Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud.
Key takeaways
- The election of a fourth Liberal government has led to a surge of discontent in Alberta and fanned the flames of separatism in the province to a point where a referendum on the subject is becoming highly likely.
- Many have compared this post-election discontent to a child’s tantrum. However, like many political issues, the roots of Albertans’ grumpiness is linked to the economic underperformance of the province over the past decade. This is what makes the situation in Alberta more comparable to Brexit than to the sovereignty movement in Quebec.
- While Alberta remains the wealthiest province, its standard of living and household purchasing power has declined significantly over the past decade due to a severe recession and protracted recovery that followed the oil bust of 2014.
- Alberta’s GDP per capita is currently about 10% below its peak of 2014 and only marginally above its 2004 level. In other words, Alberta’s standard of living has not improved in two decades.
- Alberta’s household purchasing power has declined by about 13% since 2014, a significantly worse performance compared to an increase of 9% in BC, 7% in Quebec, and 5% in Ontario over the period. Household purchasing power in Alberta is at the same level it was in the mid-2000s.
- The decline in purchasing power has been widespread and cannot be solely attributed to oil workers. As such, we find that some of the biggest declines in real wages since 2014 are in information, culture and recreation, health care, education and other services; sectors unrelated to the oil and gas industry.
- Employment prospects also declined post-boom, with the unemployment rate persistently above its pre-bust level. Similarly, the employment rate has significantly underperformed the rest of the country. The details show that the decline in employment prospects has been more prominent for younger and older cohorts, especially men.
- The lower employment potential, declining purchasing power and lower standard of living in the post-boom era are fueling discontent in Alberta. The general feeling in the province is that no economic progress has been made and that Albertans are falling behind economically year after year.
- This situation is fueling resentment towards any policies or regulations that are perceived as holding back growth in Alberta. This is especially true since Alberta’s economic woes became more apparent as the Liberals came into power in late 2015.
- This sentiment is being exploited and amplified by some to gain or stay in power by blaming others for their economic malaise, while forgetting that many of these developments are instead the direct result of the oil bust of 2014 and a reduction in investment by oil and gas companies globally (see The Lost Decade(s): or how the oil boom masked Canada’s economic mediocrity).
- Nevertheless, the federal government is not completely without blame. Many regulations put forward in recent years were badly designed and often affect Alberta disproportionately.
- With all this in mind, the rest of the country should, to quote Ted Lasso, “be curious, not judgmental”. Most Albertans, having fallen behind economically, just want their concerns to be known by the rest of the country. Further dismissal of Albertans’ plight by the rest of the country only fuels more resentment, populism and support for separation.
Western alienation has a long history in Alberta, from the lack of lending to the province’s farmers in the 1930s, which gave birth to Alberta’s credit union system, to the National Energy Program in 1980, to what is currently viewed as an overly restrictive regulatory framework that stymies the oil and gas industry.
With this as a background, the election of a fourth Liberal government has led to a surge of discontent in Alberta and fanned the flames of separatism in the province to a point where a referendum on the subject is becoming highly likely. The reaction and dismay in other parts of Canada to the rising discontent in Alberta, often viewing it as a childish tantrum, suggests that the rest of the country is oblivious to Alberta’s situation.
As is often the case, the root cause of many political issues is, “It’s the economy, stupid”; this is what makes the situation in Alberta more comparable to Brexit than to the sovereignty movement in Quebec. As much as the Government of Alberta proclaims that the province is doing great economically, the truth is that it isn’t, and it hasn’t been doing well for the past decade.
Many Canadians in other provinces may look at Alberta with envy, being the richest province with a GDP per capita of about $72,600 in 2024, about 30% higher than the national figure. However, what is less known and appreciated is how Albertans have experienced a significant decline in their standard of living and household purchasing power after the oil bust of 2014.
The oil bust and the 2015-16 recession
The collapse of oil prices in the second half of 2014, which saw WTI decline from a high of $107 a barrel in June 2014 to $44.50 in January 2015, a drop of almost 60%, led to the end of the oil investment boom that began in the mid-2000s.
This oil price crash resulted in a collapse in capital expenditures in the oil and gas sector. In 2014, spending on capex by the oil and gas industry in Alberta reached a record of $58.1bn, representing more than 15% of Alberta’s GDP. By 2016, investment dropped by over half to $27.5bn and continued to decline until it bottomed out at $16.3bn during the pandemic. We estimate that the decline in oil and gas investment in 2015-2016 alone reduced growth in Alberta by about eight percentage points. In recent years, while investment in the sector has picked up to a certain extent, it remains more than 40% below the level seen in 2014.
As a result of this drop in investment in the oil and gas sector and the spillovers to the rest of the economy, Alberta’s GDP declined 7% from its 2014 peak. With this sharp economic contraction, employment peaked in early 2015 and declined by about 105k (5% of employment) over the next year and half, pushing the unemployment rate in the province to 8.9% from about 4.9%.
Even a decade later, the impact of the oil bust is still visible on Alberta’s labour market (more on this in a subsequent section). We estimate that there are about 85,000 fewer jobs in the broader oil and gas sector; this includes direct extraction and sectors associated with investment in the sector such as specialized construction, manufacturing, and professional, technical and scientific mainly engineers, geophysicists, geologists, etc.. In contrast, employment in Alberta has grown by about 280k since 2014.
As we have shown in Where’s the boom? And the rise and fall of the Alberta Advantage, Alberta’s prosperity has been directly linked to the investment cycle. The next sections explain how Alberta’s economic underperformance compared to the rest of the country has led to Albertans feeling left behind.
A protracted recovery and a decade of declining GDP per capita
The economic downturn that followed the oil price crash was severe, especially in terms of lost output. However, its severity can also be measured by the lengthy recovery that followed; it was only in 2022, 8 years later, that the level of economic activity in the province surpassed its 2014 peak.
Comparing Alberta’s economic recovery over the past decade, we note that the pace of its recovery was very similar to the experiences of several European countries post-global financial crisis as well as during the European sovereignty crisis of the early 2010s. As such, 10 years post-recession, Alberta’s economy has performed better than Italy, Spain and Portugal but fared worse than Ireland and Iceland. However, this shouldn’t be surprising given Alberta’s faster population growth at 1.9% annually on average; comparatively, there has been much more modest increases in Spain (0.4%), Italy (0.4%), and Portugal (-0.2%). Adjusting for population growth, Alberta’s recovering is more similar to that of Italy, trailing Ireland, Iceland, Portugal and Spain.
Relative to the rest of the country, Alberta’s GDP per capita has been persistently significantly above the national measure. However, it has been converging towards the national average in recent years, especially over the past decade. In 2000, Alberta’s GDP per capita was 46% above the national measure and, at the peak of the oil boom in 2014, it was 51%; currently, it is 30%.
The convergence between Alberta’s living standards and the rest of the country is due to a decline in its GDP per capita since 2014, while the rest of the country continued to grow. As a result, the province never recovered from the oil bust, with GDP per capita about 10% lower than its 2014 peak and only marginally above its 2004 level; in other words, Alberta’s living standards have not improved in two decades.
Declining household purchasing power
A consequence of the decline in GDP per capita over the past decade has been a decline in household purchasing power, as measured by household disposable income per person adjusted for inflation.
Similar to GDP per capita, the level of real household disposable per capita income has been persistently higher in Alberta than in the rest of the country over the past 25 years. However, there has been a significant convergence in recent years. Alberta’s purchasing power is now only 5% above the national measure; back in 2014, it was 25%. As such, Albertans no longer have the highest purchasing power in Canada; this title now belongs to British Columbians, with a purchasing power almost 15% above the rest of the country and about 10% above the average Albertan.
Since 2000, Alberta’s real disposable income per capita has increased by 21%; only Ontario has had a worse performance, at 18%. As a comparison, real disposable income per capita has increased 58% in Newfoundland, 53% in Saskatchewan, and 51% in BC. Most of Alberta’s weak performance over the period can be traced to a sharp decline since 2014. As such, Alberta’s purchasing power is currently 13% lower than it was in 2014 – the biggest decline of any other province over the same period. As a result, Albertan’s purchasing power is barely above where it was in the mid-2000s.
An important fact about the decline in Albertan’s purchasing power is that is not due to lower income for workers in the oil and gas industry and related sectors; instead, it has been broad-based. Examining average and median wages adjusted for inflation, most industries experienced a decline in real wages since 2014. Interestingly, the biggest declines are in information, culture and recreation, health care, education and other services; sectors that are not related to the oil and gas industry. Interestingly, real wages for workers in the mining and oil and gas sectors experienced minimal changes over the same period; this suggests that their purchasing power was unchanged over the period.
Lower employment prospect
The oil bust also had a relatively permanent impact on Alberta’s labour market. As such, the unemployment rate has been persistently higher since 2015. Similarly, the vacancy rate – the number of job openings relative to total employment – has been persistently below the national measure over this period, suggesting weaker labour demand in the province.
The unemployment rate in Alberta is about 2 percentage points higher now than back in 2014, compared to slightly lower for the rest of the country over the same period. However, looking into the details by age and sex, we find that the increase has been much bigger for the younger cohort, aged between 15 and 24 years old, where the unemployment rate in 5 percentage points higher; in contrast, while it is mostly unchanged in the rest of the country. Moreover, the deterioration in the unemployment rate over the period has been slightly worse for men that for women.
Similarly, the employment rate in Alberta, the share of the population in employment, has also declined since the oil bust of 2014 by about 5.5 percentage points compared to a more marginal 0.6 percentage points decline for the rest of the country. The details show that all cohorts of workers saw a lower employment rate over the period. However, the fall in the employment rate has been more severe for young men between the ages of 15 and 24 years old, and older men, aged 55 years old and over, with a drop of almost 10 percentage points for both groups.
Therefore, since the mid-2010s, Albertans, especially younger and older cohorts of workers, are less likely to be employed now than they were 10 years ago; this reduced likelihood of being employed is a drag on household purchasing power.
Albertans are falling behind, fueling discontent
The lower employment potential, declining purchasing power and lower standard of living in the post-boom era are fueling growing discontent in Alberta. Some would argue that Albertans have little to complain about since they remain amongst the wealthiest Canadians; however, while this is true when considering the level of GDP per capita and disposable income per person, the direction of the change matters to understand the growing sentiment in the province.
Households expect that their economic situation will improve with time and that any negative shocks to their standard of living will be temporary. However, after a decade of declining purchasing power, the general feeling in the province is that no economic progress has been made, and that Albertans are falling behind economically year after year.
This situation is fueling resentment towards any policies or regulations that are perceived as holding back growth in Alberta. This is especially true since Alberta’s economic woes became more apparent, as the Liberals came into power in late 2015. As result, the election of a fourth consecutive Liberal government is viewed negatively, as it is widely believed that Alberta’s economic decline will continue. With this view in mind, some Albertans are now questioning whether it makes economic sense for the province to remain a province of Canada.
This situation has many similarities to what we have seen south of the border over the past decade, where manufacturing workers who feel that the system has left them behind have been fueling the populist movement. A lack of understanding of the situation has only fueled more resentment. Remember Hillary Clinton’s comments regarding the “deplorables” during the 2016 US elections, which galvanized support for Donald Trump?
This sentiment is being exploited and amplified by some to gain or stay in power by blaming others for their economic malaise, while forgetting that many of these developments are instead the direct result of the oil bust of 2014 and a global reduction in investment by oil and gas companies globally (see The Lost Decade(s): or how the oil boom masked Canada’s economic mediocrity). Federal regulations may have played some role but are not the only reason for weak investment in the sector.
However, the federal government is not without blame. Many regulations put forward in recent years were badly designed and often affect Alberta disproportionately; the “Emissions Cap” and the “Clean electricity grid” regulations come to mind. The inherent flaws in these regulations make you wonder whether the federal government is doing it on purpose to harm Alberta.
Conclusion
With all this in mind, the rest of the country should, to quote Ted Lasso, “be curious, not judgmental”. Most Albertans, having fallen behind economically over the past decade, want their concerns to be known and acknowledged by the rest of the country. They want the rest of the country to understand that further dismissal of Albertans’ plight only fuels more resentment, populism and support for separation.
Most Albertans do not want to separate. Some understanding and empathy from their counterparts in other provinces could go a long way.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.