For reasons I'll get to later, there seems to be a concerted effort to convince Canadians that almost no-one outside Alberta is seeing any economic benefits from high oil prices. For the most part, these efforts appear to be enjoying some measure of success. But the fact of the matter is that the oil sands have increased incomes across Canada to an extent much greater than that paragraph implies.

Did you read "94 per cent of the GDP impact of oil sands development will occur in Alberta" and interpret it as "94 per cent of the economic benefits of oil sands development will occur in Alberta"? I'm convinced that that the vast majority of the people who read that passage on the Globe's op-ed page interpreted it that way. And I'm only slightly less convinced that the author meant his readers to interpret it that way. Of course, that would be the wrong interpretation.

The economic benefits of oil sands development, while considerable, are unevenly distributed across the country, making interprovincial tensions understandable. While provinces other than Alberta are projected to benefit, modelling by the Canadian Energy Research Institute projects that 94 per cent of the GDP impact of oil sands development will occur within Alberta. With so much benefit concentrated in one province, one can hardly call fast-tracking oil sands expansion a nation-building project. Little wonder that the promise of benefits from oil sands development is cold comfort for Ontarians and Quebeckers as the once-dominant manufacturing sector struggles to reinvent and revitalize itself.

Firstly, income is what matters, not production. It's remarkable how so many Canadian pundits can seize terrier-like on an indirect cost of an exchange rate increase and completely ignore the direct benefit: how cheaper imports increase Canadians' purchasing power and real incomes. Roughly a third of the increase in Gross Domestic Income since 2002 - see here for an explanation of what it measures and its relationship with GDP - came from the improvements in Canada's terms of trade.









This breakdown of the income growth over 2000-2007 suggests that half the income growth came from the terms of trade effect.

Moreover, the regional distribution of those benefits has been much more broad than what that "94 per cent of the GDP impact" is meant to suggest. The most obvious mechanism for redistributing oil sands revenue is the federal government. This involves more than just the equalization payments made by the federal government to the provincial governments. The data here break down federal government revenues and expenditure by province. Here are expenditures by region/province as a percentage of revenues:







And this is how the federal government balance breaks down by province/region:







Between 2003 and 2008, the difference between what Albertans paid to the federal government and what they received increased by about $12b - roughly 0.75% of Canadian GDP, or $3,000 per Albertan. I don't know how much people were expecting Albertans to share with their fellow Canadians, but that's not nothing.

But the most important mechanism for redistributing the income generated by the oil sands is its effects on wages across sectors and regions.

Here is the undergrad micro version of what happens to employment and wages when there's an increase in labour demand in one sector. Suppose we start with an equilibrium where wages are equalised across sectors, and there's an increase in the demand for labour in sector A:



Unsurprisingly, this increases wages sector A. I suspect this summarises the thinking behind the "only Alberta benefits from the oil sands" meme, but the story doesn't end there. Workers in sector B will see the higher wage w* in sector A and some will shift sectors in order to take advantage of those higher wages. This shift has the effect of shifting out the labour supply curve in A (bringing wages down there) and shifting in the labour supply curve in B (bringing wages up there):







This isn't a fully-worked-out treatment, but it does illustrate the point that the decline in employment in sector B occurs because workers leave in search of higher wages. This mechanism is implicit in all Dutch disease stories, but almost no-one seems to notice that a wage increase is what makes it work.

Notice also that this model doesn't predict that all workers move from B to A; only enough to bring wages in line across sectors. And not all of this movement required people to physically move - although net interprovincial migration to Alberta between 2002 and 2008 was some 160,000 persons. An improvement in the terms of trade benefits sectors serving the domestic market: cheaper imports means more extra income to spend on domestically-produced goods and services. Workers in Ontario - centrally-located and with almost 40% of the population - are not necessarily the worst-placed to take advantage of this shift.

So much for theory - what do the data for wages say? I'm going to use two sources: the annual weekly earnings data from the Labour Force Survey - which goes back to 1997 - and those from the Survey of Employment, Payrolls and Hours, which go back to 1991. The LFS data have a shorter sample, but they also provide estimate for median earnings. The provincial CPI data are used to transform them to constant 2002 dollar weekly earnings.

No-one will be surprised to see what happened to wages in Alberta:







But look at what happened here in Quebec:

I don't see how Quebecers could look at those numbers and conclude that the maladie hollandaise was something to be feared.

What about Ontario?

Wages in Ontario may not have grown as strongly as they did in Quebec, but I don't see bloodshed there.

And here are the Canadian averages:



After years of stagnation, the 2002-2008 period saw strong growth in both average and median real weekly earnings across Canada.

The theory of asymmetric labour demand shocks doesn't say much about what will happen to total employment. If you eyeball the graphs above, it looks as though total employment increases, but I chose the slopes of those curves at random.

So here are the employment rates:







and the unemployment rates:







Again, I see good news for Quebec and not-bad-news for Ontario here. It may hurt Ontarian pride to no longer perform better than the Canadian average, but this was clearly a case of the ROC catching up, and not a deterioration of conditions in Ontario.

There are two, overlapping classes of people for whom it is convenient to downplay the economic benefits of the oil sands outside Alberta.

1) Politicians. Mark Carney's recommendation to Canadian manufacturers is, essentially, to face the realities of life with a Canadian dollar that trades at levels higher than it did in the 1990s. This is a much less seductive line than "Blame Alberta and the oil it rode in on", and Tom Mulcair cannot be disappointed with the bump in the polls that the NDP has received since he started talking about Dutch disease.

2) Climate hawks. As Spencer Keys and UBC's George Hoberg note,

If the choice comes down to oil sands expansion with demonstrably inadequate environmental checks and balances, or a sketchy economic argument with powerful narrative potential, the choice seems pretty clear for climate hawks.

Mr Mulcair wouldn't be the first politician to reach the top of the greasy pole by exploiting interprovincial rivalries. But it seems to me that this is a remarkably irresponsible strategy for those concerned with climate change. The biggest asset that environmentalists have is their intellectual integrity, and they simply cannot afford to fritter that credibility away by cheerfully adopting an economic analysis they know to be wrong in order to advance their agenda.