Gateway Gazette

Lessons from the Lone Star State: Comparing the Economic Performance of Alberta and Texas

Since 2014, Alberta unemployment rate increases while Texas rate drops

CALGARY—While both Alberta and Texas were hit hard by the oil-price drop in 2014, the Texas unemployment rate has dropped while the Alberta rate has risen, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“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.

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. For example, Alberta’s unemployment rate peaked at 7.2 per cent in 2016 while the Texas rate stayed below 5 per cent from 2014 to 2018, the latest year of comparable data. (See unemployment rate table below for both jurisdictions since 2014.)

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.

  • Alberta has run budget deficits fuelled by government spending while Texas has run surpluses every year but one since 2014.
  • 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,” Lafleur said.

Unemployment rates, 2014 to 2018

Jurisdiction 2014 2015 2016 2017 2018
ALBERTA 3.8% 5.2% 7.2% 6.8% 5.6%
TEXAS 4.6% 4.4% 4.6% 4.3% 3.8%

Summary

  • This bulletin compares the economic and fiscal performance of the Canadian province of Alberta and the American state of Texas in recent years and provides a brief discussion of how different policy choices may be contributing to the divergent outcomes observed.
  • While Alberta suffered a steep recession starting in 2014 followed by a period of tepid economic recovery, Texas’s economy has performed substantially better, and has returned to strong economic growth and low unemployment.
  • Despite the severe negative effects of the oil price downturn of 2014, Texas’s economy still grew in inflation-adjusted per-person terms in recent years, albeit at the slow annual average rate of 0.2 percent. By comparison, inflation-adjusted per person economic growth in Alberta was meaningfully negative at -2.4 percent annually.
  • Employment growth has also been much stronger over the past three years in Texas than in Alberta, averaging 1.7 percent from 2015 to 2018 compared to 0.6 percent in Alberta.
  • Weak economic performance in Alberta compared to strong results in Texas has contributed to very different fiscal outcomes in the two provinces. Alberta has consistently run large deficits and accumulated substantial debt, whereas Texas has not.
  • While many factors have influenced the divergent economic outcomes between Alberta and Texas, it is noteworthy that during this period the two jurisdictions have taken markedly different approaches to public policy. In Alberta, spending-fueled deficits, increasing taxes, and the perception that its oil and gas investment climate has become unwelcoming have all, to varying extents, hindered Alberta’s ability to compete.

Source: The Fraser Institute

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