Alberta illustrates the double-edged sword of labour mobility

Contributed to The Globe and Mail
Published Friday, Feb. 26, 2016
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‘Should I stick it out in Calgary,” he asked me with a worried look, “… or should I look for jobs in other cities?”

It was a good question, but one without an obvious answer. The middle-aged engineer was attending a panel discussion a few weeks ago in Calgary targeted at mid-level professionals who had lost their jobs. They’re collateral damage of the oil price collapse that has gripped Alberta and sent the province’s unemployment rate higher than the national average for the first time since 1988.

It highlights an interesting dilemma – a tension between economic theory and economic development policy. The former would suggest that labour mobility is a good thing, particularly in a large and diverse economy such as Canada. But the latter would consider it a negative if the region in question is at risk of losing people.

A few years ago, when Canadians from other provinces were flooding into Alberta, such labour mobility was a godsend. Without these waves of incoming labour, employers would have had an even more difficult time filling positions. Wages would have skyrocketed even more than they did.

But now the tide has turned, and local economic development policies are targeting ways to keep labour here in the province – which actually runs counter to the principles of labour mobility. There’s an obvious reason to want to hoard workers: If they leave, it will create a tight labour market all over again when the province starts to recover. But if too many out-of-work Albertans stay, it will push the unemployment rate even higher and increase the competition for scarce jobs.

The tension between theory and policy underscores how, when it comes to the economy, there’s often more than one correct answer. The cold-hearted economist in me likes the idea of labour mobility in Canada. It helps lubricate the gears of the labour market, keeps regional labour situations balanced and equalizes wages across the country. At least in theory.

But the Alberta citizen in me hates to see people leave – all Canadians do, when it means watching friends and family pack up and move to find work. It comes at enormous social costs to households and communities—costs that are all too familiar in much of rural Atlantic Canada and the Prairies. And for economic development boards, there’s a strong incentive to discourage out-migration. Not only will an exodus of labour make it hard for businesses to fill positions in the future, it leaves a hole in everything from the residential housing market to retail and personal services. Fewer people means fewer consumers (employed or not).

From the federal government’s perspective, increased labour mobility across the country is preferable. Workers relocating to take jobs will reduce employment insurance costs. Greater mobility was the goal when the government introduced changes a few years back to tighten EI eligibility. And through the tax system, Canadians can claim some moving expenses related to relocation for employment. The message is loud and clear: If you’re out of work, move to where the jobs are.

But municipal and regional economic development offices often introduce policies that run counter to the federal ones. The local policies are designed to encourage unemployed workers to stay put, often offering job retraining, temporary positions or opportunities to upgrade skills – all the while hoping and praying that the economy actually does bounce back in short order and create jobs.

Traditionally I have fallen squarely in the policy camp that favours and encourages labour mobility – but that may be because I’m an economist in a province that has normally experienced a shortage of workers.

But in 2016 Alberta is likely to see some out-migration, and now I’m seeing the greater complexity of the situation. The social costs of labour mobility are not usually accounted for, nor are the costs to employers of future labour shortages. But even if they’re not easily quantifiable, they should still be taken into consideration.

As the old Indigo Girls folk song goes: “There’s more than one answer to these questions, pointing me in a crooked line.” Economists don’t like to admit it, but we’ve got a lot of crooked lines.
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Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.