‘Go West, young man’ (and woman) is a recipe for economic ruin

AACI | Vice President, The Regional Group of Companies Inc.
  • Oct. 15, 2014

John ClarkA little while back, my work took me to Miramichi, N.B., where high-paying jobs in the oil patch were pumping new life into the local economy.

Yes, that’s right. Jobs in Alberta were providing stimulus to a community on the other side of the country. How?

Tradespeople and skilled workers were commuting by air to feed the insatiable labour demands of the oil sands boom in Fort McMurray. Much of their disposable income wasn’t being spent in Alberta, but back home in New Brunswick.

It’s a good-news story for a region depressed by high unemployment due to the loss of anchor employers. But it isn’t likely to last.

Fly in, fly out

The “fly-in, fly-out” lifestyle is nothing new in Canada. For decades, workers from coast to coast have commuted by air to jobs at mining, oil and gas and forestry sites around the country. Work on a rotation of two, three or four weeks, and then head home for a week or two. Rinse, repeat.

In many instances, the job site is a remote camp far from civilization. There just isn’t any opportunity to live close to work. What fascinates me about the Miramichi example is that workers could relocate their families to communities in northern Alberta. But many chose not to uproot from their hometowns.

The assessor with whom I was working in Miramichi told me how oil patch jobs had proved a godsend for the local economy. Northern New Brunswick has struggled over the past decade with one setback after another in its key lumber and wood products industries. Plants have closed and jobs have moved elsewhere. Despite financial aid by the provincial and federal governments, the unemployment rate in the Miramichi-Campbellton area remains in the double-digits.

People are desperate for work. A quick Kijiji search reveals piles of postings by job seekers from New Brunswick pitching themselves for camp jobs in Alberta and elsewhere.

I think the preference to fly in, fly out rather than relocate is very much a generational thing. Young workers without spouses and kids are much more likely to move to where there is work. Older workers with families invested in their local community are less willing to uproot.

Booms have two speeds: Stop, and go

This is all good news for a struggling local economy like Mirimiachi. But as more young people finish school and prepare to enter the workforce, what is their incentive to remain in their hometown? The majority will likely leave with little chance of returning. As their parents hit retirement age, the trickle of oil patch wealth will dry up.

In this situation, the prosperity imported from another part of the country is temporary. It does nothing to address the underlying issues that dog the local economy. The full negative impact is only deferred.

And a resource boom is a funny thing. It’s a juggernaut that rises quickly and crashes even faster. I’ve seen it throughout the north, where boomtowns became ghost towns literally overnight when the local resource dried up.

The recent drop in global oil prices is already sending nervous ripples through the oil patch. Oil sands output is planned to double over the next decade. But oil sands production is a costly business. It relies on crude oil prices holding to at least US$90 a barrel. Oil prices the past few weeks have been sliding to multi-year lows around $80.

As the Globe and Mail reports, cutbacks in oil sands production would slam Alberta, which has been the driver of the nation’s economy. During the recession six years ago, the industry cancelled or delayed as much as Cdn$90 billion worth of projects as oil prices dove to US$40 a barrel.

If the oil patch suffers another downturn, the impact will be felt across the country.

The bottom line

Struggling local economies must work to get their own houses in order. They can’t rely on wealth imported on the backs of a transient workforce. It may be a convenient crutch in the short term, but it does nothing to create long-term sustainability.

I’ve written before about how Canada, compared to a country like Norway, is frittering away its resource wealth. Norway has created a huge sovereign wealth fund that ensures its oil and gas proceeds will generate returns for the nation and its citizens for decades, perhaps even centuries, after the taps have run dry.

In Canada, we must squirrel away and wisely invest whatever wealth our resources generate, to create a reliable revenue source that can be used to repair, upgrade and expand our nation’s infrastructure.

Improving infrastructure in parts of the country that are suffering economically, and where real estate markets are now in decline, will help drive new economic activity.

This is a much wiser course than leaving our economic prosperity to ride a roller-coaster of resource boom and bust. A strong economy is not built by letting struggling regions of the country become labour pools that export their talent.

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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