The downside of boom: Alberta's manpower shortage

As the province prospers, Alberta businesses are suffering from a serious manpower shortage.

Ray English, CEO of Raydan Manufacturing Inc., no longer talks about milk and honey in Alberta. In March, he decided he couldn't afford to grow his 14-year-old, $14-million truck suspension business in the dangerously overheated economy of his native province. So the Edmonton-born English purchased two small firms in Ontario for $2.3 million–and is planning an expanded chassis-modification business in Breslau, just outside Kitchener-Waterloo. Central Canada offered two advantages Alberta currently lacks: affordable space and a supply of reliable workers. “We just got tired of fighting for labour with Syncrude and the other megaprojects,” English explains. “It's overwhelming. Everything is so far out of whack it doesn't make sense.”

Two years ago, English hired new staff, including mechanics and welders, only to later lose them to hungry oil and gas firms cannibalizing the marketplace. “Everyone is so transient,” he complains. “You train them and then they are gone.” After spending $2,000 per person on help-wanted ads in 24 different newspapers and magazines over a six-week period to little or no effect, English did the once unthinkable: he hired a personnel recruiting agency last fall. Even then, he couldn't find the workers necessary for an expansion. Alberta's red-hot real estate market didn't help matters, either. After prospective engineers from out-of-province took one look at local housing prices, ($250,000-plus), “they were gone,” English says.

English wasn't the only local businessman experiencing labour difficulties in Nisku, a bustling industrial park just outside Edmonton. A brand new Burger King shut down last fall for lack of staff, as did a 20-year-old Dairy Queen franchise. English also started to see more and more teenagers dropping out of high school to take $20-an-hour wages as general labourers. “People from outside the province don't see our provincial economy eroding from the bottom up,” he says.

While English has decided to expand in Ontario, others offer another bold and equally dramatic solution to Alberta's labour crunch: get control on megaprojects and limit them. Even John Lau, the president and CEO of Husky Energy Inc., seemed to tacitly support that cause when in April he said his company had all but ruled out building another megaproject in the oilsands due to chronic labour shortages and “cost overruns and delays.”

Alberta's labour crisis, the product of an energy boom and a demonstrable deficit of government leadership, has now reached a tipping point. While many Calgary firms actively talk about importing temporary workers from China and Mexico, Todd Hirsch, chief economist at the Calgary-based Canada West Foundation, calls the situation “almost absurd.” Just two years ago, he thought Alberta's labour shortage was confined to skilled professionals. Today, almost every business sector in the Edmonton-Calgary corridor, along with key oil-and-gas towns, including Grand Prairie and Fort McMurray, can't even find people to peel carrots for $14 an hour. The squeeze has not only driven up wages by 6.8% (more than twice the national average); it is also burning out employees, curtailing business expansion, driving up prices and encouraging rampant worker poaching. “Do we really want 8% to 9% GDP growth at the expense of infrastructure and the environment?” asks Hirsch. “We have to get real and say faster growth isn't better.”

The dynamics driving the shortage of workers have been repeatedly foretold–and they're accelerating. Statistics Canada predicted skilled-labour shortages in the West five years ago based solely on the country's biggest demographic trend: the aging of the baby boomers. But that well-publicized labour decline, which affects North America's entire workforce, has collided head-on in Alberta with an unprecedented global demand for oil that has now reached 1,000 barrels a second. And that has unleashed a chaotic building frenzy in Fort McMurray.

The oilpatch's insatiable hunger for labour also coincides with the rising economic fortunes of British Columbia, where huge capital projects have an immovable deadline in the 2010 Winter Olympics. Manitoba and Saskatchewan are also enjoying good times, leaving few idle fish in the nation's shrinking labour pools.

In fact, megaproject fever is now overfishing both provincial and national labour pools. With more than $120 billion worth of capital works projects on the books for the next decade in the public and private sector in Alberta, employers will need to fill 400,000 new jobs by 2010. But even with special programs to employ seniors, aboriginal youth and foreign workers, the provincial government predicts a staggering human-capital deficit of 100,000 people over 10 years. As a result, most industries face worker shortages, inflationary wages or chronic poaching. A January survey by the Canadian Federation of Independent Business found that more than 80% of small-business owners in Alberta have had difficulty finding workers–and that more than half were coping by hiring under-qualified individuals. A third had simply accepted reduced staff as a fact of life. “We not only have a skill shortage,” says Sam Shaw, president of Northern Alberta Institute of Technology in Edmonton. “We have a people shortage in Alberta.”

The oilsands have become a vortex sucking up workers. With nearly 50 megaprojects on the books, worth an estimated $75 billion, the population of Fort McMurray, Canada's fastest-growing frontier city, could swell from 56,000 to 80,000 people in the next five years. Yet the municipality is already struggling with a growing infrastructure deficit of $1.2 billion, overcrowded hospitals and schools, and a housing shortfall of 1,200 units. It also has the highest monthly rents in the nation, averaging $1,478 a month for a two-bedroom apartment. A 2006 consultant's report on 21 key indicators of the region's sustainability gloomily describes the affordability and availability of housing as “worsening.”

As a consequence, many oilsands developers have gone to extreme measures to acquire workers. To kick-start its multibillion-dollar Horizon mining project, Canadian Natural Resources Ltd. built its own private airstrip to fly in tradesmen. Given that the average price of a house in Fort McMurray has quadrupled from a modest $105,000 in 1995 to about $415,000 today, Canadian Natural Resources also briefly considered housing staff 1,127 kilometres away in Kimberley, B.C., and flying in workers for four-day shifts. And in a highly controversial move, the company, which might employ 3,000 construction workers for several years, is looking into importing temporary workers from the depleted oilfields of northeastern China. Some Calgary analysts have already suggested that the entire oilsands may be built by Chinese labour. (A spokesperson for CNRL said its executives couldn't “pull away the time to do an interview” for this story.)

Gil McGowan, president of the Alberta Federation of Labour, doesn't think the mass migration of foreign workers is a smart solution, however. He admits that a tight labour market has produced shortages in some key trades, but adds “the sky is not falling.” McGowan, like an increasing number of business leaders, believes the provincial government should exercise some discipline in the oilsands. “With a staggered approval system,” he argues, “we wouldn't have this tight labour market, which is the direct result of an irrational approach to megaproject approvals.”

McGowan calculates that staggered approvals could keep the construction trades well-employed for 20 steady years, instead of 10 chaotic ones. It would also ease inflationary costs, and make it easier for the public sector to tackle critical infrastructure projects, instead of competing with the private sector.

The hyperinflationary pressures of Alberta's energy boom are already undermining many sectors of the economy. The province's $3.7-billion forestry industry, which closed four mills in the past two years, has been particularly hard hit by a rising dollar and persistent labour shortages, according to Neil Shelly, executive director of the Alberta Forest Products Association. “The labour situation is increasing our operating costs, decreasing our operating flexibility, and putting us at a unique disadvantage nationally,” he says. Even mills with a $20-an-hour starting wage can't find free hands. Shelly also fears that the province's new energy boom is now actively diminishing economic diversity in the province.

Other sectors are bleeding, too. Although the Alberta Hotel Association recorded its highest occupancy rates in 2005, it lost nearly 16,000 workers, including housekeepers and managers, to higher paying jobs in the energy business last year. Even Michael Mazepa, the owner of five Edmonton-based hotels with 30 years' experience, is forced to clean hotel rooms on the weekends. “That's how desperate the labour shortage is,” says Dave Kaiser, president and CEO of the association. The sector is importing 350 temporary workers from the Philippines as well as another 600 Sri Lankans for the food-service industry. “That won't even close the gap, but we really need to retain workers and stem the drain,” says Kaiser.

The solutions to the province's labour woes are complex, expensive and multi-faceted. A novel Edmonton program (Women Building Futures) that prepares low-income women for skilled trades recently graduated 15 candidates but had scores of employers lined up for the workers. The province proposes to boost immigration from 16,000 to 24,000 a year, but it hasn't invested in the social or educational services for successful integration. In the end, many Albertans are now hoping the labour shortage may help cool the overheated engine down. “It just might keep the economy from bubbling over and act as a natural break mechanism,” proposes Hirsch.

But for the province's non-energy business crowd, that break may already be too little, too late.