Quebec Is on a Dangerous Job Creation Path

The ''two solitudes'' in Canada also show in the jobs market. And it's bad news for Quebecers.

The latest jobs numbers from Statistics Canada reveal a huge gap in the kind of jobs that are created in Quebec (when there is any) versus in the rest of Canada.

Quebec is losing jobs in the private sector at an alarming rate. But it creates jobs (also at an alarming rate!) in government offices.

Ottawa has shed 41,300 public jobs during the last 12 months, while the country gained 128,500 new private jobs. In Quebec, the private sector lost 26,100 jobs during the last year, while the Quebec government put 14,800 new people on its payroll. So, as blogger Jérôme Lussier points out, Quebec is losing almost two private sector jobs for every job the government creates in the public sector.

At this rate, every single worker in the province should be working for the Quebec government in 2110, give or take. Now, this is of course only a metaphor but it still illustrates the kind of trend we are seeing.

Entrepreneurs need fresh air

We are in the midst of another election in Quebec. And the talk is all about having a healthy economy and growing revenues and jobs. But if the past is indicative of the future, it's not going to be a rosy one.

At a recent presentation in January before the Quebec Finance Circle in Montreal, the chief economist of the National Bank, Mr. Stéfane Marion, showed a scary chart: 80% of the new jobs created in Quebec since 2007 were in government and construction — an industry usually dependent on public funding (infrastructures).

The private sector? It barely moved. This is not a healthy path for the Quebec economy.

Some public sector jobs are important, for sure. But we have to remember that the money to finance them comes from the private sector. And guess what? This heavy burden represented by the public sector is a reason (among others) why the private sector in Quebec is not creating jobs.

Over 90% of the Quebec private sector is made up of small and medium-sized entreprises (in most industrialized countries, SMEs account for more than 60% of the new jobs created). And the general business environment in Quebec is far from being optimal for them, to say the least. The corporate tax rate on SMEs (8%) is the highest in Canada.

But the biggest burden for Quebec businesses is the payroll taxes, which are also the highest in Canada. A business has to pay those taxes even when it doesn't generate any profit, and they add roughly 10% on wages that businesses have to pay their employees. Quebec SMEs have been unanimous on the negative effect of that tax, but to no avail.

The Quebec government prefers to hand out goodies to businesses — a policy that has the benefit of being politically rewarding, even though the economic benefits are dubious. It gives companies grants, interest free loans or direct jobs through numerous agencies, instead of aiming to have a competitive tax regime that levels the playing field for all businesses. And this costs billions of dollars, which have to be paid for by… raising taxes.

In order to reduce the fiscal burden of companies, and therefore stimulate private employment, the Quebec government must first and foremost put an end to this vicious cycle. By reducing spending — which is, in fact, future taxes on consumers and entrepreneurs. We need to address the root cause of the problem.

This might help improve the employment picture, and hopefully help Quebec follow the (healthier) trends of Canada's jobs market.

Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.

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