The Globe and Mail | Published Wednesday, March 22, 2017
If there’s one message on inflation from the Bank of Canada these days, it is this: There isn’t any. In its most recent press release on interest-rate policy, the Bank said, “… three measures of core inflation, taken together, continue to point to material excess capacity in the economy.” That’s an economist’s cryptic way of saying inflation isn’t a problem.
So if inflation is so benign, why don’t Canadians believe it?
This isn’t a question of the integrity of Statistics Canada – no one is implying (at least not to me) that they don’t trust the work of our national statistical agency.
Rather, they simply don’t believe that inflation is a lowly 1 per cent or 2 per cent a year. There are a few reasons why Statistics Canada’s official rate of inflation is so different from what many Canadians feel they are experiencing.
The first factor has to do with our natural tendency to notice the headwinds but ignore the tailwinds. Psychologists call this the “hedonic treadmill” – we may be pleased to notice a 10-cent drop in the price of gasoline, but the pleasure wears off quickly. If prices jump back up by a nickel the next week, we will grumble loudly and feel we are worse off. We simply pay more attention when prices go up, and less attention when they fall.
There may be some evolutionary genetic trait to explain this. A caveman would have experienced extreme duress and alarm when a sabre-toothed tiger threatened to pounce. But he’d have taken proportionately far less pleasure when encountering a rabbit or deer, even if they actually contribute to his survival. We notice threats more than opportunities.
The second factor involves consumer spending on discretionary versus non-discretionary items. Between January, 2007, and January, 2017, the all-items index of consumer prices rose 18 per cent. But that masks a huge disparity in price movements for particular items within the basket of goods and services.
For example, over the last 10 years, prices have fallen for flat screen TVs (down 60 per cent), audio equipment (down 36 per cent), women’s clothing (down 17 per cent) and household appliances (down 4 per cent). New cars and trucks have shown statistically no price increase. These favour higher-income Canadians with more discretionary dollars to spend.
But price increases have been unrelenting for other items, many of them non-discretionary. Parking fees (up 51 per cent), child-care services (up 43 per cent), tuition fees (up 40 per cent) and public transportation fees (up 37 per cent) top the list. Other things, such as food from grocery stores (up 27 per cent), and electricity (up 33 per cent) have also outpaced the all-items inflation rate.
So, if you are a low-income household spending disproportionately more on basic necessities, your inflation rate is anything but low and benign.
Finally, there are dozens of prices that Canadians face which are simply not captured by the consumer price index [CPI]. The price of a home, for example, is not included (although many costs associated with home ownership are, such as mortgage insurance and maintenance and repairs). Inflation does not feel low, particularly for property buyers in Vancouver and Toronto.
Other costs are similarly not covered by the CPI survey: fees for students’ field trips, tipping in restaurants (the standard has risen from 15 per cent to 20 per cent), paying for food on airplanes, and even being asked to give an extra dollar or two “to charity” at the check-out in certain retail stores. These things are typically optional, but have become customary and expected costs, eating into consumers’ budgets.
Our national statistical agency does a great job in providing data each month on consumer prices. Yet, the low inflation reports don’t convey the reality faced by Canadian households. It’s not that the figures are incorrect. It’s just the way we naturally pay attention to price movements – and the growing list of expenses that most of us are facing.
Special to The Globe and Mail | Published Sunday, March 12, 2017
Call it sibling rivalry.
For more than a century, Canada’s twin sisters of Confederation – Alberta and Saskatchewan – have always loved to compare themselves. The two became provinces on the same day in 1905, and for the first half of their lives Saskatchewan was the over-achiever. In the 1920s and 1930s, it boasted more than twice as many people as Alberta and was the preferred destination of waves of European immigrants.
By the second-half of the century, however, Alberta kicked into high gear and easily outperformed Saskatchewan in economic growth and political influence. Saskatchewan looked on with jealously of her twin who had left her in the Prairie dust.
More recently, with the nasty recession that gripped Alberta in 2015 and 2016, the tables have turned. Alberta is once again looking at her sister with some envy; there’s a notion that Saskatchewan is outperforming her. Saskatchewan’s current unemployment rate of 6.4 per cent is much lower than Alberta’s 8.8 per cent. And unlike Alberta, Saskatchewan has not recently changed its provincial government. Some in Alberta are crediting the small “c” conservative policies of the Brad Wall government for Saskatchewan’s stronger economic performance.
But is it true? Is Saskatchewan’s economy actually outperforming Alberta’s? A closer look at the data would suggest that it is not – at least not with respect to jobs. Employment in both provinces has fallen over the course of the past few years by the same amount.
The graph below shows the annual year-over-year per-cent change in total employment. Because monthly data can jump up and down erratically, the data are smoothed using a 12-month trend line. This shows how closely the labour markets in both provinces have moved.
Back in 2012 when Alberta and Saskatchewan were enjoying a petroleum-induced boom, employment was growing steadily by about 3 per cent annually – more than twice the national average. But even before oil prices started to drop in mid-2014, job growth in Saskatchewan started to stall. Alberta’s, on the other hand, remained solid until the end of 2015, at which point it started to drop steeply.
From the record-high level of employment a few years ago to January of this year, both provinces have seen precisely the same drop of 1.9 per cent. That fact runs counter to the narrative that Saskatchewan’s job market has fared any better than Alberta’s.
Given this, how do the jobless statistics make sense? If both provinces have seen employment shrink by precisely the same percentage, why is Alberta’s 8.8-per-cent unemployment rate nearly a third higher than Saskatchewan’s?
The answer to that lies in the size of the labour force in each province – and the fact that workers continue to move from Saskatchewan to Alberta. Over the past four years, Saskatchewan’s labour force (i.e., the pool of adults working or looking for work) grew by less than 1.3 per cent annually, while Alberta’s expanded by 2 per cent. And between October of 2016 and January of this year, Saskatchewan’s labour force has actually fallen, while Alberta’s continues to grow. It is the growing labour force – not job loss – that has pushed Alberta’s unemployment rate to close to double digits.
Even more contrary to the belief that Saskatchewan is the star performer, Alberta still enjoys a net positive inflow of migration from Saskatchewan. It has averaged a net gain of about 600 people each quarter over the past eight quarters (roughly the period of recession). This isn’t an enormous gain, particularly compared to the tidal wave of inter-provincial migration that has traditionally flowed from Saskatchewan to Alberta. But it is still positive.
Many sisters love to compete, perhaps even more so when they are twins. But in terms of employment in Alberta and Saskatchewan, there’s more comparison than contrast. Both provinces have been hit by precisely the same amount. Alberta need not look east across the border with jealously.
But if Alberta looked west across its other border to the job market in British Columbia … now there’s some serious fodder for rivalry!
Special to The Globe and Mail | Published Wednesday, February 22, 2017
You’d be hard-pressed to find a sensible economist who’d deny the benefits of trade. The cliché that a rising tide lifts all boats seems to fit. The problem is, it hasn’t happened. Not only have some boats not been lifted by globalization – they’ve been bashed against the rocks, stranded and left to sink while the rest of the world sails on.
Globalization is under threat, most notably in Britain and the United States, where recent referendums and elections have moved those economies into greater isolation. The boats that haven’t been lifted are the millions of workers who’ve been replaced by either cheap labour elsewhere or automation. No one can blame them for being angry. The economy has failed them. They feel hopeless and afraid, and they’ve connected with political messages that the problem is global trade.
When the United States flung open its borders to trade with China and Mexico, economists underestimated the speed at which entire industries would be ravaged. The devastation started in the 1970s and 80s, but it accelerated in the 90s and 2000s. Now, it’s resulted in a U.S. President elected on a platform of building walls and tearing up trade deals.
Canada – apparently one of the last bastions of open, liberal economics – is still willing to forge ahead with new trade agreements. But Prime Minister Justin Trudeau got it right when he warned the Europeans in a speech last week about the dangers of the Canada-EU Comprehensive Economic and Trade Agreement (CETA). “Now we need to make it work, for your people and mine,” he told an audience in France. “If we are successful, CETA will become the blueprint for all ambitious, future trade deals. If we are not, this could well be one of the last.”
So how do we do this? How do we prevent boats from sinking as the global tide rises?
The first answer has to be education. Literacy and numeracy skills, the ability to learn new information and a greater understanding and appreciation of different cultures will help Canadians create new opportunities in the global economy. Jobs and industries that don’t even exist yet will crop up – but only if we’re smart enough to identify them. And education starts in early childhood. We can’t wait until students show up at college or university ill-equipped to learn and expand their minds.
Skills development and retraining displaced workers is another common policy response, and it can be helpful. But there are limits to its efficacy, particularly when workers are unwilling or unable to be retrained. And then there is the problem of identifying appropriate skills and industries. Retraining mature workers for industries that don’t exist in their economic region isn’t going to succeed.
But a third way to prevent sinking boats is strong communities and connectivity. Education and skills upgrade will be limited if people are not in community with others. We have no good way of measuring it (although certain economists have suggested counting the number of bowling alleys in a region as a rough measure of how connected people are). But the importance of interpersonal connections and soft skills cannot be underestimated.
There are plenty of reasons some individuals fall into lives of desperate isolation and loneliness: mental-health issues, substance abuse, an inability to build healthy relationships. Not everyone who is living in poverty is lonely, of course. But loneliness and social isolation is a good predictor of someone’s ability to succeed economically – even more so in a global economy that is shifting and morphing quickly.
Income inequality and disparity of opportunity will be the greatest economic challenge for industrialized countries in the 21st century. And while Canadians like to think we are unlike our U.S. neighbours, we are not immune from anger, fear and frustration. If we ignore it, we will suffer the outcomes that other countries are now experiencing.
Education, skills upgrading and retraining all play a significant role. But community building and social connectivity is just as important. Faith communities, social agencies, volunteer organizations and sports-and-recreation clubs play a part too. We can’t just wait for the government to roll out a new program. As we enter into CETA and continue to uphold the benefits of global trade, it’s up to Canadians to make it work. That means global trade must work for everyone – especially the boats that risk being capsized by the rising tide.
Special to The Globe and Mail | Published Thursday, February 9, 2017
An old joke around university economics departments pokes fun at the hypothetical realm in which the discipline lives.
A chemist, a physicist and an economist are stranded on a desert island, with no provisions other than a case of canned beans. Lacking a can opener, the three professors set out to solve their problem. The chemist attempts to create a corrosive salt water solution to eat away at the lid of the can, but fails. The physicist devises an elaborate slingshot using palm trees to smash the cans against a boulder, but fails as well.
The economist steps forward. “My friends, this problem is easy to solve.” The other two academics sit up with interest. “First, assume we have a can opener …” he starts to explain.
Economics at the academic level is full of conjecture and assumptions. Most students of the discipline will recognize the hypothetical questions posed on their exams. The questions all start by asking them to assume an imaginary situation – one that doesn’t exist in reality, but is useful to consider in the abstract because it broadens our understanding.
But today, events are moving out of the realm of the imaginary and onto the pages of the business section. Consider three questions that could show up on any undergraduate final exam.
Question 1: Assume Country A, the world’s largest economy, has a massive trade surplus with Country B, the second largest economy. Now, assume a 45-per-cent tariff is imposed on goods coming into Country A. Describe what will happen to prices, exchange rates and wages in Country A.
Such a situation is imaginable in theory – yet unobservable in practice because no country would possibly do this. But now, of course, we might indeed see this implausible situation play out between the United States and China.
In a few years, scholars could have data on what happens when ridiculously high tariffs are imposed in the global economy of the 21st century. This will enrich our understanding and provide even greater evidence of the benefits of trade – as well as the extreme drawbacks of protectionism.
A second plausible exam question from monetary theory asks students to analyze a situation that, until now, would have been conceivable only at the abstract level.
Question 2: Assume a central bank starts charging (rather than paying) institutional depositors to hold their cash – that is, interest rates are negative. What are the short- and long-term implications for such a country on capital flows, currency exchange rates and inflation?
The idea of negative interest rates lived only in our imaginations a few years ago. Academics would have mused curiously about them in concept, but had no factual evidence on which to build better theories or models because negative interest rates didn’t exist. But as some central banks have run out of rope on which to pull aggregate demand higher, we are now down a rabbit hole that was previously the stuff of wild make-believe.
The third exam question, one closer to home, comes from a course on Canadian Public Finance.
Question 3: Assume oil prices plunge by 70 per cent, and as a result Alberta, Saskatchewan and Newfoundland and Labrador are thrown into recession. Describe the impact this will have on the federal Equalization Program and calculate how Ottawa’s transfers to the have-not provinces will be curtailed in a few years time.
Since the formula to calculate payments is based on the average per-capita revenue available to all provinces, the drop in oil prices will bring the average down. (As a bonus question, the students could be asked to describe the howls of complaint that will arise from many of the have-not provinces, particularly ones with mayors who oppose oil pipeline construction.)
All of these hypothetical economic situations are about to move out of the world of make-believe and into reality. This will produce observable data sets with which we can hone our models and thus improve our understanding of the economy.
The world is a shaky place right now. Plenty of question marks hang ominously over the economy, and businesses, politicians and taxpayers all have reasons to feel anxious. Not much good is likely to come from these developments in global trade, monetary policy or Canadian regional transfers.
But the academic economists should be pleased. At least in theory.
Special to The Globe and Mail
As an economist, perhaps I should find it satisfying that every public-policy decision we make demands an economic justification. What’s the cost-benefit analysis of the project? What’s the return on investment of building a new tunnel or library? Do the economics of it make sense? We obsess over these questions.
Surely economic analysis does provide valuable guidance for policy makers. The problem is we work ourselves into analytical cul-de-sacs from which we can never return. The traditional models of estimating the impact to the country’s gross domestic product can tell us whatever we want them to tell us – they are only as good as the assumptions that go into them.
Canada – and Alberta specifically – is about to enter another analytic cul-de-sac with the question of whether taxpayers should back a bid for Calgary to host the 2026 Winter Olympics. Already the debate hinges on one question: Will it be good for the economy?
Almost universally, economists agree that hosting a sporting event is not worth the economic benefits to the host region. The costs are enormous – the cost of security alone for the 2010 Games in Vancouver rang in at almost $1-billion. Most economic cost-benefit analyses would suggest that coin this large would be much better spent elsewhere, or rebated to taxpayers, if boosting the GDP is the goal.
Yet, economic impact is not the only thing that matters. When it comes to supporting an Olympic bid, other questions should guide the debate.
The first question Canadians should ask is whether we value amateur sports and the future of the Olympic movement at all. Some would say no. But my guess is that most Canadians like cheering on our nation on a global stage. We love our Olympic athletes. Who didn’t love watching Penny Oleksiak win in Rio? Or Clara Hughes on the ice or her bike? Or Sid the Kid score the winning goal in Vancouver?
If that’s the case, Canada has a responsibility to host the Games at least occasionally. Between the Vancouver Games and 2026, there will have been eight Olympic Games – Winter and Summer. Canada is one of only a handful of countries geographically capable of hosting the Winter Games. And as the list of countries willing to bid on the Olympics diminishes, the future of the movement could be in question. Besides, why should we expect other, much poorer countries to host? Some nations are so corrupt that hosting the Games has burdened their people unfairly.
The second question that should be answered is whether the host city will find a lasting economic impact from the sports facilities left behind. Certainly some cities have found their stadiums to be enormous white elephants that sit empty and eventually crumble.
But in Calgary’s case, the venues of the 1988 Games have continued to generate economic activity. The speed-skating oval at the University of Calgary and the bobsleigh and luge track at WinSport continue to attract world cup events. None of this is accounted for in a traditional cost-benefit analysis.
The third question is whether the city in question would benefit from a boost in global profile. For Olympic cities such as London, Tokyo or Sydney, the answer is probably not.
But for small cities such as Calgary, Pyeongchang or Salt Lake City, the boost in profile could be enormous. You can’t buy this kind of tourism promotion.
Economic studies and cost-benefit analysis can be valuable tools for policy makers. But relying too heavily on an economic impact study – whether it is positive or negative – can result in a wrong decision. Other factors need to be taken into account as well.
Do Canadians care about the future of the Olympic Games? Can we derive value for decades to come from the sporting venues? Will we benefit from a boosted global profile? If the answer to even one of these questions is yes, the strict economic analysis alone should not be our guide.
Special to The Globe and Mail | Thursday, December 29, 2016
Ten years ago, I wrote a book entitled Coming Up Next, which tried to predict long-term economic trends in Canada’s economy. It was sobering to pull the book off the shelf to see which predictions I got right – and which ones I got wrong.
Economists are our own worst enemies. We set ourselves up for failure every time we make predictions, yet we can’t help ourselves. And as another year draws to a close, it’s time once again to guess what’s going to happen next. So, here are some bold (and some not-so-bold) predictions for Canada’s economy in 2017 and beyond.
1. Canada-U.S. trade disputes will intensify. One doesn’t need a Nobel Prize in economics to make this forecast, it’s already happening. With the expiry of the softwood-lumber agreement and an incoming White House administration vowing to get tough on trade deals, it is a certainty that trade spats will dominate the economics news. Softwood lumber will be front and centre. Trade lawyers are rejoicing.
2. West Texas intermediate will close the year at $55 (U.S.) a barrel. Statistically speaking, the best guess is often that prices will end the year at the same point they started. But there is some logic to this as well. OPEC agreements to limit supply may or may not hold together, but Saudi Arabia has realized $30 oil hasn’t worked out that well for it. And shale oil in the United States is likely to put a cap on oil prices when they start bumping up against $55 or higher.
3. Japan will become the focus of a trade deal for Canada. With the CETA agreement mostly wrapped up, Canada needs to find other major economies with which it can broaden its trade base. China is tricky at the moment because of Donald Trump. Russia and Brazil have been huge disappointments. India still seems a while in the coming. Japan ticks all the boxes for Canadian trade, particularly in agriculture, and they’re still keen to continue work on the Trans-Pacific Partnership.
4. The Canadian dollar dips below 70 cents early in the year, but finishes 2017 at 78 cents. With the economy rising in the United States but stagnating in Canada, traders will find more compelling reasons to buy U.S. dollar assets and investments. The Federal Reserve will raise rates three times in 2017, while the Bank of Canada will sit on the sidelines until 2018. However, the loonie should stabilize and regain some ground toward the end of the year.
5. The Keystone XL pipeline gets Washington’s approval. Again, not out on a limb here. This will cheer Canada’s energy sector, but it will sharpen the divide between pipeline proponents and environmental interests.
6. Alberta’s budget deficit starts to shrink. Higher oil and natural gas prices will lift revenues for the provincial government above forecast levels. The carbon fee, which kicks in New Year’s Day, will be redistributed and rebated back to some Albertans, so it won’t have an impact on the deficit.
7. Ontario will have the fastest real GDP growth rate among the provinces. Aided by a faltering Canadian dollar, the country’s manufacturing heartland will continue to shift gradually away from traditional sectors and develop greater global supply-chain focus.
8. NAFTA is not torn up. There are things said during campaigns to jazz up the crowds, and then there are strategies that make sense from within the Oval Office. Tearing up the North American free-trade agreement does nothing for the latter. Mr. Trump will be preoccupied by China, not Mexico or Canada. He has enough business acumen within his cabinet to advise him against ditching NAFTA.
9. Canada does not submit a bid for the 2026 Winter Olympics. The federal and Alberta governments are unlikely to support Calgary in a bid for the Games, especially given the exorbitant costs of security. Calgary’s mayor has said that without federal and provincial support, the city will not bid.
10. Montreal wins the Stanley Cup. University of Calgary Dinos win the Vanier Cup. Winnipeg Blue Bombers win the Grey Cup.
Hold on tight! It’s going to be an interesting year.
Special to The Globe and Mail | Sunday, January 15, 2017
More than 90 years ago, an enterprising businessman in Cincinnati named Noah McVicker came up with a clever solution to a vexing problem. Wallpaper was popular in homes in the 1920s and 1930s – but because of coal heating and oil lamps, it got filthy. Mr. McVicker developed a putty-like substance that could be pressed onto the walls, cleaning them without damaging the wallpaper.
His family-run soap company enjoyed great success with the product, but he was sideswiped with a most unwelcome development. By the 1940s most homes had converted to natural gas and electricity, and wallpaper was not getting as dirty. This gutted the demand for his cleaning product and threw the company into trouble.
Fortunately, his nephew Joseph was able to see a bigger picture. He recognized that Mr. McVicker’s product was so much more than just wallpaper cleaner. It was also popular with art students as modelling clay, and children enjoyed playing with it. With this greater perspective, Mr. McVicker pivoted and changed the market for the product. It gave birth to one of the most successful and beloved toys of all time: Play-Doh.
What lessons can Mr. McVicker’s story offer to Canadian industries in 2017? We aren’t facing falling demand for wallpaper cleaner, but our economy is in a precarious situation. The United States is shifting toward less, not more, global trade. And like Mr. McVicker who faced an unexpected and unwelcome drop in demand for his product, we need to pivot. Quickly.
But how? It requires us to look at our economy, our resources and our products in a new way.
Bitumen would make a terrible children’s toy. Softwood lumber has few other purposes if not sold to U.S. buyers. Our auto parts sector will be decimated if Trump puts Canada in his anti-trade crosshairs. Adapting to unwanted and unexpected change is not easy, and no one suggests it is. Mr. McVicker, too, may have thought he was doomed. What saved him was his nephew’s ability to see the wallpaper-cleaning putty in a new way.
So what’s Canada’s bigger picture? If the world’s largest economy is turning inward on us, can we pivot to Japan, the world’s third largest economy? They need lumber and oil too, as well as high value-added parts and components in manufacturing. Maybe 2017 is the year we get serious about a bilateral free-trade deal with Japan.
And while bitumen has few other purposes other than to be pumped into a pipeline and sent to refineries in Chicago, can we find other ways to economically use the product here at home? Refineries are costly, though, and Canada is an expensive place to build them. What other creative ideas can we come up with to use our hydrocarbons in a different way, rather than simply burning them as fuel?
Our manufacturing sector, too, holds enormous untapped potential. Rather than remaining a branch plant economy that feeds into the U.S. behemoth (the model that worked so well for decades following the Second World War), what can we learn about design mentality from places like Denmark? How can we position our economy at the top end of the value-added chain, which is product design?
Thousands of Canadian companies are already doing this. We are creative, innovative and great designers. But so far, it hasn’t been enough. If Mr. Trump carries out his (naive) plans to repatriate U.S. jobs by restricting trade, Canada’s economy is in serious trouble. We don’t have the luxury of a five-year Royal Commission to explore the problem, and two decades after that to execute a plan (which was the model used to introduce the free-trade agreement in the late 1980s).
We need to act quickly. The solutions may not seem obvious to us at the moment. Then again, I doubt Noah McVicker would have imagined being the inventor of Play-Doh.
Special to The Globe and Mail | Published December 14, 2016
I know you usually get letters from little girls and boys, but I’m a bit desperate these days.
In the past, you’ve been very generous with me, but it seems perhaps I’ve done something to upset you. I’ve had nothing but lumps of coal in my stocking for the past two years.
Since I’m trying to get off coal, perhaps you’d consider leaving a few goodies under the tree instead. I’ve compiled a short list of things I’d love to see.
Oil at $55 a barrel. Plenty of Albertans would like a much higher price for West Texas intermediate, such as $75 (U.S.) or $80 a barrel. But I actually don’t think we need it that high. Sure, $80 oil would help bring back jobs and investment, and it would certainly boost government coffers. But a big jump in oil prices would just put me back on the roller-coaster of booms and busts. A moderate price with stability is better than a high price that crashes again in three years.
More clean-tech companies. Okay, I’ll admit that I’ve fought a bit with my big sister British Columbia this year. But she’s had two full years of strong economic growth and I’m starting to feel left out. Vancouver has worked wonders in building up its tech sector, but from what I’ve been hearing it’s starting to have a hard time holding on to them. The city is too expensive for tech-sector employees to live. Could you please send a few of those companies east over the Rockies? I’ve got some attractive office space in Edmonton and Calgary, and their employees can get much bigger condos for half the price!
Good weather. Tourism is huge for me, and last year was a record-setting year. But attendance at the Calgary Stampede was down – not only because of the recession, but also because of torrential rain and hail. Could you manage to keep July and August comfortably warm and dry? That would keep the tourists spending. And on the topic of weather, I’d also like to put in a request for decent moisture in April and May – not too much and not too little, but just the right amount to keep farmers happy. Agriculture is my second-most important sector and the proper balance of wet, dry and warm is necessary to keep those wheat and canola crops healthy.
A free-trade deal with Japan. Would you put in a good word for us with the Prime Minister on trade deals? He’s done great work with the Comprehensive Economic and Trade Agreement with Europe, but I’d love to have more diversity in global trading partners. Free-trade access into Japan for my lumber, pork and beef products would be fantastic. It doesn’t have to be Japan necessarily, but it seems like an obvious market for Canada. Even if its economy is stagnant, there’s still more than 126 million consumers.
Favourable deals for Canada in the White House. Could I slip in one more teensy, weensy request? Could you arrange for Donald Trump and his incoming administration to rethink U.S. trade isolationism? I know Canada isn’t in his crosshairs, but we risk being collateral damage if he follows through on some of his campaign promises to tear up the North American free-trade agreement. He’s talking favourably about the Keystone XL pipeline, which would be welcomed by my energy patch. But what I really need are open borders – and throw in a renewed softwood-lumber trade agreement if you can manage that.
Now, Santa, I know I’m asking a lot. You must get so many requests, especially this year with all of the violence and anger around the world. It’s been a tough year for many.
But if you find it in your heart to deliver a couple of these things on my list, I’ll make a promise to you, too. I promise – one more time – not to waste this recession. I promise to foster more economic diversity, to encourage more innovation, to continue building up my arts, culture and transportation systems, to lead in environmental stewardship and to be that place of opportunity for people from all corners of the globe.
Have a safe trip on Christmas Eve, and give Rudolph and Mrs. Claus my regards.
'Twas the night before Christmas and all through the land
Albertans were weary, you understand.
Recession has pummelled our spirits this year;
it's been a tough time of worry and fear.
Businesses suffer and jobs hard to find,
it's left a discouraging note this Yuletide.
But cheerier lies the next year ahead--
economists tell us to not be mislead.
The price of West Texas is up over fifty
and that, says producers, is really quite nifty.
For fifty is now the new eighty, they say,
and at this new price we need not dismay
With OPEC agreeing to crude oil cuts,
and Putin in need of petroleum bucks,
the price of the black stuff should stabilize soon
and that will lift energy stocks like balloons.
And at the same time, new projects are near.
A way to move oil to tidewater, dear!
A pipeline or two, we've asked not too much.
And finally, Trudeau has given thumbs up!
Now things, of course, percolate south of the border
where Donald and company seek a new order.
Will Canada suffer? What happens to us
if NAFTA is thrown right under the bus?
Yet Trump is pragmatic, and ever so keen
to bolster America's economy.
That should help us out, Canadians mention.
Let's try to forget Trump's other intentions.
So next year is likely to be a bit better,
but hard work is needed from all whom we've vetted.
Our government leaders must be in good form
to help our dear province manage this storm.
On Notley, on Ceci, and on Brian Jean!
McIvor, Don Iveson, Naheed Nenshi!
Let's all work together, and be sharp as whips.
The fighting and nastiness help not a bit.
And even though 2016's been a curse,
there is always someone who's struggle is worse.
Be kind to each other and be neighbourly.
So many are struggling—give generously.
Take heart, dear Albertans, and be of good cheer.
A new year is coming, we'll play it by ear.
The recession will fade, so rest comfortably.
Merry Christmas to all, and a good economy!
Special to The Globe and Mail
Published Friday, Dec. 02, 2016
Most Canadians are aware of the economic pain bearing down on energy producers. But few would guess the surprising way in which they’re dealing with it: by actually increasing wages and hours.
Employees in Canada’s mining and energy sector still earn the fattest paycheques in the country. Average weekly earnings in September of this year were $2,059 (seasonally adjusted). No other sector is even close, and wages are more than double the national all-sector average of $957. Even more curiously, wages in mining and petroleum are 17 per cent higher than they were five years ago.
This presents a bit of a paradox. The energy sector – which has gone from Canada’s economic leader to laggard in two short years – is still home to high and rising wages. How does this make sense? Shouldn’t wages be tumbling as oil producers scramble to get their costs down?
There is an explanation. Wages may still be high, but the head count has been dropping like a stone. From its peak two years ago, Canada’s energy and mining sector has shed over 48,000 jobs, a drop of more than 20 per cent. The situation has been most acute in Alberta, the centre of Canada’s oil and gas sector. In that province, employment in the petroleum sector has dropped 29 per cent, meaning almost one in three jobs in the industry have vanished.
This tells us three things about the energy sector and how it’s fighting to regain profitability.
The first is that for energy companies, it’s smarter to hand out layoff slips than to cut wages. Perhaps because of the nature of much of the work involved in resource extraction, lower pay isn’t a practical solution. Only a certain kind of person is able to either manage the physicality of the work (on oil rigs, for example), or possess the right technical skills and education (such as geologists and engineers). Cutting pay across the board would make it difficult to hold onto your star employees. Better to cut the ones you can still function without than risk losing your best talent.
The second thing we learn is that there were plenty of labour efficiencies to gain – particularly in oil extraction. If CEOs in the energy patch were honest, they’d likely concede that they hired too many people during the good times in the five years leading up to the oil price tipping point in June, 2014. Canadian producers are still producing the same volume of oil that they did when it sold for 100 (U.S.) a barrel – but they’re doing it with 20 per cent fewer people. Many of the job losses have been concentrated at the head-office level, with fewer people required to work on future projects. Most of those high-cost projects have been cancelled.
The third thing we learn is that employees still fortunate enough to have their job are working longer hours, which partially explains the higher weekly earnings. Over the past 12 months, the average work week for workers in oil and gas extraction is about 2 per cent longer than it was five years ago. That makes sense considering the same amount of work needs to get done but with 20 per cent fewer workers. Calgary’s energy sector workers were famous for enjoying every second Friday off – something that has been scaled back or eliminated at many companies.
Conditions may be starting to gradually improve. The OPEC production limits and two pipeline project approvals announced this week offer some silver lining for Canada’s oil producers. Still, keeping costs contained and efficiencies up will remain the modus operandi for the sector in 2017. If the experience over the past two years is any indicator, don’t expect big wage cuts in the petroleum sector any time soon.