The cost of living in Quebec

It is often said that prices are lower in Quebec than in several other Canadian provinces, which implies that a dollar goes further in Quebec than elsewhere in Canada.

But is living in Quebec really less expensive? It appears the claim does not survive rigorous scrutiny.

First, when determining the contents of the basket of goods and services used to compare inflation (i.e. changes in prices), simple comparisons are unsatisfactory because they fail to consider the problems of endogeneity and of differences in the quality of goods and services. In reality, households base consumption choices on their real incomes and compromise on quality and price to obtain the basket of goods and services that best satisfies them. It follows that a significant part of the total cost of the basket currently consumed by households is a function of income. Because Quebec is poorer than the rest of Canada, the basket of goods and services consumed by Quebecers is different from the baskets consumed elsewhere in Canada, making comparisons difficult.

Second, the notion that the cost of living is lower in Quebec than in the rest of Canada rests primarily on the alleged lower cost of housing in the province. However the quality of housing in Quebec does not match the quality of housing in Ontario. Because the cost of living is closely connected to real income, households determine the goods and services they will consume as a function of real income. Poorer households sacrifice a certain amount of quality when it comes to housing. For this reason, Quebecers are less likely to own their own homes, they tend to live in less spacious accommodations, and once they become homeowners, the median value of their homes is lower than that observed in other provinces.

Third, cost of living measurements are significantly distorted by goods and services subsidized by the Quebec government. These subsidies are financed through higher income taxes that market baskets fail to consider when used to make interprovincial comparisons.

Fourth, prices for other goods and services diverge very little between Quebec and the rest of Canada. Considering the lower productivity of the Quebec economy — which implies lower median and mean salaries — this means Quebecers must work longer than many other Canadians to afford identical goods and services. In fact, it would appear that Quebec’s situation has deteriorated in this regard since 1988.

In sum, it is clear that the cost of living in Quebec is not actually lower than elsewhere in Canada.