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The Impact of Lower Earnings in Alberta on Earnings Growth at the National Level Economic Insights
The Impact of Lower Earnings in Alberta on Earnings Growth at the National Level

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by Andrew Fields, Labour Statistics Division
and Guy Gellatly, Analytical Studies Branch

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Overview

Payroll employment and average earnings in Alberta have trended downward since early 2015 as labour market conditions in the province adjusted to lower oil prices. From January 2015 to June 2016, payroll employment in Alberta declined by 105,500 (-5.1%) with notable job losses in natural resources, construction and manufacturing. The change in average weekly earnings in Alberta, measured year-over-year, has been negative since June 2015 with widespread declines across industrial sectors. A combination of earnings and employment reductions in two high-wage sectors—mining, quarrying, and oil and gas extraction; and professional, scientific and technical services—have contributed most notably to lower average earnings in the province. 

Lower average earnings in Alberta have coincided with slower average earnings growth at the national level (Chart 1). For Canada as a whole, the pace of earnings growth moderated throughout 2015. During that year, average annual earnings growth slowed to 1.8%, down from 2.6% in 2014. Earnings growth continued to moderate during the first half of 2016, averaging 0.4% from January to June.

In Alberta, payroll earnings continued to decline year-over-year into 2016, down 3.3% on average during the first six months of the year. The recent declines in Alberta and the slower pace of earnings growth for Canada as a whole have exceeded the lows observed in the 2008-2009 recession.

Lower average earnings in Alberta

Changes in earnings can reflect a variety of factors, including wage growth, changes in the composition of employment by industry, occupation and level of job experience, as well as changes in average hours worked per week. In January 2016, average payroll earnings in Alberta, measured year-over-year, fell 4.8%, the largest 12-month decline since year-over-year earnings in the province began to decline outright in mid-2015.

Chart 2 highlights how different sectors contributed to the 4.8% decline (see the Note to readers). The relative impact of different sectors depends, in the first instance, on the extent to which wages and employment within specific sectors are changing. However, these estimated impacts also reflect changes in the overall composition of employment, either towards or away from high-earning sectors. Sizable employment losses in high-earning sectors, regardless of whether or not wage rates in these sectors are changing, can push average earnings lower. Employment gains in sectors with lower earnings can have a similar effect.

In January 2016, average weekly earnings in Alberta were $1,115, about 17% higher than the national average.  About one quarter of paid employment in Alberta is in resource extraction, manufacturing, construction, and professional, scientific and technical services—sectors where average earnings are higher than the Alberta average. These three sectors experienced the largest decline in employment between January 2015 and January 2016.

Employment in mining, quarrying, and oil and gas extraction fell 25,400 (-19.4%) during the 12 months to January 2016, while average earnings in this sector declined 3.3%. Relative to other sectors, these losses in resource extraction had the largest downward impact on average earnings in Alberta, accounting for about one-third of the overall decline.    

Lower employment in professional, scientific and technical services (-10,600 or -8.1% year-over-year), combined with lower earnings (-7.9%) also contributed substantially to lower average earnings in the province. Employment losses in wholesale trade (-5,000 or -4.7%) and construction (-21,200 or -9.8%), both relatively high-wage sectors, also had a negative impact.

Payroll employment in health care and social assistance and educational services increased in the twelve months to January 2016 (+5,300 and +4,100). As earnings in both sectors are below the provincial average, a combination of higher employment and lower wages in these sectors also contributed to lower average earnings in the province. Much of the decline in average earnings in Alberta is attributable to a compositional shift, in which a larger proportion of those employed are working in lower-earning sectors.

The relative importance of these contributions depends on the 12-month reference period examined. However, the general pattern noted above—with large downward contributions from resource extraction and professional, scientific and technical services—is similar, since year-over-year earnings in Alberta began to decline in mid-2015.

The impact of Alberta on average Canadian earnings

Since early 2015, earnings growth for Canada as a whole has trended downward. Average weekly earnings at the national level slowed to 0.1% year-over-year in the 12 months to January 2016, while earnings in Alberta declined 4.8%. Chart 3 examines the relative impact that changes in average earnings in different provinces had on earnings growth for Canada as a whole during that period.   

Lower earnings in Alberta (-4.8%), measured year-over-year, reduced overall average earnings in Canada by about 0.9 percentage points in January. During this period, higher average weekly earnings in Ontario (+1.4%) and Quebec (+1.8%) helped offset the impact of lower wages in Alberta. While the direction and magnitude of these contributions vary from month to month, qualitatively large downward contributions from Alberta are a persistent feature of recent earnings data. 

Chart 4 presents these contributions over time for Alberta and Ontario. From 2012 to 2014, the overall impact of Alberta on earnings growth at the national level had been similar to that of Ontario, despite having one-third the number of employees. During this period, average earnings for Canada as whole grew at an average pace of 2.3% year-over-year. Higher earnings in Alberta contributed, on average, about 0.7 percentage points to the national growth rate, about one-quarter of the overall change for Canada as a whole. Since early 2015, lower earnings in Alberta have had a measurable impact on slowing the pace of average earnings growth at the national level.

Summary

The recent trend towards lower earnings in Alberta reflected large compositional changes within the province’s labour force.  Reduced earnings and employment in resource extraction industries and in professional, scientific and technical services, both high-earning sectors, have contributed substantially to overall earnings declines in Alberta and to slower earnings growth for Canada as a whole.