Alberta is well accustomed to boom and bust cycles, but when is a boom a bust?.According to economists at Alberta Central — the central banking facility and industry association for the province’s credit unions — that time is now..In a new report Chief Economist Charles St-Arnaud says the present oil boom actually amounts to a bust for ordinary Albertans as oil profits are siphoned off in the form of dividends and share backs despite record energy revenues..It amounts to one of the largest transfers of wealth in this province’s history..And it’s having a trickle-down effect as wages and purchasing power have lagged all Canadian provinces since at least 2019, he says in the report, titled Where’s the boom? And the rise and fall of the Alberta Advantage..“The ‘Alberta Advantage’ is melting away,” he wrote..Over the past two decades, there had been a clear relationship between increased oil investment in Alberta and faster wage and income growth compared to the rest of Canada, leading to what Ralph Klein so famously coined as the ‘Alberta Advantage’..But according to St-Arnaud’s analysis, real wage and incomes in Alberta declined 3.6% on average since 2019, while it increased by 3.3% nationwide over the same period. .Cumulatively, it amounts to an under-performance of more than 6%..In 2015, average wages for permanent workers were approximately 16% above the national average, while average weekly earnings, including overtime, were about 23% above. Currently, these two measures are only 4% and 7%, respectively, above the national average..“This divergence cannot be attributable to inflation, as inflation in Alberta has been mostly in line with the rest of the country,” he said..Although it can’t be pegged to any specific industry — preliminary findings suggest the situation is partly the result of strong migration to Alberta, which keeps the supply of workers higher than in other parts of the country — the root of the problem boils down to continued adjustment following the 2010s energy boom-bust..That’s because record levels of oil revenues in Alberta since mid-2021 are having a significantly smaller impact on the broader economy compared to previous cycles..Even though the provincial government raked in a record $28 billion in non-renewable resource revenue last year, the Alberta economy is not seeing an associated boom because a smaller share of revenues is staying in the province, St-Arnaud argues..Instead, a greater share is being returned to shareholders, most of whom are foreigners, and a smaller portion is going back in the ground to increase oil production. Specifically, he says oil producers are reinvesting 7% of revenues to compared to 25% back in 2014. .Weak re-investment since 2015 led to constant under performance, not just in the energy sector but also the broader economy relative to the rest of the country, leading to an erosion of Klein’s coveted advantaged status..“This pattern is not due to sectors linked to the oil industry; it is a broad-based relationship that holds across almost every industry or age cohort of the labour force.”.Moreover, the type of investment — primarily focused on efficiency gains and optimization of existing operations — has a lower economic multiplier than investment in new projects such as oil sands mines..That could also explain the wage and income under-performance which in turn led to a decline in Albertans’ purchasing power over the past few years, he added..Although St-Arnaud notes Alberta’s wages and income remain higher than in the rest of the country, the difference between the province and the rest of the country is gradually shrinking and, according to some measures, no longer exists and in fact could worsen as the province strives for net-zero by 2050. “Such an outcome could potentially change the narrative around the costs associated with reaching net zero to the potential benefits in the form of increased prosperity,” he wrote..Longer-term, the erosion of the Alberta Advantage has implications for not only Alberta itself, but the rest of the country..”The current weakness of investment in the oil and gas sector, despite record levels of revenue, should be a source of concern. It means that the current under-performance in wages and income growth in Alberta is likely to continue unless oil producers decide to reinvest a greater share of their revenues into their operations,” he said..“As a result, we should expect a continued gradual erosion of the Alberta Advantage, likely to a point where wages and other income measures could reach parity with the rest of the country.”
