The world of regional inequality within the labour market already exists in American cities, and a new report from TD Economics explores how far Canada is from mirroring their American counterparts.

The report, which was released last Friday, states that jobs are concentrated within five major Canadian cities that are being influenced by the tech industry.

This could lead to wage and employment inequality within smaller cities that don't have vibrant technology sectors.

Toronto, Montreal, Vancouver, Ottawa and Calgary make up about 70 per cent of all digital services employment in Canada.

Compared to American cities, the report says that in Canada "the divergence in income and employment opportunities between cities has remained stable.''

Beata Caranci, chief economist at TD Economics, said Canada should be aware that if pure market forces direct the job market then Canada runs the risk of following the path of the U.S., with a widening gap between haves and have nots.

"One of the learnings from it, for us, was that we are in a much more favourable place in terms of having less evidence of regional inequality based on this concept of wage divergence that we talk about," Caranci said.

"It doesn't mean it's not there, it's just not as extreme. And I think that was comforting for us to have seen that."

The problem with having a high concentration of high-skilled workers in a handful of cities is that it puts smaller cities at risk of having weaker home values, lower tax collection and reduced infrastructure utilization, the report states.

It also looked at employment growth within four major Canadian cities between 2001-to-2017. It noted that Toronto, Montreal, Vancouver and Calgary accounted for 39 per cent of all employment prior to the financial crisis which increased to 42 per cent after the crisis.

In smaller cities their share of employment went from 42 per cent to below 39 per cent during the same period.

Caranci said there is more stagnation in job growth in these smaller cities which was not the case prior to the financial crisis.

"There's a very clear challenge for them as we move forward because the digital economy is likely to exacerbate that for the simple fact that industries cluster and employers cluster to take advantage of the labour force," she said.

Waterloo — a 'rising tech superstar city'

However, one city stood out in the report that wasn't included in the top four major cities leading employment growth.

Kitchener-Waterloo-Cambridge (KWC), which the report characterized as a "rising tech superstar city," saw employment growth of about 20 per cent since 2010.

Digital services alone in the region grew by almost 130 per cent between 2010-to-2018.

"I'm not surprised about the characterization," Tony LaMantia, president and chief executive of the Waterloo Economic Development Corporation (EDC), said.

The Waterloo EDC supports economic growth in the region and helps companies who are looking to relocate or expand.

He said the growth in KWC is in part due to an overflow in the Toronto-Waterloo corridor.

"A number of companies are expanding westward," LaMantia said.

"It's about the market opportunity that's presented here, the cost structure, but most importantly the talent."

LaMantia is referring to the two major universities, University of Waterloo and Wilfrid Laurier University, which contribute to a larger talent pool. He said companies like Google and Shopify are making large investments in the region and are placing "big bets" on the talent.

This provides KWC with a unique advantage in attracting venture capital, according to Caranci.

The report suggests the following considerations to help mitigate regional inequality:

Making computer literacy courses mandatory for students as early as Junior Kindergarten.

Strengthening partnerships between tech firms and schools to ensure students have "in-demand" skills.

Offering government guarantees and programs matching venture capital funding to companies in smaller cities.

Having infrastructure networks in smaller cities to encourage economic development.

Although the report explores the trend of employers leaving smaller cities to concentrate in larger "superstar cities," some business owners prefer locating within small cities.

A Saskatoon success story

Alex Cruder is the co-founder of Curbie, an online vehicle retailer based in Saskatoon.

So far, Curbie is available throughout all of Saskatchewan but beginning in September the company's services will be available to those living in Alberta as well.

"We had originally decided that we wanted to launch the business in Calgary," Cruder said.

But Cruder said the will to get the company going began in Saskatoon.

According to the 2016 census data, Saskatoon has a population of about 246,376 people whereas the population in Calgary is about 1.2 million people.

The smaller population in Saskatoon compared to a larger city like Calgary made it easier for the company to connect with the necessary people needed to get the business growing, he said. This includes financiers and sector experts.

"Literally everybody you need is just an arms length away. So it helps you get up and running very quickly." Cruder said.

Cruder and his business partner and co-founder of Curbie, Brent Gudelot, also grew up in Saskatoon which made it easier to build networks.

The Curbie team does have hopes of one day expanding out east but Cruder said the community within Saskatoon has been very nurturing which might not be the experience they receive in larger cities.

"There's a culture that we've benefited from out here that has been extremely supportive and it has to do with this idea of lifting other people up," Cruder said.

"It took us a year to build a business that's truly scalable so we're fortunate to be in a position where we can grow."