To avoid a low-wage economy, Canada must stop losing corporate head offices and staff (Globe & Mail)
David Williams, DPhil, is vice-president of policy at the Business Council of British Columbia. Jock Finlayson is the council’s senior policy adviser.
Canada is losing corporate head offices and related jobs. Between 2012 and 2021, one in 25 Canadian head offices closed or merged with other companies, according to Statistics Canada data. Head office employment was still growing until 2017, but since then one in 10 head office jobs has disappeared. The average size of the remaining headquarters is also smaller. Notably, Canada’s head office footprint shrank faster after 2017, even as the federal government prioritized population growth through record levels of immigration.
Head offices are mostly found in the four largest provinces: Ontario, Quebec, Alberta and B.C. Almost all provinces have lost head offices in the last decade or so, with the largest absolute declines in Alberta, Ontario and Quebec, while the largest percentage declines were in Nova Scotia and Saskatchewan. In some cases, the loss of headquarters can be attributed to energy companies exiting, merging or scaling back their operations in Canada after the plunge in oil prices over 2014-16 and the chillier federal regulatory environment that developed thereafter. Nonetheless, the decline in corporate headquarters and head office jobs has been broad-based.
Like discovering that the headwaters of a river are drying up, the waning health of Canada’s “upstream” economy is concerning. Large companies are more likely than small companies to generate export earnings. They invest more in capital and technology per worker and conduct more research and development, capture efficiencies by operating at scale and, on average, pay higher wages. These positive effects are most pronounced in the places where their head offices are located.
Head offices are especially important as “command and control centres” for major decisions about people, products, processes and technologies. They create “downstream” demand for high-value services such as law, accounting, engineering, consulting, finance, advertising, design and human resources. People who work in these supplier industries, like those employed directly by corporate head offices, also tend to earn above-average wages that are in turn spent at other local businesses. A robust head office sector expands the tax base to help pay for public services. It is also positively related to private-sector support for education, health care, the arts and charities.
What’s to be done? In our view, Canada has little prospect of “poaching” existing head offices from elsewhere. (Indeed, we see a risk that several major Canadian headquarters in sectors such as energy, forestry and pipelines could relocate to the U.S. before the end of the decade.) Instead, policy-makers’ focus should be on ensuring that Canada has a favourable business operating environment that retains our remaining head offices and provides opportunities for more small-to-medium firms to scale into larger, successful, global enterprises.
Opinion: We must do a better job attracting corporate head offices
Unfortunately, Canada today is hamstrung by a poor policy environment: an antiquated tax system, infamously inefficient regulatory processes, numerous internal trade barriers, unusually heavy – and steadily increasing – government involvement in many sectors of the economy and the seeming indifference of the federal government to long-standing concerns about the efficiency and productivity of the national economy.
For example, the combined federal-provincial corporate tax rate doubles or triples if a company’s net income grows above $500,000. Provincial payroll taxes also punish companies that grow beyond being micro-businesses. Over all, the business tax system sends a clear message: Don’t scale, stay small.
Canada also imposes high personal tax rates at relatively modest income thresholds. High-skilled workers – managers, professionals, scientists, technologists and so on – are internationally mobile. Canada is a relatively unattractive location to situate head office staff and undertake the kind of high-value corporate activity that depends on the presence of senior management and deep pools of professional talent.
To lose one head office may be regarded as misfortune, but to lose 110 over nine years looks like carelessness. Canada should be paying more attention to its business environment and avoid adopting policies that would put the country on a path to a low-wage economy.
As published in the Globe and Mail.