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Economy Lab

Tories may be new ‘natural’ governing party as west rises Add to ...

If any more evidence were necessary, the results of the last federal election and the addition of more House of Commons seats in the next one have made it clear that the Canadian centre of political gravity has shifted to the point where it will no longer be possible to govern without significant electoral support west of Ontario. This shift has followed the westward movement in Canada’s centre of economic gravity.

There are two ways to increase incomes: make more stuff, and/or get better prices for the stuff you’re making. The western provinces -- and Newfoundland -- are doing both.

The first graph plots the average growth rates of real GDP and of the implicit price deflator (the actual GDP divided by real GDP). The increase in real GDP is a measure of the increase of the increase in quantities produced, and the increase in the GDP deflator measures the increase in the output prices.

In Alberta, Manitoba and Newfoundland, the increase in both real GDP and in the GDP deflator outpaced the Canadian average. And although output in Saskatchewan lagged behind the national average, it saw the highest rate of growth in the price of what it did produce.

The implications for the labour market are consistent with what you’d expect from this pattern: the western provinces (and Newfoundland) have seen either higher employment growth or faster wage growth -- and in the case of Alberta, both -- than the Canadian average. Probably the most remarkable feature of the second graph is that the only two provinces in which both employment and earnings have lagged the national average were Ontario and Quebec.

I’m generally quite skeptical about narratives in which economic trends are used to explain electoral outcomes. But when you combine the fact that the Conservatives’ dominance of the western provinces has remained unchallenged for half a century with the economic trends that contribute to the increased demographic weight of the West, it’s easy to see why so many pundits are expecting that the Conservatives will replace the Liberals -- if they haven’t done so already -- as Canada’s Natural Governing Party.

Stephen Gordon's recent posts and Twitterfeed can be viewed here.

Economy Lab, winner of the 2011 Eppy Award for best business blog. Follow Economy Lab on twitter

Follow on Twitter: @stephenfgordon

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