Although Western Canada has experienced strong economic growth in recent years, the provinces will need to improve productivity and address labour shortages to maintain economic strength in the long run, says a new report from the Conference Board of Canada.

The report, called Western Canada: Productivity, Competitiveness, and Potential, grades aspects of the provincial economies in the west and benchmarks the indicators against the rest of Canada and other global economies. It finds that Western Canada lags its peers on some key drivers of competitiveness: labour productivity, innovation, labour force quality and participation, and business environment.

“The Western provinces have operated at close to their economic potential over the past 15 years, but they trail international leaders on many of the key drivers of competitiveness,” said Paul Darby, deputy chief economist of the Conference Board. “Without planning and action today, future economic growth in Western Canada could suffer.”

Areas of particular weakness include innovation, with all the Western provinces earning the lowest possible grade on business expenditures on research and development, and labour productivity.

“Canada is a laggard on labour productivity compared with the U.S., so it comes as no surprise that the Western provinces trail their U.S. state peers on all of the labour productivity level indicators,” the report says. It notes that Alberta is the only province that displayed stronger performance in this area, thanks to higher productivity in the oil and gas industries, which comprise about one-third of the province’s GDP.

The study also estimates the economic potential for each province over the long term. It shows that potential output growth is likely to slow in B.C. and Alberta, primarily due to an aging workforce, while Saskatchewan and Manitoba should experience a boost in potential output growth thanks to higher capital investment.

But all of the provinces face similar challenges to their competitiveness and future economic growth levels, according to the report. It says the two biggest challenges to future economic performance in the Western provinces are lagging productivity growth and labour force shortages.

“The ability of the Western provinces to improve their competitiveness and generate high and sustainable potential output growth depends, in large part, on their success in generating high productivity growth,” the Conference Board says.

It adds that the Western provinces are already facing labour shortages. While the Alberta oil sands development has drawn people from across the country, there remains a shortfall in the number of skilled workers in the labour force. A lack of skilled workers is also impacting the Manitoba and Saskatchewan economies.

“This problem will only be exacerbated as more workers move toward retirement,” the report says. In order to offset these shortages, it says the provinces must work harder to attract immigrants and workers from other provinces.

The Conference Board notes that steps are already being taken in the Western provinces to overcome some of the challenges, but it calls for a number of more proactive policy measures that focus on supporting productivity growth.

These includes policies that foster innovation, encourage the adoption of new technologies, increase capital intensity, increase global integration, strengthen human capital, and improve the business environment. In addition, the Conference Board calls for continued support of an expansion of internal trade agreements.

“The key will be to take action before the challenges become insurmountable,” the report says.

IE