Honey, I shrunk the (Alberta) labour market

As far as economic indicators go, few are tracked as closely as the unemployment rate. On the surface, it gives a very good snapshot about the general health of the economy and the probability of finding a job.

In Alberta, the unemployment rate has been on a rollercoaster, rising from a low of 3.1% in 2008 to a peak of 7.5% in early 2010 and falling back down to 5.6% in November.

That’s not far off the 5%, which is typically considered a healthy, balanced job market for Alberta. But if you account for all of the folks who have dropped out of the workforce – or even worse, left the province altogether for greener pastures elsewhere – the jobless rate would be much higher. The difference? A smaller labour force.

Various reasons for quitting labour force

Consider first those who simply stop looking for work. The labour force survey conducted by Statistics Canada does not ask questions as to why workers may not be currently looking for work, and these reasons could vary.

For example, back in the mid-2000s, there was a bit of an odd phenomenon in Alberta’s job market – the labour market was actually contracting a bit, particularly in the Edmonton area. This had economists scratching their heads.

Why, in the middle of a nearly unprecedented economic boom, were Albertans dropping out of the job market? The only acceptable explanation at that time was that in many two-income households, the income of one of those earners was so good that it was possible for the other earner to stop working, perhaps in order to become a stay-at-home parent.

That explanation worked back in 2006 when the province’s economy was on fire. But in post-recession Alberta, this seems improbable.

The other more likely reason why workers are currently dropping out of the workforce is that they’ve become discouraged in the job hunt. Even though there are still a lot of ‘Help Wanted’ signs up in the province, the jobs available may be lower paying, or require a specialized skill that a job-seeker may not have.

For many Albertans, it may not seem worth the bother to actively look for a job, especially if they are in a household with another steady income earner. After all, the vast majority (+94%) of workers in Alberta are still working – and average weekly earnings have continued to rise.

While some workers may have simply quit looking for work, we also know that Alberta is susceptible to interprovincial out-migration. This is a familiar pattern for this province. During the boom years, thousands of Canadians were quick to come to Alberta, treating it like the national ATM machine – get in, get your money, and get out.

But unfortunately, when those jobs become scarce, they were also quick to leave. In the second half of 2009, there was a net outflow of people back to other provinces. Available statistics suggest that a net inflow returned in the first half of 2010, but just barely.

So because of discouraged workers dropping out of the job market and some interprovincial out-migration, Alberta’s labour force has leveled off in the past couple of years.

If, for example, growth in the labour force had continued at the same break-neck speed it had for over the previous three years, the labour force would be about 191,000 people greater than it is today.

And the unemployment rate would be in the double digits.

Shrinking labour force bad news

A shrinking labour force is not great news for Alberta’s macro-economy. It implies fewer overall consumers, potential home buyers, and taxpayers.

But there is a bright side to this picture, too. A smaller labour force does make it somewhat easier for job-seekers because it reduces competition. In this sense, Alberta’s job market has proven to be quite flexible.

Labour mobility between regions within Canada is viewed favourably by economists, and if workers are quick to adjust to a shifting job market, the national unemployment rate becomes a bit less uneven between provinces.

In some sense, the ‘leveling off’ of Alberta’s labour market over the past two years was needed to get that unemployment rate down to a comfortable 5.6%.

Todd Hirsch is senior economist with ATB Financial. His column is distributed through Troy Media.