Column Spotlight: Eye on the Economy - Don Mills

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TOPIC - A shrinking private sector is bad news

Don Mills - Eye on the Economy

(Originally published in the July 2012 issue of the Nova Scotia Business Journal)

The Atlantic Provinces all have a much higher proportion of jobs in the public sector relative to most other provinces in Canada. In Nova Scotia, the percentage of public sector jobs (based on the latest Stats Canada data for 2011) is currently 28.5 per cent. This compares to the Canadian average of 20.1 per cent. More concerning is the fact that the percentage of public sector jobs is rising faster than the percentage in the private sector. While many claim public sector employment provides well-paying jobs to the province, there is a problem if we have too many public sector jobs relative to both the size of our economy and our population.

Sometimes we forget how many jobs are related to the public sector and funded through the taxes we pay. Public sector jobs in this province include all those working for governments at all levels, such as police and fire fighters, health care and social workers, educators, those in the military, those working in all the economic development agencies, politicians and their staff. In Nova Scotia, more than one in every four jobs is publicly funded, while the average for Canada is currently one in five. This raises the issue of our diminishing capacity to fund public services.

There are two significant problems associated with Nova Scotia’s high proportion of publicly funded jobs. The first is the affordability and sustainability of such jobs in a province which has been dead last in terms of economic growth for most of the past 20 years (GDP growth for 2011 is expected to be less than one per cent and not much better in 2012) and a province that has a stagnant population experiencing the slowest growth rates in Canada (only 0.3 per cent growth in the past five years based on the latest census numbers). This essentially means that the same number of taxpayers is paying more and more each year to fund public services. It is little wonder that Nova Scotia is among the highest taxed, if not the highest taxed, jurisdictions in Canada. It could perhaps be argued that being the slowest growing population in Canada is a consequence of having the slowest growing economy in the country, which essentially makes Nova Scotia the least attractive place to live from an economic perspective. In addition, Nova Scotia has the distinction of having the oldest population in Canada, meaning that the pressures will only increase on the diminishing workforce to pay for public services.

The second problem associated with a higher proportion of public sector jobs is related to economic growth. Having a proportionately smaller private sector in the economy means that Nova Scotia is at a structural disadvantage in terms of being able to grow the economy. Economic growth is driven by the private sector. If our private sector is proportionately smaller, then this reduces our ability to grow the economy as quicker as other provinces, simple as that.

This problem is not confined to Nova Scotia. All four Atlantic Canadian provinces have similar challenges in terms of having more public sector jobs than what their economies can afford. So the question is, what can be done? Governments, particularly at the municipal and provincial levels, must reverse the trend of having public sector jobs increase faster than those in the private sector and address the productivity gap between public sector and private sector jobs. Governments should also ask themselves which non-essential services could be more efficiently delivered by the private sector through a competitive outsourcing process.

Don Mills is the chairman and CEO of Corporate Research Associates Inc. and a well-known commentator on public affairs with significant experience in a variety of sectors including tourism, financial services, telecommunications, transportation, lottery and gaming, utilities and public policy. You can follow him on Twitter @DonMillsCRA or email dmills@cra.ca

Organizations: Nova Scotia Business Journal, Stats Canada, Corporate Research Associates

Geographic location: Nova Scotia, Canada, Atlantic Provinces Don Mills

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