In 1996, Stephen Poloz, who next month will become the next governor of the Bank of Canada, contributed to a paper (pdf) that showed shifts in commodity prices can cause significant variation in economic strength among Canada’s provinces.
Makes sense: A surge in crude prices is great for Alberta, a net-exporter of oil, and not so great for Ontario, a consumer with none of its own supply.
In theory, this need not be a crippling blow for the national economy. In the above scenario, rational Ontarians should follow the money and migrate to Alberta to take advantage of the boom times.
But as a team of Bank Canada economists remind in an excellent new study (pdf), Canada doesn’t really work this way.
Labour tends not to migrate as the economic theory suggests it should. Between May, 2001 and May, 2006, Canada’s dollar appreciated 40 per cent and the Bank of Canada’s commodity price index climbed 63 per cent. That suggests serious change in the economic backdrop. Yet movement between economic regions – both within provinces and between them – was about the same as it had been over the previous 15 years, according to David Amirault, Daniel de Munnik and Sarah Miller, who compared census data from 1991, 1996, 2001, and 2006.
This stickiness isn’t because Canadians are immune to the pull of a better-paying job. The Bank of Canada economists organized their research around 73 economic regions, rather than provinces and territories. Their analysis shows willingness to move within provinces, say from Campbellton, in northern New Brunswick, to Moncton, a bigger and more dynamic city in the south of the province.
But there is something about provincial borders that impedes labour mobility. In 2006, population flows within provinces outpaced flows between provinces in 68 of the 73 economic regions. “Provincial borders are negatively related to migration flows,” the authors write. “This implies that obstacles to interprovincial mobility remain.”
There are some readily understood reasons for this. Distance, for example. Language also is a barrier to interprovincial mobility. Go back to Campbellton, a largely French-speaking community. It’s one thing to move a few hours south to Moncton, a fluidly bilingual city. It’s another thing to pack up and move to Calgary.
Mr. Amirault and his co-writers show that both distance and language are important factors in determining population flows, reinforcing previous research. But their work also suggests that these factors don’t fully explain Canadians’ rootedness.
In their simulations, they controlled for well-known variables, including distance and language. Their results showed that over a five-year period, total migration between two representative economic regions would be higher by 104 individuals if there was no provincial border.
They also created a scenario where there were no provincial borders separating any of the economic regions. The result: Gross migration would increase by 63 per cent, “implying the gains from removing the border would be significant.”
The findings could (should) create waves in Ottawa and in provincial capitals. Canada’s less-than-dynamic labour market is one of the factors weighing on productivity, which policy makers in every corner of the country say they are committed to improve. In 1995, governments implemented the Agreement on Internal Trade to remove barriers to labour mobility such as residency requirements and certification. It would appear this effort is coming up short.
More research will be needed. The Bank of Canada economists say it’s unclear whether border effects relate to differences in occupational licensing, cost-of-living differences from one province to another, or simply personal preferences. If policy makers want to make the flow of labour across the country more fluid, it’s crucial they come up with the answer.
“If barriers created by provincial borders can be removed, easier labour mobility would ultimately facilitate macroeconomic adjustment and possibly result in stronger productivity growth,” the Bank of Canada economists conclude.