The oil price collapsed at the beginning of 2014 hit both Alberta and Texas hard. But a report released on Tuesday by the Fraser Institute think-tank says the Texas unemployment rate has dropped while the Alberta rate has risen.
“Some people in Alberta continue to blame the province’s comparatively high unemployment rate on the 2014 oil downturn, but Texas dealt with similar price drops and has done a much better job creating an environment where workers can prosper,” said Steve Lafleur, senior policy analyst at the Fraser Institute and co-author of Lessons from the Lonestar State: Comparing the Economic Performance of Alberta and Texas, in a news release.
The study finds that Alberta’s annual unemployment rate was lower than the Texas rate every year from 2004 to 2014. But after the 2014 drop in oil prices, the situation reversed, with Texas enjoying a lower annual unemployment rate – in some years, a much lower rate – than Alberta, said the report.
“For example, Alberta’s unemployment rate peaked at 7.2 per cent in 2016 while the Texas rate stayed below five per cent from 2014 to 2018, the latest year of comparable data,” said the Fraser Institute.
“There are many reasons why unemployment has increased in Alberta and dropped in Texas. But it’s worth noting that the two jurisdictions have taken markedly different approaches to government policy.”
The report said Alberta ran budget deficits fuelled by government spending while Texas has run surpluses every year but one since 2014. And Alberta raised taxes (Alberta’s top provincial income tax rate is now 15 per cent, Texas does not have a state-level personal income tax) and increased regulation.
“Government policy has damaged Alberta’s investment climate, and workers in Alberta are paying the price,” said Ben Eisen, senior fellow in the Fraser Institute’s Fiscal and Provincial Prosperity Studies.
“While external factors have played a role in Alberta’s struggles, the superior performance of Texas over the last few years underscores the importance of pro-growth policies in Edmonton,” said Lafleur.
The report concludes that Alberta and Texas have a lot in common. For decades, each has been an important driver of economic growth in their respective countries, and each has been a magnet for internal and international migration.
“This was particularly evident during the 2004 to 2014 oil boom. Unfortunately for Alberta, the two economies have gone in different directions since then. While the collapse in oil prices was harmful to the Texan economy, the state avoided a large increase in unemployment and has maintained positive (albeit muted) inflation-adjusted economic growth in recent years. By contrast, Alberta’s economy has floundered since the oil price decline and fiscal and economic performance have suffered greatly over the past few years,” said the report.
“While external factors have certainly played an important role in this decline, internal policies such as higher taxes and regulatory barriers to building pipelines have also hindered Alberta’s growth prospects. Texas’s superior performance relative to Alberta in recent years complicates the narrative that Alberta’s struggles are entirely attributable to external forces beyond government control. Texas’s success underscores the importance of maintaining a pro-growth policy environment. ”