Commentary: Comparing oil and gas extraction in slump years to the automotive and aerospace sectors

Oil and gas extraction is seven times the size of the aerospace sector

By Mark Milke and Lennie Kaplan

It’s hard for anyone but mathematicians and economists to conceptualize numbers that start with “b” as in “billions.” To get around that problem, and as a prelude to comparing major Canadian industries, let’s start with a smaller number and a question: How would you like to make $2,740 every week?

If you answered ‘yes’ to that query, no, you will not appear on a television game show and no, you have not won a radio raffle.

You have instead agreed that $2,740 weekly is a decent income. It also happens to be what the average weekly earnings were in the oil and gas extraction sector in 2019. (That’s the industry involved in getting oil and natural gas out of the ground but does not include pipeline work and other activity related to the industry, such as in refineries).

Now to make the comparison. The weekly wages in the aerospace sector and automotive industry (product and parts manufacturing in both) are $1,534 and $1,427, respectively. Those are both decent incomes and above the average weekly wage across all Canadian industries of $1,029.

However, when all three major industries are compared to that average wage across all industries, the automotive sector pays 39 per cent better; the aerospace sector pays 49 per cent more; and the oil and gas extraction sector pays 166 per cent better.

Moving on from wages, there are other ways to compare the three industries, which is where we return to the “b-word,” i.e., billions.

Back in 2014 when Canada’s oil and gas extraction sector was firing on all economic cylinders, it was worth almost $110 billion in nominal GDP. By 2017, the latest year available for this specialized statistic from Statistic Canada, GDP for oil and gas extraction had dropped to just under $63 billion.

Still, even in a slump year, one of a few recently, Canada’s oil and gas sector in 2017 was worth over three times the nominal GDP of the motor vehicle and parts manufacturing sector ($18.8 billion) and nearly seven times the aerospace manufacturing and parts sector ($9.4 billion).

The same statistics can be trotted out as a percentage of GDP. The oil and gas extraction sector amounted to 5.9 per cent of nominal GDP in 2014 and 3.1 per cent in 2017. But that was still, as per the GDP dollar figures, about three times the automotive sector (0.9 per cent of GDP) and nearly seven times the aerospace sector (0.5 per cent of GDP).

Turning to employment, and again remembering that our measurements are based on oil and gas extraction (not pipelines or other oil and gas activity), employment in oil and gas extraction alone in 2017 stood at 55,853 direct jobs. The motor vehicle parts and manufacturing industry employed more, at 74,297, with aerospace slightly fewer (than oil and gas extraction) at 51,349 jobs.

As to why oil and gas extraction is such a large part of GDP, even in a slump year, but employs 25 per cent fewer people than the automotive sector is found in labour productivity: it’s extremely high in Canada’s oil and gas extraction sector vis-à-vis other industries.

As we recently noted in a report on oil and gas labour productivity, higher productivity allows you to do more with less. Think of farming 500 years ago, or better yet, gaze at the 1565 painting by Flemish artist Peter Bruegel the Elder, The Harvesters, which shows workers gathering wheat and tying up the stacks by hand.

The modern oil and gas extraction industry in Canada is like the farming “extraction” sector—doing much more with less. Five hundred years ago, 20 people cutting wheat by hand and bundling it up would be far less productive than 20 people driving tractors over much more land today. Much more is produced (wheat bundled up or oil and gas extracted) with much less.

Employment explanations aside, other Canadian industries also contribute significantly to Canada in terms of the economy and jobs, but oil and gas extraction contributes significantly more in GDP than either automotive or aerospace.  It’s also significantly higher-paying than both.

Mark Milke and Lennie Kaplan are with the Canadian Energy Centre, an Alberta government corporation funded in part by carbon taxes. They are authors of the report, Fueling Canada’s Economy: Comparing the Oil and gas Extraction Sector to the Automotive and Aerospace Sectors.