Reassessing previous forecasts
Photo by Chris Henry on Unsplash
One year ago, ICTC released the report A Digital Future for Alberta: An Analysis of Digital Occupations in Alberta’s High-Growth Sectors. This report analyzed and forecast employment in key digital occupations across Alberta’s economy during a period where economic diversification was beginning to take shape. Analysis encompassed many areas, including the fastest-growing digital jobs in 2019, wage premia for digital roles, the most in-demand digital skills, the fastest growing STEM fields of study, and many other findings based on primary research. The study also identified and forecast key digital occupations across growth sectors like healthcare, advanced manufacturing, cleantech, interactive digital media and others.
As the great statistician George Box famously quipped, “All models are wrong, but some are useful.” Unfortunately, COVID-19 has swept across Canada at speed, rendering previous forecasts of employment and economic growth-including our own-in need of course correction.
About a month and a half after the declaration of a global pandemic, COVID-19 has already thrown our healthcare systems into disarray and wreaked havoc on the economy. From the S&P and the IMF, to the Bank of Canada, COVID-19 has blown all previous economic predictions for 2020 off course. For Alberta, it brought tourism to a grinding halt and created ripples across sectors. Further compounded by cascading oil prices-a barrel of Western Canadian Select is currently worth about $6, after having dipped negative in recent periods-Alberta is in the throes of what has been referred to as a “triple whammy” of economic contraction.
In this climate, COVID-19 has not only rendered previous employment forecasts inaccurate but has also made the business of forecasting trends with accuracy more difficult.
In this review, I endeavour to analyze the multiplicity of competing trends in order to uncover their implications for Alberta’s digital labour market.
To forecast employment in the digital economy, ICTC’s model inputs are often informed by the macroeconomic estimates like those offered by international institutions like the IMF. Reviewing recent literature provided by the IMF and others, we arrive at a range of estimates for real GDP growth rates in the province of Alberta going out to 2023.
Figure 1 shows Alberta’s historical real GDP growth rate, ICTC’s previous estimate out to 2023, and three new GDP forecasts post-COVID-19: contractionary, average, and expansionary.
Figure 1: Real GDP Growth Rate Forecast
Using these estimates as inputs, our model captures the historical relationship between movements in the generalized economy and the core in-demand digital occupations considered in a Digital Future for Alberta. The model “knows” that the more real GDP rises, the more employment in the occupations under consideration tends to rise as well.
Several other variables, such as digital economy wages, unemployment rates within digital occupations, and even TSX indices of technology stock prices are incorporated to improve overall model fit when appropriate ( Occam’s Razor is important in modelling).
Figure 2 unravels how the new real GDP assumptions translate into new forecasts for employment. With Alberta’s tech sector scaling notably over the last years, digital occupations grew at a cumulative average annual growth rate of 3.2% from 2001 to 2018-a rate far outstripping employment growth across the entire economy. ICTC previously projected that high employment growth in digital roles would continue over the coming years as technology was increasingly adopted across several sectors of the economy. These assumptions, paired with estimates of relatively calm economic waters, led ICTC to predict in the summer of 2019 that employment growth in core digital roles would scale by 3.2% until 2023, causing a demand for nearly 9,000 roles and total employment of over 77,000.
The recent COVID-19 reality and the economic recession that followed has already materialized in severe implications across the entire economy, including high-growth sectors like technology.
Figure 2: In-Demand Digital Occupations: Updated Forecast to 2023
Under new post-COVID-19 assumptions, even an expansionary growth forecast does not bring employment demand to previously estimated levels: contractionary growth is 1.4% across the period, average growth is is 1.8%, and expansionary growth is 2.1%. A contractionary scenario — where the recession lingers in Alberta — translates to a significant shrinking in digital employment by 2023, bringing demand to just over 5,000, and total employment to 73,700. If economic conditions improve modestly in 2021, employment demand may reach 6,300 by 2023, with total employment shy of 75,000.
COVID-19 has caused a heavy downward shift across Alberta’s economy and labour market, including in digital occupations. Under all scenarios-even the expansionary, where demand reaches 7,500 and total employment grows to slightly more than 76,000 by 2023 — digital employment retracts from the previous forecast. Early indications suggest that digital occupations tend to be somewhat insulated from the worst impacts of long-running quarantines, as many roles and responsibilities associated with these jobs can still be completed virtually and remotely. However, as these new projections highlight, even they are not immune to the tag-team forces of a global recession and health crisis. In the next number of weeks, ICTC will be evaluating the key catalysts for enabling a resilient economic recovery across Canada. Stay tuned for future updates on this topic!
Read the full report here!