The Separation Effect on Labour Markets – Part Two – Labour Demand

This Memo is part of a series the C.D. Howe Institute is presenting to better inform the public about the policy issues and complexities of the potential separation of Alberta, and its consequences on Albertans, businesses, and the rest of Canada. Today: Labour demand.

To: Alberta referendum voters 

From: Joseph Marchand 

Date: September 18, 2026 

Re: The Separation Effect on Labour Markets – Part Two – Labour Demand

Following in the wake of the 121st Alberta Day and 133rd Labour Day, the evaluation of Alberta’s possible separation on its labour markets seems well timed this September, prior to the October 19 referendum.

Having already considered the effects of separation on Alberta’s labour supply in NEED LINK part one, it is now time to address its effects on labour demand. Again, the way we will think about this is through the role of shocks. In this Memo, we are considering shocks to labour demand, moving up or down the labour supply line, with employment and pay moving along with it together, in the same direction.

These effects on labour demand may matter even more than those on labour supply. The reason for this, one found in any labour economics textbook, is that employers are typically more responsive than workers. In the most common example, employers respond more negatively in employment to an increase in pay, while workers respond less positively to the same increase. This is seen in the relative slopes of the labour demand and supply, with the labour demand line typically being flatter. 

When considering shocks to labour demand due to Alberta’s possible independence, we must first address how private sector employers may react. Private firms account for roughly 68 percent of employment in Alberta, the highest rate among all Canadian provinces. If the self-employed are included, they make up an additional 13 percent of employment, meaning that together they account for 81 percent, or roughly four-fifths, of jobs in the province.

One major consideration would be whether separation would cause firms to leave Alberta and take their investment and labour demand with them. Firms dislike uncertainly, and the possibility of separation would induce it. Such an exodus would reduce both private employment and pay, through an inward shift of labour demand. For example, the relocations of financial and insurance headquarters out of Quebec were seemingly tied to that province’s two attempts at autonomy, through their referendums in 1980 and 1995. Those moves occurred even though both referendums ultimately rejected separation, and they were never reversed.

According to a recent Calgary Chamber of Commerce survey, 32 percent of member firms were very unlikely to move if Alberta were to separate, and 7 percent were somewhat unlikely (with 13 percent uncertain). So, 52 percent, or just over half of firms would likely stay in place following Alberta’s independence. However, 27 percent of firms answered that they were very likely to move their business if there was a binding referendum, and 21 percent were somewhat likely. Taken together, 48 percent, or close to half, of firms might leave. Assuming staying and leaving firms are of similar size and employment, this could lead to a reduction in labour demand of almost half.

Of course, there is also the remaining 19 percent, or one fifth, of employment in Alberta, which is in the public sector, the lowest share among all provinces. Public sector employment is spread across federal, provincial, and municipal entities. Following separation, municipal employment within Alberta (for Calgary, Edmonton, Red Deer, etc.) would likely remain largely unchanged, as they would continue to be governed in the same manner. Thus, we would now need to consider what happens to provincial and federal employment in an independent Alberta.

In the strictest definition of independence, all provincial and federal functions would now have to be unified and provided solely by Alberta’s newly established national government. In doing so, it would require many more people to perform all these additional functions, leading to a rapid expansion of the public sector, and employment and pay along with it. While some demand may be met by federal employees already in Alberta, that would likely not be enough to cover the demand. For example, Alberta would first need to establish new trade deals with Canada, the United States, and other countries, as well as its own currency, military, and other services. 

When the United Kingdom first voted to leave the European Union under its Brexit referendum in 2016, it reversed a seven-year decline in its public sector employment. As shown in a recent  report titled Brexit and the State, UK public sector employment had steadily increased from that vote to when separation officially occurred in 2020. This increase in public employment ended up increasing to the same level that it was in 2009 by 2024. Most of this increase in the public sector was to negotiate trade deals and deal with regulatory issues.

But let’s keep in mind that the United Kingdom was already an independent country, so its situation is not exactly analogous to Alberta’s. For example, the United Kingdom already had its own currency and military. Therefore, one could assume that Alberta’s public sector expansion would have to be a lot larger, as it has never been its own independent nation. That said, although Alberta is seeking more autonomy from Canada through its referendum, it may attempt to retain Canada’s currency and military protection upon its exit, in a situation more similar to that of the Republic of San Marino and its relationship with Italy. 

Between the negative private shift and positive public shift of labour demand, the negative shift would likely dominate. Private employment was already four times that of public employment, so even a large public expansion could not undo private firms leaving Alberta. This would decrease employment and pay. And, adding in part one for labour supply, where the positive shift of Canadians moving to Alberta was larger than the negative shift of Albertans leaving, employment would increase, while pay would decrease. Therefore, taken together, pay would likely decrease under separation, but the number of jobs is uncertain. That said, employment is also more likely to fall, rather than rise, in the short run.

Joseph Marchand, Founding Director of the Alberta Centre for Labour Market Research and Professor of Economics at the University of Alberta.

To send a comment or leave feedback, email us at blog@cdhowe.org. 

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters. 

To send a comment or leave feedback, email us at blog@cdhowe.org. 

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.