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Overview of the Newfoundland Economy

1. Introduction

Compared to Québec and the three Maritime Provinces, Newfoundland is most affected by the closure of the groundfish industry because of the much larger number of displaced workers in the province, the level of reliance on groundfish, and the generally weaker economy itself. As a background to this evaluation the study team has prepared an overview of the situation of the Newfoundland economy which is summarized here.

The Newfoundland economy grew during the last half of the 80's but the recession of the early 90's and the shutdown of the groundfish fishery have left the economy depressed. Real Gross Domestic Product (GDP) peaked in 1989 at $6.7 billion in 1986 dollars and has still not regained this level (1995 = $6.6 billion). Real GDP in fishing, mining, forestry, transportation, other utilities and trade are still below the level of the late 80's. The only industries that continued to grow steadily in the 90's were communications, and community and business services. This is despite the approximately $6 billion expenditure on Hibernia in the past few years.

2. Employment

Total employment in Newfoundland peaked in 1990 at 206,000. There was a drop in employment during 1991 of 3,000 and another 9,000 in 1992. By 1994 employment started to recover, but this was followed by a large drop of 7,000 in 1996 with employment declining to 190,000. Employment in the province is now at about the same level as in 1987.

The Newfoundland economy is very dependent on the three levels of government for direct jobs and for indirect employment through construction projects and other economic activities. Income transfer programs, notably Employment Insurance and Old Age Security, contribute a great deal to gross aggregate demand in the provincial economy which in turn stimulates employment. Total direct government employment in the Province (three levels of government, education, health and crown corporations) averaged 50,000 in 1995, which is over 25% of the total employment during that year. Government cutbacks are likely to restrict growth in this area over the next few years.

Chart 1 Newfoundland Employment 1986 to 1996 (000's)

The Newfoundland employment to population ratio in 1996 was 41.9%. This means that just over four out of every ten working age persons were employed. This is by far the lowest of any province and well below the Canadian level of 58.6%. Studies in the past have shown that the percentage of Newfoundlanders who find work at some time during the year is almost as high as in Canada. The problem is that such a low percentage of the jobs in Newfoundland are full-year. Because most of the jobs in Newfoundland are seasonal many people have to rely on Unemployment Insurance as a major component of their income. In 1992 156,000 people received $1.1 billion in UI payments (over half of the people who worked during the year). The amount of money paid in Unemployment Insurance has been cut dramatically with the closure of the groundfish industry and the changes in Employment Insurance regulations. In 1995 there were 111,000 people who received $675 million in Unemployment Insurance Benefits.

The NCARP and TAGS programs have helped to cushion the impact of the closure of the cod fishery for those people employed in the fishery. The associated income support payments coupled with expenditures on training, licence buyouts and retirement have helped to reduce the negative effects of the closure on the Newfoundland economy. When TAGS ends in 1998, there will be a substantial reduction in provincial personal income. This will have very serious social and economic impacts, particularly in rural Newfoundland.

In the 1997 budget, the provincial government made several announcements which will effect employment levels:

• eliminating 1,100 civil servant positions over the next three years (1997-98 to 1999-2000);
• cutting expenditures by $350 million over the three year period;
• cutting 468 teaching positions this year.

These negative impacts will contribute to continuing high levels of out-migration, as discussed in the following section. This will in turn result in reduced federal Equalization transfers to the provincial government.

3. Population

Since Confederation in 1949, the growth of Newfoundland's population has gone through stages. From 1951 to 1976 the population grew steadily, increasing between 5% to 15% during each 5 year census period. During this time the population increased from 361,000 to 564,000. From 1976 to 1981 the population growth was only 2% and was less than 1% from 1981 to 1991, increasing by 3,800 from 576,500 to 580,300. The first few years of the 90's saw the population increase, but in the 1993 to 1996 period, the population has dropped by over 13,000.

Chart 2 Population of Newfoundland and Labrador - 1951 to 1991 by 5-Year Intervals and 1992 to 1996 by Year (000's)

While the population of the province has been growing very slowly or declining over the past 20 years, the population of Canada has been steadily increasing. This means that the province's population as a percentage of Canada has been declining. The recent decline in population has a negative impact on equalization payments made to the provincial government. The population, along with the revenue from a variety of provincial sources, determines the equalization to be paid each year.

Chart 3 Population of Newfoundland and Labrador as a Percent of Canadian Population 1971 to 1996

Population change is dependent on births, deaths and net-migration. Net-migration is in-migration minus out-migration and has usually been negative for Newfoundland. A negative figure indicates that more people are leaving the province than are moving to the province.

• The number of deaths has slowly been increasing over time as the population ages, from 3,200 in 1971 to 4,100 deaths in 1995. The number of deaths has been between 3,800 and 4,100 since 1990.

• Births peaked during the period 1955 to 1965 at 15,000 per year and have since dropped dramatically. Even since 1990 the number of births dropped from 7,600 to 6,200. The reason for this drop has been the dramatic decline in the fertility rate. In 1966 Newfoundland had the highest fertility rate in the country at 4.6. Since that time the fertility rate has dropped to 1.3 in 1994 and is now the lowest in Canada.

• Generally over the past 25 years there has been an average negative net-migration of roughly 4,000 persons a year. In recent years the loss in population due to migration has reached the highest levels since Confederation despite Hibernia. In 1995 there was a net loss of 6,800 people due to migration.

There has been considerable public discussion about out-migration from Newfoundland associated with the closure of the groundfish industry. From interviews and focus groups as well as public discussion, the Evaluation Team gained the impression that most people felt that TAGS clients were not the primary source of this out-migration. This impression can be confirmed as gross out-migration from Newfoundland in 1995 was roughly 16,000 people, whereas we would estimate that approximately 2,000 TAGS clients and their families have left Newfoundland between 1994 and 1996.

This assessment of migration and the Newfoundland economy indicates that out-migration from Newfoundland has indeed risen, and has a negative impact on the Newfoundland economy, directly from the loss of population, and indirectly as a result of reduced future equalization payments constraining future government expenditures.

In recent years the loss in population due to migration has reached the highest levels since Confederation despite Hibernia. In 1995 there was a net loss of 6,800⁶⁴ people due to migration. With a net natural population increase⁶⁵ of 2,000, there was a resulting drop of 4,800 in the population.

Chart 4 Net Migration, Newfoundland - 1988 to 1996

The negative net-migration trend has continued into 1996 with a net loss of 6,700 persons during the first three quarters of the year. The level of loss of population for the full year is very likely to be the highest in the past 25 years. This high level of net-migration is the result of high out-migration (roughly 16,000 in 1995) rather than a substantial decline of in-migration. The people leaving the province have tended to be younger and better educated than the population of the province.

The loss of population due to migration is anticipated to stay high for the next couple of years. With the work on the Hibernia Platform at Bull Arm coming to an end, the government layoffs and the end of the TAGS compensation, the large number of people leaving the Province is likely to continue.

Footnotes

64	The estimates of net migration include net non-permanent residents and returning Canadians.
65	Natural increase is births minus deaths. In 1995 there were 6,145 births and 4,170 deaths for a natural population increase of 2,025.