What could these two studies possibly have in common? Well both are largely about labour force issues. The one from KPMG refutes the widely held orthodoxy that Atlantic Canada is a bad place to do business The one from Ottawa suggests that in much of Canada, there is no labour supply crisis.
These reports have a few things in common. Both were immediately rejected as nonsense by some. The KPMG study drew most of the criticism from people online providing their comments. They just couldn’t bring themselves to believe the data. The negative comments on the PBO study came from government itself who just couldn’t bring themselves to believe the data.
KPMG points out that Halifax and other Atlantic Province cities are great places to do business and a very attractive place to invest largely because of the cost and availability of quality labour compared to the rest of North America. It would seem that here, and in much of Canada, labour supply problems are not reducing unemployment or driving up wages. The PBO study confirms what KPMG observes….that labour is Canada’s competitive advantage…not our weakness.
This doesn’t mean that there aren’t provinces or sectors that suffer from labour supply shortages. It doesn’t mean that demographic change and increasing competition for international talent will deliver labour shortages in the future. But right now there is no crisis and intervention in Canadian labour markets that may be creating imbalance in the pattern of growth in Canada.
The Competitive Alternatives Report is prepared by MMK Consulting for KPMG and has come out every two years for more than a decade. It is the best source of cost comparison information on cities anywhere in the world. It reviews over 100 cities in 10 countries. (Full disclosure…the Greater Halifax Partnership was a sponsor of the study which allowed Halifax to be a featured city in the report, offering more comprehensive Halifax information for investment decision making. We did this because we know we have a solid business case. Other cities who can’t compete on cost didn’t sponsor and don’t appear in the study.)
Halifax provides an incredibly competitive environment for business, ranking as the 4th lowest cost in the New England/Atlantic Canada region, 5th among American and Canadian cities and 8th lowest among the 107 cities studied worldwide. The cost index places Halifax 8% below the US average cost and 1% lower than the Canadian average.
Exchange rate movements since the KPMG report was finalized, make Nova Scotia and Canadian locations even more competitive. Halifax does best in service sector industries and is particularly cost competitive in Digital Services (particularly digital media), R&D (particularly in clinical trials), and corporate services (particularly financial services
In Research & Development categories, Halifax had a cost of doing business that was 23% lower than the US average and 7% lower than the Canadian average. Halifax also provides a very competitive cost of business for Corporate Services (e.g. international financial services and shared services – everything from professional to support services), measuring 20% lower than the US average and 7% lower than the Canadian average.
Our cost competitiveness is largely based on lower labour costs across a range of sectors. This is important. In Professional Services for example, labour costs represent almost 85% of location sensitive costs. Tax which is often pointed to as a challenge in Halifax represents only 7.6% of these costs. Rental costs are very comparable to other places but only represent 7% of competitive costs.
With one of the largest concentrations of universities and best educated workforces in North America, Halifax offers a sustainable, talented workforce to support business growth. Halifax’s seven university campuses and three community college campuses enrol over 33,000 students annually and support numerous knowledge-based clusters. Close to 70% of the workforce has post-secondary certification, and 37% have a university certificate, diploma or degree. Most of them want to live and work in Halifax.
So it’s all about talent…a good thing because apparently, despite reports to the contrary, we’ve got lots of it.
The PBO Study……National Skill Shortage: Not So Much….
We are, of course, facing some national labour market challenges in the long term because of our aging demographic and increasing international competition for talent. But what’s happening today? Apparently that’s up for debate.
Some feel we have a national skill shortage….because… it appears Canada’s Department of Finance saw it on the internet. Apparently their research numbers pointing to shortages are based on internet reports. (I must revise my views on the status of Elvis and extra-terrestrials.)
Fact is….the skill shortage exists in one or maybe two western provinces that are becoming uncompetitive on cost. PBO’s report uncovers this. KPMG proves it. Is that a national labour market crisis? Hardly.
In a functioning free market for labour companies know how to deal with high labour costs. In areas of high labour costs, companies begin looking for outsourcing opportunities in other jurisdictions. We are pretty familiar with this in Halifax. We have benefited from financial services firms outsourcing functions and divisions to our city from high cost locations in the US, , the UK and other places. The same potential exists in Canada. When costs are too high in one area, investment moves to more competitive areas within Canada. Business investment moving west to east is not a national crisis.
Recent intervention in labour markets is largely about lowering labour costs in high cost locations. However, the KPMG study demonstrates that many parts of Canada have a very competitive labour market. If the market were allowed to work, investment would move to those competitive areas…including Halifax and other Atlantic cities. The market principle that investment can be attracted by a competitive business case is about moving jobs to people. Recent intervention in the market is about moving people to jobs.
Most of the available studies say labour supply is not a problem except in certain sectors and certain provinces. Maybe we have a labour supply crisis. Perhaps we should ask Elvis and ET. Or perhaps we should just let the market rebalance the Canadian jobs landscape. Perhaps we should free investment to move to where available labour and a good business climate can provide the best return to business.
Fred Morley is the executive vice president and chief economist of the Greater Halifax Partnership. He has written over 100 articles on economic growth issues and presented his views to dozens of organizations and governments around the world. You can reach Fred at firstname.lastname@example.org.