJUSTED UNEMPLOYMENT RATE

The Labour Force Survey covers the entire Canadian population 15 years of age and older. The data represents a sample size of approximately 56,000 households scattered throughout the country. Seasonally adjusted data smooths out the peaks typically observed in December when the retail industry tends to staff-up for the Christmas rush. But a deeper look into the July numbers reveals some interesting facts about the Canadian labour market.

Here's what the real data looks like, unadjusted for seasonality, over the past 7 years:

3-MONTH AVERAGE UNEMPLOYMENT RATE UNADJUSTED FOR SEASONALITY

3-MONTH AVERAGE UNEMPLOYMENT RATE UNADJUSTED FOR SEASONALITY

Outside of Alberta and Saskatchewan, the unemployment rate actually doesn't look so bad. BC, Quebec and Ontario are showing a flat to downward trajectory, no where near the 2008/2009 banking crisis levels (now known as The Great Recession of 2009). However, with the exception of Saskatchewan, provincial unemployment rates actually never returned to the pre-recession lows.

Alberta had the country's lowest unemployment rate prior to the 2009 recession. After the recession subsided, the province's unemployment rate reached a low of 4.0% by late 2012 but never returned to the 2008 low of 3.4%.

But the losses aren't being spread evenly across the province. Unemployment in the Wood Buffalo/Cold Lake area (which includes Fort McMurray and a good proportion of the oil sands sector) started to slowly creep up in 2013 and skyrocketed at the end of 2014. The unemployment rate in the heart of Alberta's oil patch actually topped 8.5% earlier this year, much higher than the spring 2009 peak of 6.8%. However, those numbers have already started to show signs of easing.

3-MONTH AVERAGE UNEMPLOYMENT RATE UNADJUSTED FOR SEASONALITY

3-MONTH AVERAGE UNEMPLOYMENT RATE UNADJUSTED FOR SEASONALITY

Unemployment in Calgary took a sharp turn for the worse late last year, going from just 4.2% in November 2014 to 6.8% last month. In fact, every major region outside of Calgary has actually been improving since the spring.

But dig a little deeper and there's a bit more to this story. The unemployment rate is the total number of people looking for work divided by the labour participation rate (or the number of people available to work). The unemployment rate declines when fewer people are unemployed (obviously) but it can also decline when there are fewer people in the labour pool.

US LABOUR PARTICIPATION RATE (SOURCE: US BUREAU OF LABOR STATISTICS)

US LABOUR PARTICIPATION RATE
(SOURCE: US BUREAU OF LABOR STATISTICS)

The labour participation rate is a political hot potato south of the border, but gets little attention in Canada. US labour participation rates rose steadily through the 60s, 70s and 80s as more and more women entered the workforce. After peaking at 67% during the 2000 Dot-Com Boom, the unemployment rate began a steep slide that accelerated after the 2009 recession. Most of the recent gains made in the US employment rate has actually come from a decline in the labour pool, and not a decrease in the number of people unemployed. As usual, the trend in Canada isn't much different.

With the exception of Saskatchewan, the larger provinces have seen a significant erosion of the labour participation rate. Traditionally, Quebec and the Maritimes have the lowest labour participation rates since they have the highest proportion of seniors and retirees. But BC now has the lowest labour participation rate, despite a much younger demographic. In fact the number of people working or actively looking for work has declined about 5% across the country over the past 7 years, including Alberta.

3-MONTH AVG LABOUR PARTICIPATION RATE (UNADJUSTED FOR SEASONALITY)

3-MONTH AVG LABOUR PARTICIPATION RATE (UNADJUSTED FOR SEASONALITY)

Dissecting Alberta's data clearly shows that most declines in the labour participation rate have been coming from the Calgary region and to a lesser extent the Athabasca area (which includes Grande Prairie and Peace River). Labour participation rates in the Wood Buffalo/Cold Lake area are back up to near 80% and shows little signs of easing.

3-MONTH AVG LABOUR PARTICIPATION RATE (UNADJUSTED FOR SEASONALITY)

3-MONTH AVG LABOUR PARTICIPATION RATE (UNADJUSTED FOR SEASONALITY)

The last (and most important) piece of the puzzle is population growth. Alberta has seen explosive population growth, most of it occurring between 2012 to 2014, when hundred of thousands relocated to the province from Quebec, Ontario and BC. And these migrants were mostly new graduates, young families and people actively looking for work, all adding to the Alberta labour market.

YEARLY POPULATION INCREASE

YEARLY POPULATION INCREASE

In fact, Alberta's population has grown a whopping 27% in the past 10 years, more than double the national average. There are 600,000 more people living in Alberta than before the 2009 recession, many presumably having relocated for better job prospects. And that's likely why Alberta's unemployment rate may never return to the pre-recession low of 3.4%.

10 YEAR POPULATION GAIN

10 YEAR POPULATION GAIN

7 YEAR POPULATION GAIN

7 YEAR POPULATION GAIN

And which sectors have been hit the hardest? You guessed it - the oil and gas industry and engineering services. Gains made in the public sector have so far failed to offset losses in the private sector of the economy.

 

 

So how do we begin to lower Alberta's unemployment rate? There are only 2 ways to do it:

1. Grow the economy: Since the oil and gas sector is contracting (taking engineering and manufacturing with it), Alberta needs to either focus on growing an alternative industry or continue to aggressively grow public sector jobs and expand the size of government.

2. Shrink the labour pool: A big part of the improvement in unemployment rates in Quebec, Ontario and BC have come from (a) fewer people looking for work, and (b) those looking for work give up and move to another province (previously Alberta). So if Alberta's economy stays weak for long enough, the unemployment rate can actually perk up if people start moving out of the province or opt for early retirement.

So the next time you read a headline unemployment rate, remember there's more than one way to move the needle on the dashboard. 

Statistics Canada's Labour Market Survey is updated monthly, posted to their website on the 10th of every month (link here).

ALL DATA PROVIDED BY STATISTICS CANADA
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