A responsive government needs to grow in relative consideration to the population. At scale, efficiencies and technology should be a limiting factor to human resource expansion. While Prince Edward Island’s population is growing, it is only growing at 3.6 per cent per year.
By contrast, several months ago, the provincial government celebrated the growth in hiring at 36 per cent over a three-year period. At the time the Canadian Taxpayers Federation questioned how the provincial budget could support this financial investment.
This celebration is concerning as the pace of provincial human resource growth has stripped available supply from the market. Government is competing with the private sector for capacity. In recent years many small businesses have ceded employees to government, often at higher pay, competing with wages paid by taxes.
A more responsible approach is to enable the private sector, and not compete for resources. The decision to grow bureaucracy to this magnitude when the economy was strong, as opposed to when the economy needs stimulus, is perplexing but remains consistent with infrastructure investment policies.
A responsible alternative would be to outsource necessary work to industry, by building entrepreneurship and private capacity. Regrettably, that scarcity is changing as businesses compress through a proscribed slowdown. Government’s powder kegs are dry and there are few munitions to support the approaching slowing.
Public vs. private
Earlier this month the Fraser Institute released a report on government versus private sector employment growth across Canada. Alarmingly, the Prince Edward Island public sector exploded as the largest growth in the country with a 27.6 per cent increase in public sector jobs. Compared with private sector growth of negative 2.6 per cent (-2.6) between February 2020 and June 2023.
Politicians celebrate the rebound in the labour market post-COVID closures. But it is government expansion. Eisen and Palacios (2022) revealed 10.6 per cent of the national growth was from public sector hiring and 0.7 per cent was attributed to private the sector nationally. (The second highest public sector employment growth to P.E.I.’s 27.6 per cent increase was British Columbia at 22.6 per cent).
Public sector employment growth is not a net negative, but it should not be outstripping the economic creators by the present magnitude. This is unsustainable and unaffordable in the medium-term. More importantly, it is starving the private sector of much needed resources, and restricting growth.
As deficits get booked people will be released. Tragically we are in a period of government induced contraction (through heightened interest rates), and the private sector will not be able to absorb available resources. The shift now occurring will persist. It will be up to capital creators to build our way out of this challenge. Time will tell how many quarters it will take to address the labour growth imbalance.
Blake Doyle is The Guardian’s small business columnist.