Provincial Governments Risk Slowing Employment Growth In Canada

Job creation in Canada reached 310K in 2012, its strongest showing since 2007. At first glance, the private sector seems to have played a dominant role in this regard as nearly 80% of the job gains were privately paid.

However, a big chunk of the private job creation occurred in the health sector which depends heavily on public financing. By lumping together jobs in the education, health and public administration sectors into one category (i.e. public jobs), the latter represents 49% of the jobs created in Canada in 2012, which is more than double the sector’s weight in terms of employment in the economy.

Thus, the sectors of education and health, both under provincial jurisdiction, played an essential role in job creation in 2012. However, in our opinion, this source of growth will dry up in 2013. Nominal economic growth in the country has been well below expectations and commodity prices have been weakening.

Those factors throw a wrench in provinces' plans to achieve balance budget status. Consequently, the concurrent actions of numerous provinces aimed at curtailing growth in spending will likely result in job creation being considerably more modest this year.

Solid performance by employment in 2012
Against all expectations, the labour market in Canada closed 2012 on a good note. Its performance stood in stark contrast with the anemic economic growth observed in the second half of the year. The 310K jobs created in 2012 were the most recorded in a year since 2007 (Chart 1), and what’s more, according to official data, nearly 80% of these jobs stemmed from the private sector. With the exception of the rebound observed following the recession in 2010, private-sector jobs in 2012 apparently registered their sharpest increase since 2006. This recent vigour in private-sector employment is surprising as Canadian corporate earnings were down from a year earlie,r and business investment sputtered along in the second half of the year. That said, if we include self-employment (on the decline in 2012) as private sector jobs, the picture is less rosy. Indeed, while non-public-sector jobs represented 79% of the jobs in the economy, they accounted for only 69% of the job gains.

To evaluate the job momentum in the private sector, economists sometimes use data per sector of activity and deduct the sectors of education, health care and social services (referred to simply as “health sector”) and public administration from total employment. Statistics Canada conveniently bundles these sectors
under the heading “public sector”2 when reporting GDP data. If we do the same for the employment data for 2012, we note that more than half (169K) of the 310K jobs created in 2012 derived from the health and education sectors alone, that is, two sectors closely tied to the governments in Canada (Chart 2). Such contribution is nearly twice the average of the past 10 years for the two combined. The disproportion grows even worse if we consider solely the education sector, which posted an increase more than three times its average.

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