Scrutinizing Alberta's Public Sector

The September 3, 2019 release of the Report and Recommendations of the Blue Ribbon Panel on Alberta’s Finances (the MacKinnon report) has put the issues of the size and compensation levels of Alberta’s public service at the centre of speculation about the upcoming provincial budget.

The MacKinnon report argues that both the size and compensation of Alberta’s public sector are higher than comparator provinces, and the panel’s report suggests that the government could reduce the size of the public sector (through employee attrition), consider alternative delivery of government programs and services (through the private and non-for-profit sectors), and recommends “that the government establish a legislative mandate that sets the salary levels for all public sector employees.” There is widespread expectation that these and other suggestions will be included in the provincial budget to be tabled on October 24, 2019.

This report uses data from the Survey of Employment, Payrolls and Hours (SEPH) and the Labour Force Survey (LFS) to assess the size of the public sector in Alberta and its compensation compared to the private sector in Alberta and comparable definitions of the sectors in Canada as a whole and the three largest provinces: Quebec, Ontario, and British Columbia.

The Size of the Public Sector

Perhaps contrary to what is commonly thought, there has been practically no relative growth in the public sector as a percentage of the total population since the mid-1970s. From 1976 to 2018, the national figure increased from 9.84 percent to 10.23 percent, while the comparable figures for Alberta are 10.29 and 10.23 percent, respectively. Thus, public sector employment in both Canada and Alberta is about the same proportion of population as it was back in the mid-1970s, and as of 2018, the Alberta figure was identical to the national average. Quebec is the only province that has increased the relative size of its public sector, whereas it has fallen in Ontario and BC.

Another way of measuring the size of public sector is as a percentage of total employment. By this measure, public sector employment has been falling, not only in Alberta, but generally throughout the country. Overall, the size of the public sector in Alberta is still at or below the national average, even over the past four to five years, when the size of the public sector in Alberta grew and private sector employment declined.

Public Sector Compensation

It is widely known that nominal weekly earnings in Alberta are the highest in the country, and since at least 2001, the consumer price index (CPI) has also advanced more in Alberta than in any of its comparator jurisdictions. As such, it is important that any earnings comparisons between Alberta and other jurisdictions consider these different inflation rates.

Since 2001, average overall earnings for all workers in Alberta have exceeded those in each of the comparator jurisdictions except Ontario, where Alberta earnings surpassed those in that province in 2008. In 2014, average earnings in Alberta were some 15 percent higher than the national and Ontario average, and 25 percent higher than in Quebec. The downturn in the provincial economy has meant that the Alberta wage advantage has declined to 8 percent compared to the national average, but in 2018 relative real earnings were still higher than in all other jurisdictions.

Disaggregating the three industries largely (or exclusively in the case of public administration) populated by public employees—educational services, health care and social assistance, and public administration, which collectively employ 85.5 percent of all public employees in Canada and 87.1 percent in Alberta—allows a comparison of public sector wage levels to all Alberta workers. The data show that while overall real weekly earnings in Alberta are above those in Canada and its three largest provinces, real weekly earnings in Alberta for each of the three public sector industries under consideration are often at or below those of other jurisdictions.

It’s possible to get a better understanding of relative earnings levels by using a difference-in-difference methodology, which compares the relative earnings differences in each of the three main public sector industries with the overall earnings differential. Using this measure, we find that relative to overall wages, Alberta employees in these industries tend to suffer a wage penalty, although this penalty has diminished since the mid-2010s, coinciding with the recent downturn in the Alberta economy and the commensurate decline in overall real weekly earnings. Employees in these three industries in Alberta do have earnings that tend to be higher than in other sectors, but earnings in Alberta in these other sectors tend to be proportionately higher than in the other provinces, putting Albertans in these public sector jobs at a relative earnings disadvantage (the exception is local government administration employees).

A final way to look at public sector compensation levels is to compare real hourly wage levels using the nominal LFS wage data adjusted for differences in the rate of inflation by jurisdiction. The data show that overall real wages in Alberta are higher than the Canadian average (and higher than in any of the provinces), and this overall wage advantage is largely due to higher private sector wages, where the Alberta advantage is 17–18 percent for private sector employees in Alberta relative to the national average, compared to the public sector wage advantage of 9–10 percent.

Conclusion

By using two complementary data sets that disaggregate the public sector into its components, controlling for the inflation rate, and viewing any earnings differentials over the longer term, this report has overcome many of the limitations of much of the previous research on the topic and provided a more complete, accurate, and balanced view of the size of Alberta’s public sector and the earnings of its employees.

In contrast to the MacKinnon report, we conclude that Alberta does not really stand out in any way relative to the other three large provinces, both in terms of the size of its public sector size and its compensation. If anything, Alberta has tended to have a smaller public sector compared to other jurisdictions using certain measures.

Similarly, the compensation to public employees in the province does not stand out in anyway, except for the fact that Alberta was and still is a high wage province and public sector wages, at least in part, reflect this. Where Alberta does stand out is that relative to overall earnings within the province, Alberta public sector employees tend to earn relatively less than their counterparts in other jurisdictions, especially when the overall high relative real earnings in the province are considered.

ISBN: 978-1-894949-69-9

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