Ontario vs. Alberta

A recent Globe and Mail piece (14 August) uncovered an analysis prepared for Labour Minister MaryAnn Mihychuk in February 2016 contrasting the seriousness of the 2008-09 auto bailout with Alberta’s current economic and financial woes.

The analysis compared unemployment rates in Ontario’s manufacturing sector with Alberta’s oilpatch. Alberta’s unemployment rate in the oil sector rose from 2.9 per cent in 2011 to 7.9 per cent in 2015, whereas Ontario’s manufacturing sector unemployment rate rose to 21.9 per cent in 2009 from 8.4 per cent in 2007. The article acknowledged that unemployment in the oil patch remains high and the general unemployment is at its highest in 22 years. A Western University economics professor is cited as saying that another reason for the auto bailouts was that the credit system (financing cars, in particular) was breaking down.

It is far too early to make any final judgments that the oil price downturn is less serious to the nation than the auto sector during the 2007-09 financial crisis.  Firstly, the financial crisis was global, and while Canadian banks were affected, the main stresses were in the United States and in Europe and the U.K.  Certainly, the Canadian banking system would have been side-swiped if job losses spread through the auto parts sector in Ontario had Chrysler and General Motors went bankrupt. Secondly, underlying the credit crunch, the underlying political issue for Ontario and the federal government was the continued loss of investment to Mexico and the southern U.S. states. That a Tory government under Stephen Harper (Calgary) and Jim Flaherty (Oshawa) supported the move, in spite of their ideological leanings, is testament to the two big industries represented in their constituencies. Thirdly, comparing Alberta’s the oil and gas sector to Ontario’s manufacturing sector (which is more diverse than just transportation equipment) is misleading. A better comparison would be Ontario’s unemployment rate pre-crisis (2007) with 2010 rates after the full effects of the fiscal crisis worked through the system.

A final reason not to derive conclusions is that the Alberta recession is still unfolding.  While signs of re-birth came with oil prices rising to U.S. $50 a barrel, these small shoots have not had sufficient rain to allow roots of recovery to spread. Second order effects are beginning to emerge: oil companies arguing about municipal tax bills; oil companies not paying their land leases to farmers; demands on sport associations to help struggling families to pay for their kids’ activities; rising bankruptcies; and huge write-downs on commercial real estate investments- to name only a few. cansim-2820085-eng-7323373426115208881official unemployment_19204_image001

Alberta’s new government will be faced with many surprising demands as these second order effects continue.  The Province’s first quarter fiscal update will be released by the end of this month.  Watch for the impact of falling oil prices and  investment on projections for corporate and personal income tax revenue. Another sector to watch is residential construction which is expected to slow down significantly.

This entry was posted in Opinion/Research on by .

About albertarecessionwatch

Former Director, Institute for Public Economics, University of Alberta and currently Fellow of the Institute. Former executive with Alberta Treasury Branches. Worked for the Alberta government for 12 years with Federal and Intergovernmental Affairs and Alberta Treasury. Areas of focus: financial institutions legislation and policy, government borrowing, and relations with credit rating agencies. Ph.D in Political Science (Uof A), Masters of Public Administration and BComm. (Carleton University). Author of Politics and Public Debt: The Dominion, the Banks and Alberta's Social Credit. Presently working on study of Alberta provincial agency board appointments.

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