TORONTO—The public sector in Canada, which includes federal, provincial and municipal governments, is growing and reaching proportions not seen since the early 1990s, a new Fraser Institute study says.

The study notes that, from 2003 to 2013, employment in Canada’s public sector increased by 22.6 per cent, more than double the 10.7 per cent increase in the private sector.

“There are important adverse economic and fiscal implications that may result from growing public sector employment,” said Livio Di Matteo, Lakehead University economics professor, study author and Fraser Institute senior fellow.

“Empirical research has pointed to a so-called ‘crowding-out’ effect where employment through public sector job creation is offset by a reduction in private sector employment elsewhere in the economy. This is a concern because it’s the private sector – through investment and innovation – that largely generates the wealth and taxes needed to provide the public services that we all hold dear.”

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Government sector employment, as a share of total employment, peaked in 1992 and started to decline after governments responded to the fiscal crisis brought about by large deficits and debts both federally and provincially.

But since 2003, the share of government employment has increased. In 2013, the latest year of available data, 24.1 per cent of employees in Canada, excluding the self-employed, worked for government, compared to 22.3 per cent in 2003.

The study also examines the growth rate of public sector employment – at all levels of government – in each of the provinces.

By a considerable margin, the largest increase, relative to private sector employment growth, took place in Ontario. From 2003 to 2013, public sector employment growth in Ontario of 27.6 per cent dramatically outpaced private sector employment growth of 5.6 per cent.

Interestingly, Ontario’s 10-year increase in the number of people working for the public sector coincides with a period of increases in provincial government spending, ballooning government debt and sluggish economic growth.

“Preliminary statistical analyses suggest that, for Canada’s provinces over the 1990 to 2013 period, larger public sector employment shares are accompanied with lower growth rates of private sector employment and show a flat relationship with economic growth rates,” Di Matteo said.