How the battle for skilled labor will be won
Employers must approach the next growth cycle with a different mindset
What would a labor shortage mean for the oil sands? Ask anyone who experienced the last boom. Fearing that a lack of people could delay their multibillion-dollar projects, employers competed feverishly for workers. This made sense: additional costs for attracting labor were less than the price of delaying projects.
Some increases were quite visible. On an annual basis, union wage rates jumped 5.9 per cent from the end of 2006 to mid-2009. In 2007, union agreements locked in raises for the following four years.
But these wage rates were just a small factor in how much labor costs increased. Overtime also played a role. With 50- or 60-hour workweeks becoming the norm, average hourly rates expanded. (If workers exceeded 40 hours in a given week, additional hours were often paid at time-and-a-half or double-time rates).
And then there was labor productivity. As the labor market tightened, the average level of experience in the workforce tended to decline. And with more out-of-province and out-of-country workers, requirements for local certification and extra oversight further reduced efficiency.
To make the most of high oil prices, both large and small project schedules were fast-tracked to such a degree that engineering work or procurement was sometimes incomplete when field construction commenced.
Productivity-sapping delays and costly rework resulted. Plus, there were other long-term consequences of fast-tracking, such as start–up difficulties and operational issues (these, perhaps, were the most expensive consequences of the boom). Costly benefits were doled out to attract more workers. Fort McMurray per diems (a daily allowance for covering living expenses while working) nearly tripled from $75 to $195.
Workers housed in camps free of charge were sometimes provided per diems too. Bonus payments for starting and staying at a job – became common. Higher recruitment fees, construction of airstrips and costs for operating airlines (measured by passengers, Suncor now runs the fifth-largest airline in Canada) added to the tally.
With that historical scare-fest in mind, what does the future hold? There are many reasons to believe labor constraints will act as a speed bump for future oil sands growth.
Major projects in other Canadian regions are reducing Alberta’s traditional workforce, especially in the Maritimes. A multibillion-dollar nickel operation in Newfoundland and Labrador is a case study in competition. Project sponsor Vale SA is trying to attract workers that might otherwise end up in Fort McMurray, using slogans like “Less highway; more Hi Dad” and “Be a frequent father, not a frequent flyer.”
There are some differences between this boom and its predecessor, however. For starters, there are less large mine or upgrading projects proposed, each of which demand more than three times more construction workers compared to a large in situ project. Not only are the in situ projects smaller, they are simpler – new facilities are often copies of previously built phases. Smaller, repeatable projects tend to be easier to manage.
Employers will also approach this boom with a different mindset. There is now a greater recognition that the additional costs of attracting labor in a shortage are higher than the cost of slowing projects. Companies are also proactively planning to hire foreign workers, foresight that was generally lacking in the past boom.
Longer term, Canada needs more options. Changes to immigration laws would increase the availability of skilled labor. Another obvious – but longer term – action is training more workers.
A recent collaboration between the Canadian Association of Petroleum Producers and the Canadian Building Trades aims to encourage more people to join the trades. Such steps are necessary, as labor will be a major factor that determines future oil sands growth, now projected to double to roughly three million barrels per day by the end of this decade. People, as much as capital and equipment, are the engine that drives the sector’s growth.