Canada’s oil boom might be what saved us from electing a leader like Donald Trump, according to an economist who spoke Thursday at Dalhousie University.
Trump’s victory, as well as the United Kingdom’s decision to pull out of the European Union, have raised lots of questions about whether those outcomes are reflections of disaffectedness amongst a major portion of people in the economy, said David Green, a professor at the University of British Columbia’s Vancouver School of Economics.
“Essentially the idea is that globalization has left a bunch of people behind and that these political outcomes are a reflection of that,” Green said. “But if this is globalization, if this is something that’s happening on a world scale, why not Canada?”
Apart from a few people competing to lead the Conservative Party of Canada, Green said, we don’t have a Trump equivalent yet. “At least we don’t have somebody who has grabbed the public imagination in that way, so far. The question is why?”
It comes down to Canada’s oil boom, said Green, who is also an international fellow at the Institute for Fiscal Studies in London.
“The argument is that, essentially, as that set of … middle- to low-skilled people in the Canadian economy faced problems of the kind (where major employers lost out to foreign competitors), there is a safety net, and that safety net came from the resource boom.”
There is reason to be cautious about that conclusion, as that sector of the economy doesn’t seem large enough to drive everything, Green said.
Then he spent a lot of time making the argument that spillovers from the oil boom made it possible.
“But to the extent that boom is over, or to the extent that if we want to meet our commitments under the Paris Accords, we can’t go back to the way we operated before. That safety net is not there. And that means that, potentially, that set of people facing those problems in the US are going to be mirrored by similar people facing similar problems in Canada. It’s a problem I think we should be thinking very seriously about instead of patting ourselves on the back and claiming that we’re just somehow better.”
In the early 2000s, the US employment rate tumbled, Green said.
“It wasn’t recognized at the time because it was just viewed as part of, essentially, something cyclical. It was part of a short-term recession.”
Then the bottom dropped out of the US labour market and wages declined by substantial amounts.
A lot of men between the ages of 25 and 50 – who would normally be working – dropped out of the labour force, Green said, pointing to a Princeton University paper that posited one in six of them were taking opioids in any given week.
Meanwhile, in 2003, Canadian wage growth went on a tear for men and women, he said. “That’s about when the resource boom starts.”
Manufacturing jobs were disappearing in both the US and Canada, Green said.
The housing boom in the US kicked in with lots of construction jobs, he said. “And then, when you get the crash in 2009, it’s not just a regular cyclical downturn. It’s the bursting of the housing bubble and those construction jobs go away. And then it’s sort of like the problems that have been there, that have been accumulating since 2000, all become evident.”
That raises the question whether Canada is facing a similar scenario that was masked by the oil boom, Green said.
“If this is right, then we’re facing our day of reckoning some time in the not-too-distant future.”
In provinces with lots of oil, gas and mining, including Alberta, Saskatchewan and Newfoundland and Labrador, real wages for men rose by about 35 per cent between 1997 and 2015, he said.
“That’s a huge increase for men. For women, it’s actually a bit more. It’s actually closer to 40 per cent.”
While there was a lag in the Maritimes, wages also started going up here in 2004-05, Green said, noting some of that could be down to Maritimers commuting to the oil fields for work.
Mining, oil and gas accounts only accounts for about 1.5 per cent of Canadian employment, Green said. “It’s not huge.”
But as their numbers and pay packets swelled, that pushed up overall average wages.
“A typical worker taken out of an average job and put in the resource sector earns 30 per cent more.”
That spilled over into other types of jobs, Green argued.
“If I live in Edmonton where there’s a reasonable chance I can bump into a high-paying job in the oil field, then even if I’m not in the oil sector, even if I’m working in the food service sector, my threat to the employer is pretty credible. I can say, ‘Look, you pay me well or else I’m going to go look for a job and there’s a reasonable chance I’m going to find one in the oil sector where I’m going to be paid well. So you’ve got to pay me a decent wage.’ On the other hand, if I was living in Moncton, and the main outside option was call centres, then when I go to my employer and say, ‘You’ve got to pay me well or I’m going to go out and find another job,’ my employer’s going to laugh in my face.”
But for people in places like Cape Breton, once the oil boom started in Alberta, they had the option to move for a job or make the long commute for work, he said.
That threat spread oil patch wage increases across the country, Green said, noting pay packets grew by 17 per cent in the Maritimes between 2000 and 2012.
“The region of the country that sent the highest proportion of people to Alberta on an ongoing basis was Cape Breton,” he said.
“Six per cent of the workforce of Cape Breton in 2012 was commuting. Out of guys aged 22 to 34, (it was) 11 per cent. One in nine guys in Cape Breton were getting on a plane regularly to go job earning.”
Now that boom’s over, there’s reason for concern, Green said.
“In the same way that the end of the construction boom in the US took that safety net away, the…underlying fact that the manufacturing sector has collapsed is potentially going to come home to roost,” he said.