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Introduction
In the 21st century, two facts will pose significant threats to the global economy. One, the demand for energy across the globe will grow by at least 50 percent by 2030, and the use of non-renewable energy sources will continue to be the main source of energy, supplying 86 percent of global demand. Alberta, Canada is in a prime position to capture a major part of the global energy demand market. Located in the western part of Canada, Alberta is second only to Saudi Arabia in identified energy reserves among the global market players.
Majority of Alberta’s reserves are located in the oil sands region in the province. For more than three decades, the Alberta government has aggressively pushed for the development of the oil sands industry. With key investments and relevant policy decisions, Alberta had contributed to the generation of significant economic gains not only for the province but for Canada as well. In turn, the industry is helping contribute to the energy security concern in North America and is slowly gaining a niche in the global energy and oil markets (Alberta Environment and Sustainable Resource Development 2, 12).
Over the past 50 years, the energy industry has been a critical industry in the development and progress of Alberta. Though the significant capital outlays and operating expenses related to financing, producing and refining the oil and gas in the province have positively impacted Alberta’s economy, the indirect and effected impacts of the industry cannot be overlooked. The development and growth of other industries that supply materials and other inputs for the energy industry, the production of significant government and fiscal earrings, and the trigger for large capital in pouring have produced “multiplier effects.”
In addition, these factors have played a critical role in molding the character of the province’s labor force. The labor market in Alberta is defined by a highly educated, adaptable and innovative work force, low employment lethargy, and high levels of employee and worker participation, resilient work ethics, self sufficiency, and a positive outlook (Mansell, Schlenker, 1).
Literature Review
The history of “booms and busts” with the attending labor crises in the workforce has generated serious concern regarding the availability of laborers for extending the resources sector and the collective economy. In addition to a number of studies tackling the issue of workers and extending the energy resource sector, a number of private entities, such as the Petroleum Sector Human Resources Council of Canada and the Construction Sector Council of Canada, have in recent years conducted research activities on the subject of possible and prevailing labor shortages for skilled workers in a number of industries.
In the context of the “neoclassical economic theory,” a “positive labor demand shock” will generate in an increase in the quantity as well as the cost of labor in terms of employment and in rates of compensation. This is a result of the upward movement of the “negatively-sloped labor demand curve” beside a “positively-sloped labor supply curve.” A number of episodes of labor demand shocks have been recorded in “empirical economics” data. To cite examples, in the time of the California Gold Rush in the latter stages of the 1840s to the middle of the 1850s, common workers experienced a large upswing in their wages. A more contemporary shock was during the construction of the Trans-Alaska Pipeline System in the 1970s; the construction of the facility resulted in a large increase in the wages and human resources deployment towards the construction sector; the boom also directed significant manpower resources to other related and parallel industries.
A favorable energy price swing resulting in a powerful shift in the market for labor has also been recorded for localities that are abundant in energy stores in the Western Canadian regions in the time frame over the last “boom-bust cycles.” The raises in job figures and compensation in Western Canada as a result of the energy jumps are similar to other instances in the past episodes of labor demand shocks.
The collective effect in the areas of wages and employment over the course of the two prosperity cycles was found to be most evident in the sectors that are directly impacted-the energy and oil extraction industries-while there was noticeable in the same statistics in other sectors, specifically in the construction, services, and retail trade. Majority of these localities that were positively affected by the positive growth in the energy sector were found in Alberta. However, these demand “jolts” for labor as a result of a rise in energy prices can develop transient shortages in labor, if the number of workers that are in demand remains in excess of the supply of workers, even though there is a high compensation rate.
Nevertheless, given that energy booms are traditionally followed by energy sector downturns, which in theory would drive wages and employment opportunities down to the level of equilibrium, these labor deficits tend to be short-lived. Even in instances when where energy sector downturns will not result in a adverse labor demand statistic, job generation and employment as well as compensation figures will still be able to adopt to the new stable level in due time, removing any previous deficit in the market. In the study of the Alberta Human Resources and Employment (2006), the agency painted a grim picture on the question on whether there is a shortage of laborers in Alberta.
In the agency’s report, there will be a deficit of 22,000 workers in 2012. This figure will steadily rise to 70,000 in 2018, and by 2021, Alberta will have a deficit of more than 114,000 workers. These figures were aggressively contested by the Alberta Federation of Labor stating that though it acknowledges that there will be a labor shortage in the work force, the shortage is not as large as being portrayed in the report.
Given that there is a great deal of speculation with the figures by the two organizations, it would be beneficial to examine the previous incidents, namely the 1990s to 2000s energy spikes to gage an accurate position for future energy movements. In the early part of the 1990s, energy prices were secure, which can be regarded as a period of stagnation. By the middle of the 1990s to the middle portion of 2000s, the prices for energy began to rise, which was characterized by spikes in the prices of these commodities (Marchand, Song 11).
Though the national unemployment rate never dropped below 6 percent in the course of the two decade study, the unemployment rate for Alberta registered at 3.4 percent. In the period of the energy sector boom market, the difference between the unemployment rates in Alberta and for Canada grew wider, from a mere one percent in the middle of the 1990s to more than 3 percent by the mid-2000s. Lastly, as prices for energy sources such as oil and natural gas rose during the boom cycle, unemployment rates for Alberta and Canada decreased (University of Alberta Department of Economics-Institute for Public Economics 12).
Referring to literature more directed at the energy sector, the boom in the coal industry during the 1970s increased the number of workers and wage rates to the American mining sector in the Appalachian region and was accompanied by “spill-over effects” to other sectors not directly related to the mining or other energy sectors. The recent boom in natural gas from sandstone and shale resources in the latter part of the 1990s and the 2000s resulted in conservative raises in wages and human resource deployment in manufacturing areas (Marchand, Song 11).
Alberta’s energy industry is a divergent and complicated industry with a wide number of sub-categories. This diversity, coupled with the sector’s significant degree of reliance on other components of the economy, makes defining the industry somewhat difficult to define. In the work of Alberta’s energy sector stakeholders, the workforce in Alberta can be classified in terms of industry participation; these are in the sectors of exploration and production of oil, both for conventional and alternative modes of oil, coal mining, generation of electrical power, and those in the oil and gas pipeline industries.
Alberta’s energy industry is regarded as the main driver of the province’s economy. The energy sector, in 2005, contributed more than 28 percent to the Gross Domestic Product of the province, or more than $59 billion. In recent years, increasing levels of capital allotments has been fueling the growth of the province. A healthy and resilient Alberta economy has positive effects for other sectors as well (See Figure 1).
The rise in investments as well as operating expenses for the energy industry will translate to an increase in demand for other manufactures and services; this in turn will result in an increase in employment for other industries in the province. It can be stated that for every job made in the oil and gas extraction industry, four or more jobs are developed in the other sectors in the local job market and economy (Government of Alberta 4-5).
With no oil pipeline facility for the North American production area, there is no support service even though there is a projected increase in production capacity is pressuring producers in the Alberta region to accept large price discounts in relation to global pricing standards. This possibility must not be set aside easily.
Energy products account for 70 percent for Alberta’s exports and majority of the capital investments in the province are sunk in the energy sector. Though feeble oil prices may contribute to the delay or even the loss of a number of energy sector-related projects, existing and proposed energy projects are seen to be able to adequately cover the needs to extend the current production rates in the Alberta tar sands area. In the data of the province’s Ministry of Enterprise and Advanced Education, there are more than 60 oil sands initiatives being pursued valued at more than $100 billion (Canada-Employment and Social Development 1).
However, the economic performance of Alberta’s and the Canadian economy on the whole does not match well with the statistics in other oil and gas producing areas in North America. For example, the performance of the sector pales in comparison with the statistics being evidenced by areas such as North Dakota and Wyoming. In terms of tangible GDP growth and actual GDP growth on a per capita basis, North Dakota leads this category among the three. North Dakota progressed from having the 3rd lowest growth in terms of per capita GDP growth to the 3rd highest GDP growth level per capita.
However, Alberta has been a job generating dynamo with an average 2.6 percent growth rate in collective employment rates, 70 percent higher than Texas ranked behind the province. Part of the gains in the labor is seen in the significant gains in employment figures in the private sector. On the whole, Alberta’s work force raised an average of 2.8 percent from 2001 to 2012. In addition, Alberta’s public sector employment statistics also rose on the average of 2.9 percent, slightly higher than the private sector figures.
The average unemployment rate and the province’s worker to population age ratio are both indicative of the resilient labor force in Alberta. In summary, though Alberta was laden with an extraordinarily stable economy over the last 10 years, the province’s policy-makers must be concerned with the economic progress was the result of getting more inputs and not due to enhancing production levels (Di Matteo, Clemens, Emes 4).
Overall, the overall Canadian economy struggled for the 1st quarter of 2014. This was due to the prevailing weaknesses in export figures, strategic capital funding and factors in the labor force. In December, the Canadian economy shrunk by half a percentage point that resulted in lowered growth figures for the previous quarter; this contraction was remedied by a random gain of 0.5 in the succeeding quarter.
On the average, prices of North American crude oil, measured by the West Texas Intermediate benchmark, have been steady; prices that hovered over $100 per barrel have mainly been due to political tensions in the Crimean region and the possible supply interruptions to the considerable oil supply of Russia for the global market. Even with these factors, the Alberta economy remains relatively in the black, with the development of the oil sands project showing no signs of slowing down or being abandoned (ATB Financial Economics and Research Group 3).
Though the average price in Canada has remained relatively unchanged over the past years, sufficient to provide adequate funding for the operation of Alberta’s oil sands industry, the drastic price fluctuations generate an erratic business environment. The ambiguous pricing regime further contributes to the difficulty for Alberta government policy makers to predict revenue and strategize for current operating and plan future expenses (Rose, Tanerguclu 12).
Methodology
Predicting labor market shortages, or “occupational modeling,” traditionally generates models for demand and supply of labor resources to forecast whether there will be a demand or shortage in the labor market. Occupational structures generate predictions for a two to 10 year time frame. Analysts traditionally augment their results with short term forecasts from one to two years for the time frame, and these often use employer polls or other short-term data sources. The HRSDC runs the Canadian Occupational Projection System (COPS). The agency forecasts the demand and supply for labor segregated by skill set and by occupation over a decade long time frame for Canada, but not for specific provinces.
Though the structuring activities of sectoral entities inclusive of the Petroleum Human Resources Council of Canada (PHRCC), the Construction Sector Council (CSC), as well as the private sector are factored in, the result of these studies is that the province of Alberta is leading other provinces in developing and utilizing labor market data, though British Columbia and Saskatchewan are aggressively increasing their activities in this area.
The Alberta provincial government operates a well-referenced “occupational supply and demand model” that releases 10 year forecasts for supply, demand and labor market deficiencies on a biennial basis. In the Alberta’s Occupational Demand and Supply Outlook, 2011-2021, the notification characterizes the structure, input hypothesis and results of the Alberta Occupational Supply Outlook Model (AOSOM), and the Alberta Occupational Outlook Model (AODOM), generating forecasts for 129 positions at the 3-digit NOC stage, and 280 positions at the 4-digit NOC stage.
Among the conclusions the models evidenced that Alberta will face a shortage of more than 114, 000 workers over the next ten years. In supplement to the Occupational Demand and Supply Outlook, Enterprise and Advanced Education displays a “short-term employment forecasting tool” for the years 2011-2013, occupational demand forecasts for eight economic jurisdictions, and a diverse number of labor market commodities (University of Alberta 26-27).
Conclusion
Basing on the results of the various models examining the issue, the Alberta work force market is tightening and a number of occupations will experience deficits in supply which will force employers to look beyond Alberta’s borders to fill the projected gap in workers. To deal with the possible deficits of labor in the province, analysts use a clear-cut methodology by comparing the prime deficit predictions by Alberta’s Short-Term Employment Forecast Tool (STEF) to the main collective deficits given by the Occupational Demand and Supply Outlook for the years 2011 to 2021.
Identifying locations that will become a supply base for workers, particularly overseas sources, is where making predictions for the labor market becomes complicated; current models factor in most of the elements on the supply side of the transaction, including the use of “mobility patterns” to help migration on an interprovincial and overseas migration. However, when the models are turned to identify possible new markets and how migrants will be able to assimilate into Alberta’s work force, the models begin to fail. There is no store of information that will bridge deficits and surpluses at the global level, and structures do not forecast areas where employers can source additional manpower resources to meet manpower requirements in the oil sands areas (University of Alberta 33-36).
Alberta’s overall economy will continue to enjoy steady levels of growth and is expected to continue to outpace the national economy. Though there are still threats in the areas of prices and discounts in the energy sector, the industry will continue to experience acceptable price systems, with investments in traditional and alternative energy sectors will remain resilient and steady. With the growth of the oil sands industry, the provincial migration into Alberta is seen to continue, which will positively impact other sectors in the economy of Alberta (ATB 8).
Works Cited
ATB Financial Economics and Research Group. “Alberta economic outlook Q2 2014.” <https://www.atb.com/SiteCollectionDocuments/About/Alberta-Economic-Outlook-Q2-2014.pdf
Di Matteo, Livio, Clemens, Jason, Emes, Joel. “An economic and fiscal comparison of Alberta and other North American energy producing provinces and states.” <http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/economic-and-fiscal-comparison-of-alberta-and-other-north-american-energy-producing-provinces-and-states.pdf
Mansell, Robert L., Schlenker, Ron. “Energy and the Alberta economy: past and future impacts and implications.” 2006 Paper no. 1 Alberta Energy Futures Project
Marchand, Joseph, and Tao Song “Alberta labor in the previous energy boom” <http://www.ipe.ualberta.ca/en/~/media/ipe/LabourShortages/LabourShortagesFinalforWebv2July17.pdf
Government of Alberta. “Alberta’s oil sands.” <http://environment.gov.ab.ca/info/library/7925.pdf
Government of Alberta. “A workforce strategy for Alberta’s energy sector.” <http://work.alberta.ca/documents/workforce-strategy-energy-sector.pdf
Government of Canada Employment and Social Development. “Environmental scan-Alberta.” <http://www.esdc.gc.ca/eng/jobs/lmi/publications/e-scan/ab/mar2013.shtml
Rose, John, Tanerguclu, Hande. “Long-term economic outlook: 2014-2024.” <http://www.edmonton.ca/business_economy/documents/Edmonton_Economic_Outlook_2014-2024_spring2014.pdf
Figure 1
Figure 1: Statistics Canada Economic Accounts (2013).
