DISTURBING TREND OF CANADA/ALBERTA EMPLOYMENT SCENARIO – DESIGN AND ENGINEERING/WHITE COLLAR JOBS DISAPPEARING SWIFTLY

First let’s look at the numbers reported by Canadian economy regarding month of May 2014: Canada's unemployment rate rose to seven per cent from 6.9 per cent over the previous month; the economy actually shed 29,100 full-time jobs in May. As a consolation, there was a gain of 54,900 part-time jobs, most of them likely temporary seasonal work.

Among sectors that lost jobs, the natural resources industry declined by about 23,000, and there were about 21,000 fewer workers in finance, insurance, real estate and leasing. Manufacturing was also down by 12,200 and construction was largely flat. Alberta saw the strongest gains, with 16,400 new jobs, and Newfoundland and Labrador lost 4,100 positions, but the other provinces saw little change in their employment rates.

The number of working Canadians aged 15 to 24 increased by 49,000 (this is attributed to many university and college students finishing their spring term in April and seeking out work for the summer) bringing their employment to a level similar to that of May 2013. However, this was partly offset by fewer employed men aged 25 to 54.

Still, there are 1.3 million unemployed Canadians, evidence of an economy that has run out of steam after churning out strong job gains in the first few years following the 2008-09 recession. One bank’s chief economist says the latest report "pounds home the point that underlying Canadian job growth remains anemic." He further adds, "Even those modest gains are almost entirely concentrated in piping hot Alberta, with the rest of the country managing just 0.1 per cent growth in the past year."

Now, let’s sift the grain from the chaff and also look at some aspects no one is talking about in Canada for whatever reasons – failing to notice in the first place due to ignorance and/or mediocrity, or, not having the guts to stand up and speak about it.

First, about the so-called ‘piping hot’ jobs in Alberta. These are mostly in the construction (sustaining capital and some new capital investment projects), drilling, and maintenance. As we know, these jobs tend to support associated service sector, therefore, there is some addition of jobs in this sector too.

But the most disturbing aspect of jobs in Alberta (and to a reasonable extent in Canada) is that there is continual decline in white collared jobs in design and engineering (in the EPC companies) in particular and other sectors in general. Reasons?

a)      Drop in new capital projects in oil sands by large, medium and small companies due to increasing pessimism in the investing companies (recent example: TOTAL deciding to put $10 billion project on hold for indefinite period);

b)     Owner companies in Alberta insisting on farming out large chunks of engineering work to offshore places, e.g., China, India, Philippines etc. in order to depress total engineering costs.

The combined effect of the above reasons and especially ‘b’ is that more and more engineering work (from FEED and Detailed Engineering) is getting shipped out of Canada. The direct impact of this in Alberta (and EPC companies located in other provinces of Canada) is increasing job redundancies and hence more and more layoffs.

The way things are going, eventually, the EPC companies in Canada would be doing just the concept evaluation, the design basis memorandum (DBM) and a bit of FEED. Consequently, the engineering work force will continue to shrink and large number of experienced engineers and technologists would either go to other countries (wherever they find jobs) or take on jobs much below their competence level. This would potentially have a domino effect – overall decrease in service sectors’ size and contribution to economy (remember, service sector contributes about 70% to Canadian economy).

One may argue that the proposed LNG projects would pick up the EPC houses’ slack increasingly discernible in Alberta. Unfortunately, that’s not going to happen. Why? Because the bulk of engineering will be done by the companies in Japan (example, JGC, Chiyoda), Korea and US (example, KBR, Foster Wheeler). Only some residual engineering work will be done in Canada.

The other industries, namely, mining are also seeing sluggishness and new capex projects are few and far between. There is hardly any basic design and development engineering taking place in manufacturing industry also. This is coupled with another very disturbing situation: sharp decline in intellectual property generation in Canada which is causing atrophy of design and engineering work in those areas.

So, the net effect of above would be that gradually, for all intents and purposes, Canada will get reduced to a body supplying country for construction industry, drilling, and service sectors, essentially, blue collared jobs. The white collared jobs will decline.

To have blue collared jobs is not bad but disappearance of white collar jobs would mean negative impact on service sector (from new higher mortgages, to new homes building, to new vehicles purchase and so on). Of course, this impact would not be felt immediately, it would take a while before StatsCan and the government in Ottawa would notice the significant negative impact on the economy.

Canada was at one time at the cutting edge of knowledge based activities, but that situation is rapidly metastasizing to such a degree that Canada’s leadership in technology and engineering will turn in to a myth. The situation is getting exacerbated by reluctance of Canadian companies to invest in innovation, R&D and productivity enhancement activities. 

The above indeed is very sad for Canada. If the Federal and the Provincial governments do not show guts and take timely corrective actions, things would continue move from bad to worse and Canada would morph from being a first world knowledge powerhouse to a second or third world body supply warehouse.