From the Fraser Institute

There’s a growing consensus among economists that the federal government and several provincial governments over the past decade have not enacted enough policies that encourage economic growth. Consequently, Canadians are getting poorer relative to residents of other countries including the United States. In particular, their ability to purchase essential goods and services such as housing and food—in other words, their standard of living—is declining relative to our neighbours to the south.

In fact, according to our new study, among the 10 provinces and 50 U.S. states, median employment earnings—that is, wages and salaries— in 2022 (the latest year of available data) were lowest in the four Atlantic provinces, followed by Manitoba, Saskatchewan, Quebec, Ontario, British Columbia and Alberta. So, the median employment earnings of workers were lower in every Canadian province than in every U.S. state.

Were Canadian provinces always in the basement? Pretty much. In 2010, while only 12 U.S. states reported higher median employment earnings than Alberta, the other nine Canadian provinces ranked among the bottom 10 places. However, the important point is that from 2010 to 2022, Canadian provinces have fallen even further behind as many low-ranking U.S. states substantially improved.

In 2010, the per-worker earnings gap (in 2017 Canadian dollars) between Louisiana, a middle-ranking state, and the nine lowest-ranked Canadian provinces varied from $4,650 (in Saskatchewan) to $15,661 (Prince Edward Island). By 2022, a typical mid-ranking state such as Tennessee was out-earning all provinces by a range of $6,770 (in Alberta) to $16,955 (P.E.I.). In other words, by 2022, not only were workers in all U.S. states out-earning workers in all Canadian provinces, the gap had grown.

Another example—Alberta and Texas are the two largest oil-producing jurisdictions in their respective countries, yet Albertans, who out-earned Texans in 2010, saw their lead of $3,423 per worker become a deficit of $5,254 by 2022.

It’s a similar story for B.C. and Washington, which are geographically proximate and have similar-sized populations. While B.C. experienced strong growth in median employment earnings per worker over this period, it still lost ground relative to Washington—the gap grew from $10,879 in 2010 to $11,311 by 2022.

The change between Ontario and Michigan is even more striking. Again, they are geographic neighbours, have similar-sized populations and share a large auto sector, with Michigan’s lead over Ontario growing from $2,955 per worker in 2010 to $8,661 by 2022. The trends are similar when comparing Saskatchewan to North Dakota or the Atlantic provinces to the New England states; the gaps have only grown larger.

So, why should Canadians care?

Of course, everybody wants to make more money, so Canadians should want to know why workers in Mississippi and Louisiana make more than workers here at home. But there’s also a broader problem—people and capital can move relatively freely across the Canada-U.S. border, meaning this growing divergence in employment earnings has significant ramifications for the Canadian economy.

It could spur the ongoing migration of highly productive individuals, including high-skilled immigrants, who choose to move south. And encourage domestic and foreign firms to invest in the U.S. rather than in Canada. If these trends continue, they will exacerbate the earnings gaps between the two countries and potentially make Canada an economic backwater relative to the U.S. There’s also a significant risk these trends could worsen if the next U.S. administration increases tariffs on Canadian exports to the U.S., effectively abrogating the North American free trade agreement.

Clearly, to mitigate this risk and reverse the ongoing divergence in employment earnings—which largely determine living standards—between Canada and the U.S., the federal and provincial governments should implement bold and sweeping growth-oriented policies to make the Canadian economy more competitive. When Canada is more attractive to business investment, high-skilled workers and entrepreneurs, all workers will reap the rewards.