The irony of rising wages in a slumping industry provides three insights into the Canadian oil and gas industry’s effort to regain profitability, according to Todd Hirsch, chief economist of ATB Financial in Calgary.
In a Dec. 2 article in The Globe and Mail, Hirsch reports that the average of weekly wages in Canada’s energy and mining industries during September was $2,059 (Can.; seasonally adjusted). The national average: $957.
And wages in mining and petroleum are 17% above their level of 5 years ago, before oil prices plummeted.
Hirsch explains that the industry slump took its toll from headcount rather than wages.
The Canadian energy and mining industries have shed more than 48,000 jobs since employment peaked 2 years ago--a decline of about 20%.
In Alberta, Hirsch adds, petroleum-industry employment is down 29%.
Hirsch’s insights:
• “It’s smarter to hand out layoff slips than to cut wages.” Energy work has unique requirements, such as the physical strains of working on oil rigs and specialized technical education. “Cutting pay across the board would make it difficult to hold onto your star employees,” Hirsch writes. “Better to cut the ones you can still function without than risk losing your best talent.”
• “There were plenty of labor efficiencies to gain.” This especially was the case with oil extraction. Companies hired excessively in the 5 years before oil prices began their decline in June 2014, Hirsch suggests, noting Canadian companies now produce as much oil as they did when the price was $100/bbl with 20% fewer people.
• “Employees still fortunate enough to have their job are working longer hours.” That partly explains the higher weekly earnings, the economist says. The average work week over the past 12 months is about 2% longer than it was 5 years ago.