Alberta’s Changing Industrial Structure: Implications for Output and Income Volatility
DOI :
https://doi.org/10.11575/sppp.v11i0.43286Résumé
The counterpart to the economic cycle is the policy cycle. Whenever there is a downturn in the Alberta economy because of slumping oil and gas prices, politicians of all persuasions, from Peter Lougheed to Rachel Notley, have called for policies to diversify the economy, on the assumption that expanding other sectors of the economy will insulate Alberta’s economy against volatile oil and gas prices.
However, just because a sector is not directly part of the oil and gas extraction sector, does not necessarily make it counter-cyclical. In fact, the sectors that have been promoted in the name of diversification are often linked to the oil and gas extraction sector and follow the same boom-bust cycle.In other words, the government’s attempts to subsidize certain sectors in the name of “diversification” do not insulate the provincial economy from fluctuations in oil and gas prices and may even exacerbate the economic cycle.
Missing in the discussion is an appreciation of how changes in the structure of the Alberta economy have affected output and income volatility. In the last 20 years, sectoral output shares have become more diversified in Alberta, and this has contributed to a 21 per cent reduction in aggregate output volatility over that period. Successive governments have tried promoting manufacturing as a way to diversify the economy, but manufacturing is the third most volatile sector, and its volatility is linked closely with the boom-bust cycles of the oil and gas extraction sector. So, increasing manufacturing, including petrochemical manufacturing, will actually make output volatility worse, not better. In fact, a one standard deviation increase in average per capita output in the oil and gas extraction sector is associated with in a 9.45-per cent increase in average per capita output in the chemical manufacturing subsector, suggesting the same boom-and-bust relationship between the two sectors. It is not the only sector like that: 16 other sectors in Alberta are linked to the same boom-bust cycle as the oil and gas sector.
The more important diversification issue in the province is not output volatility, but the volatility of labour income. In the last 20 years, labour income has become increasingly concentrated in Alberta’s two most volatile sectors, oil and gas extraction and construction. As a result, volatility of aggregate labour income in Alberta increased by 40 per cent during that period. Rather than trying to change Alberta’s industrial mix by subsidizing industries that may only contribute to more volatility of economic output, a more sensible government approach would be to adopt policies that address the problem of labourincome volatility. That would include finding ways to expand unemployment insurance for Alberta workers, as the current federal government policy actually provides fewer supports to unemployed Albertans than it does to residents of other regions.
Average weekly earnings of Albertans were 20 per cent higher than national average weekly earnings over the 2012 to 2016 period. However, maximum annual insurable earnings under EI are determined based on national average weekly earnings. Higherwage earners should have the opportunity to enrol in a voluntary supplemental EI program, and if the federal government does not want to provide it, the provincial government could. Additionally, the government can promote self-insurance among workers by expanding tax-sheltered savings products, like tax-free savings accounts, so workers can accumulate back-up funds when labour incomes are high, to help sustain them during downturns. Finally, the provincial government needs to abandon its procyclical spending patterns. That means spending less money when oil revenues are high, to avoid exacerbating labour and material shortages, and maintaining spending, rather than forced cutbacks, during downturns in the economy. That, of course, would require a great deal more political discipline than the easier and more fashionable attempts to subsidize output diversification.
Références
Caselli, Francesco, Miklos Koren, Milan Lisicky, and Silvana Tenreyro. 2015. “Diversification Through
Trade.” Centre for Economic Performance Discussion Paper 1388.
Dahlby, Bev. 1981. “Adverse Selection and Pareto Improvement Through Compulsory Insurance.” Public
Choice 37: 547-558.
Dahlby, Bev, Kathleen Macaspac, and Melville McMillan. 2013. “Output Instability in Resource-Based
and Diversified Economies.” In Boom and Bust Again: Policy Challenges for a Commodity-Based
Economy, edited by David L. Ryan (Edmonton: The University of Alberta Press), 59-103.
Gilchrist, Donald A., and Larry V. St. Louis. 1991. “Directions for Diversification with an Application to
Saskatchewan.” Journal of Regional Science 31: 273-89.
Henton, Darcy. 2015. “Premier Recasts Economic Advisory Council to Diversify Economy.” Calgary
Herald. [Cited September 2, 2016]. Available from http://calgaryherald.com/news/politics/notleycreates-advisory-panel-to-advise-her-on-diversifying-albertas-economy.
International Monetary Fund. 2016. “Economic Diversification in Oil-Exporting Arab Countries.”
Report prepared for the Annual Meeting of Arab Ministers of Finance, Manama, Bahrain.
Kneebone, Ronald. 2008. “National Stabilization Policy and its Implications for Western Canada.”
In Going for Gold: The Western Canadian Economy in the International Arena (Calgary: Canada
West Foundation).
Kneebone, Ronald, and Kenneth McKenzie. 1997. “Stabilizing Features of Fiscal Policy in Canada.”
Paper prepared for the Conference on Fiscal Targets and Economic Growth, Kingston, Ontario.
Mansell, Robert L., and Michael B. Percy. 1990. Strength in Adversity: A Study of the Alberta Economy
(Edmonton: University of Alberta Press).
Morton, Ted, and Meredith McDonald. 2015. “The Siren Song of Economic Diversification: Alberta’s
Legacy of Loss.” The School of Public Policy SPP Research Papers 8(13).
Newberry, David M. G., and Joseph E. Stiglitz. 1984. “Pareto Inferior Trade.” Review of Economic
Studies 51: 1-12.
Resource Diversification Council. 2016. “Energy, Business and Labor Leaders Form New Council to
Expand Alberta’s Access to World Markets and Create Investment and Jobs in Alberta.” Press
Release. [Cited September 8, 2016]. Available from http://diversification.org/documents/PressRelease-RDC-Launch-March16-Final-pdf-final-2.pdf.
Tombe, Trevor. 2015. “Better Off Dead: ‘Value Added’ in Economic Policy Debates.” The School of
Public Policy SPP Research Papers 8(9).
Téléchargements
Publié-e
Numéro
Rubrique
Licence
The following is the copyright statement of SPPP.
Copyright © <Author name> <year>. This is an open-access paper distributed under the terms of the Creative Commons license CC BY-NC 4.0, which allows non-commercial sharing and redistribution so long as the original author and publisher are credited.
Publication Copyright and Licensing
The following guidelines and information, provided in six sections, are intended for authors (the “Author”) who are invited to write a paper (the “Work”) for The School of Public Policy Publications (the “Publisher”). The rights and responsibilities conveyed in the SPP Author Agreement will only apply once your paper is accepted for publication. At that point in the publication process, you will be asked to download the form and return a signed copy via e-mail to spppublications@ucalgary.ca. Please review the below information to ensure agreement with SPPP policies.
Section 1: Author’s Grant of Rights
In consideration of the Publisher’s agreeing to publish the Work in The School of Public Policy Publications, the Author hereby grants to the Publisher the following:
1.1 The irrevocable, royalty-free right to publish, reproduce, publicly display, publicly perform and distribute the Work in perpetuity throughout the world in all means of expression by any method or media now known or hereafter developed, including electronic format;
1.2 The irrevocable, royalty-free right to use the Author’s name and likeness in association with the Work in published form and in advertising and promotional materials related to the Work; and
1.3 The irrevocable, royalty-free right to license others to do any or all of the above.
Section 2: Prior Publication & Publication by Others
2.1 The Author agrees not to publish the Work, or authorize any third party to publish the Work, either in print or electronically, prior to publication of the Work by the Publisher.
2.2 The Author agrees not to publish the Work in any publication outlet which is substantially similar to The School of Public Policy Publications for a period of six (6) months after publication of the Work in The School of Public Policy Publications. Substantially similar is defined as a non-subscription, open-access publication outlet with a similar mandate/vision and intended audience.
2.3 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to contact The School of Public Policy Publications to inform them of the subsequent publication.
2.4 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to make reasonable efforts to ensure that any such additional publication cites the publication in The School of Public Policy Publications by author, title, and publisher, through a tagline, author bibliography, or similar means. A sample acknowledgement would be:
“Reprinted with permission from the author. Originally published in the The School of Public Policy Publications, http://www.policyschool.ca/publications/.”
Section 3: Editing and Formatting
The Author authorizes the Publisher to edit the Work and to make such modifications as are technically necessary or desirable to exercise the rights in Section 1 in differing media and formats. The Publisher will make no material modification to the content of the Work without the Author’s consent.
Section 4: Author’s Ownership of Copyright and Reservation of Rights
4.1 Nothing in this agreement constitutes a transfer of the copyright by the Author, and the copyright in the Work is subject to the rights granted by this agreement.
4.2 The Author retains the following rights, including but not limited to, the right:
4.2.1 To reproduce and distribute the Work, and to authorize others to reproduce and distribute the Work, in any format;
4.2.2 To post a version of the Work in an institutional repository or the Author’s personal or departmental web page so long as The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.2.3 To include the Work, in whole or in part, in another work, subject to Section 2 above and provided that The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.3 The Editors and Editorial Board of The School of Public Policy Publications requires authors to publish the Work under a Creative Commons Attribution-NonCommercial 4.0 International licence (CC BY-NC 4.0). This license allows others to distribute, remix, tweak, and build upon the Work for noncommercial purposes, and ensures the Author is credited for the original creation. This onward licensing is subject to section 2.4 of this agreement, which further ensures that the original publisher is credited.
Section 5: Author’s Warranties and Undertakings
The Author warrants that:
5.1 The Author is the sole author of the Work, or if a joint author, the Author has identified within the Work the other authors, and holds the copyright, either solely or jointly, and has the power to convey the rights granted in this agreement.
5.2 The Work has not previously been published, in whole or in part, except as follows:
5.3 Any textual, graphic or multimedia material included in the Work that is the property or work of another is either explicitly identified by source and cited in the Work or is otherwise identified as follows:
5.4 To the best of the Author’s knowledge, the Work does not contain matter that is obscene, libelous, or defamatory; it does not violate another’s civil right, right of privacy, right of publicity, or other legal right; and it is otherwise not unlawful.
5.5 To the best of the Author’s knowledge, the Work does not infringe the copyright or other intellectual property or literary rights of another.
5.6 The Author will indemnify and hold Publisher harmless against loss, damages, expenses, awards, and judgments arising from breach of any such warranties.
Section 6: The Reuse of Third-Party Works
The Publisher requires that the Author determine, prior to publication, whether it is necessary to obtain permissions from any third party who holds rights with respect to any photographs, illustrations, drawings, text, or any other material (“third-party work”) to be published with or in connection with your Work. Copyright permission will not be necessary if the use is determined to be fair dealing, if the work is in the public domain, or if the rights-holder has granted a Creative Commons or other licence. If either the Author or Publisher determines for any reason that permission is required to include any thirdparty work, the Author will obtain written permission from the rightsholder.
