Fraser Institute study warns the crowding out effect is a concern.
June 25, 2015
by PLANT STAFF
TORONTO — There’s one sector in Canada that’s experiencing impressive job growth. The public sector, including federal, provincial and local governments, are outpacing the private sector, according to a report by the Fraser Institute, a public policy research firm.
An Analysis of Public and Private Sector Employment Trends in Canada notes that, from 2003 to 2013, employment in Canada’s public sector increased by 22.6%, more than double the rate of increase in the private sector (10.7%).
“There are important adverse economic and fiscal implications that may result from growing public sector employment,” said Livio Di Matteo, study author, a Fraser Institute senior fellow and a professor of economics at Lakehead University.
“Empirical research has pointed to a so-called ‘crowding-out’ effect where employment through public sector job creation is offset by a reduction in private sector employment elsewhere in the economy,” said Di Matteo.
“This is a concern because it’s the private sector – through investment and innovation – that largely generates the wealth and taxes needed to provide the public services that we all hold dear.”
The study shows government sector employment as a share of total employment peaked in 1992 and started to decline after governments responded to the fiscal crisis brought about by large deficits and debts both federally and provincially.
But since 2003, the share of government employment has increased. In 2013 (the latest available data), 24.1% of employees in Canada (excluding the self-employed) worked for government, compared to 22.3% in 2003.
The study also examines the growth rate of public sector employment compared to the private sector during the 10-year run, at all levels of government in each of the provinces, and Ontario tops the list by a considerable margin.
Ontario (27.6%) dramatically outpaced private sector employment growth (5.6%) by 22 percentage points. The report observes this increase coincides with a period of increases in provincial government spending, ballooning government debt and sluggish economic growth.
Looking across Canada, the Atlantic provinces had an average differential of close to 10%, except Newfoundland and Labrador, where the private sector actually outpaced the public by 2.2%. BC’s public sector was ahead by 10.3%, Alberta by 2.2%, Saskatchewan by 6.8%, Manitoba by 3.6% and Quebec by 6%.
Click here for a copy of the report.