Where are the private sector jobs in B.C.?

In April, the total number of people working in B.C. inched ahead by just 2,000, following no job gains the previous month. Over the past year, monthly job creation has weakened and annual job growth has decelerated from 4.5% last April to a subpar 1.3% in April 2023. The reason for the slowing is that job creation across much of the provincial private sector economy has completely flatlined. In fact, B.C. stands apart from other provinces in this regard – a situation that doesn’t bode well for household income growth and per capita prosperity in the coming months.

The number of private sector employees in B.C. rose and fell over the past year; last month, it stood roughly 6,000 lower than in April 2022. This is despite ongoing population growth fueled by record levels of international in-migration.

In sharp contrast, over the same period, public sector payrolls in B.C. swelled by 5.4%. The jump in public sector hiring is the only reason overall employment crept higher over the past year.[1]

Figure 1

As interest rates rose and the global economy lost momentum, job creation in B.C. was expected to slow. This is exactly what the Bank of Canada has been seeking to engineer with its serial policy rate increases – to dampen economic and employment growth to bring inflation back into the central bank’s 1-3% target range. The policy has achieved a measure of success on that count. Over the past year in the rest of Canada, Y/Y private sector employment growth dipped from more than 6% to about 3%. In B.C., private sector job growth was also running near 6% in April 2022. However, as noted above, the number of private sector jobs is now below year-ago levels. While higher interest rates appear to be cooling labour demand across the country, B.C. is the only province where private sector employment has contracted in the last 12 months.

Figure 2

The robust expansion in public sector payrolls also sets B.C. apart. In the rest of Canada, the number of public sector employees in April 2023 was 1.5% higher than a year earlier, an increase broadly in line with historic averages and below the contemporaneous growth in private sector jobs. The picture in B.C. is different. Here, public sector payrolls expanded by a hefty 5.4% over the past year. This is four times faster than the typical pace and almost four times more than the rate of public sector job creation in the rest of Canada![2]

Zero net private sector job creation and weak overall employment growth has resulted in B.C.’s unemployment rate edging higher over the past 12 months. Here too, B.C. stands out as the only province where the unemployment rate has risen since April 2022.

Figure 3

Why is employment growth so tepid in B.C.?

One reason why private sector employment in B.C. has slipped is steep job losses in manufacturing (down 11.4% Y/Y as of April 2023). While cyclical factors explain some of the industry-wide decline, a high-profile example of the broader weakness in the manufacturing sector is the wood products manufacturing segment. Not only have North American housing starts and lumber prices slumped in the last year or more, but policy changes implemented in B.C. have significantly reduced the number of trees available for harvesting and processing, leading to multiple lumber mill closures and sizable job losses (affecting both lumber manufacturing and logging). Net employment gains in other B.C. goods-producing industries (construction, mining, oil and gas, agriculture) have been more than offset by the disappearance of 20,000 manufacturing jobs – with the forest sector accounting for a large share of these.

Across all service-producing industries, B.C. has seen no net increase in private sector employment over the past year. Job gains in accommodation and food services and private sector education were offset by losses in private sector health care and professional services.

Many readers may be thinking that even if public sector employment has grown at a super-charged and clearly unsustainable pace, this is understandable given B.C.’s well-publicized health care problems and the policy priority of reinvesting in a creaking health care system. Yet the estimates from Statistics Canada show the number of health care employees in the public sector is down by 3.7% since April 2022. Industry level employment estimates should be interpreted carefully, and the aggregate figure just cited provides no insight into the composition of the 160,000 employees in public sector health care in British Columbia. The decline reported for the last year may reflect fewer employees involved in managing the pandemic. Perhaps jobs have increased in some other parts of the sprawling health care sector. But whatever the details, the point is that, according to Statistics Canada data, the public health care system did not contribute to the surge in public sector employment in B.C. over the past 12 months. The expansion instead is due to an 8% increase in public administration workers and an outsized 11.7% jump in public sector education employees. In neither case is it clear why so many more people are needed in these two segments of the wider public sector.

The weakness of private sector job creation coupled with the comparatively frenetic growth in public sector payrolls presents a troubling picture. Without a healthy and expanding private sector, an ever-larger public sector eventually becomes fiscally unsustainable. The difference in the job growth profiles between B.C. and the rest of Canada in the last 12 months is also concerning. It may be that the impact of higher interest rates and rising borrowing costs is showing up sooner – and with greater force – in B.C. than elsewhere in the country. But that can’t be the whole story. The broadly-based weakness in private sector hiring suggests other factors are also at play.

In conclusion, we would remind readers that the divergence between private and public sector employment growth is not just a recent development. From 2019 until the first quarter of 2023, private sector employment in the province grew by a very meagre 1.2%, while in the rest of Canada it increased by 6.6%. In addition to job losses in the forest sector, it’s possible that the cumulative impact of changes in provincial legislation and regulations in areas such as labour and employment policy, project development and assessment, environmental management, and housing and real estate is now being felt across swathes of the private sector economy. In addition, over the past 5-6 years businesses operating in B.C. have faced substantially higher payroll taxes, a higher corporate tax rate, a steadily escalating carbon tax, and large minimum wage increases. These tax and other government-mandated cost increases could now be crimping private sector hiring activity. Finally, we see a real risk that, aided by comparatively high wages and generous non-wage benefits, aggressive public sector recruitment could be crowding out private sector job creation/retention. This, too, is a problematic scenario that we plan to explore in future research.

Figure 4

[1] Self-employment in B.C. is up approximately 12,000 Y/Y. This increase offsets the decline in private sector payroll jobs and contributes to the Y/Y increase in total employment. The 28,000 Y/Y increase in public sector employment, however, still accounts for most of the increase in aggregate B.C. employment.

[2] Between 2009 and 2018 public sector employment grew by an average annual rate of 1.4%.