Canada has shut down all non-essential services to stop the spread of the Covid-19. This action has had massive economic consequences which require an equally massive jobs response by our governments.
On Friday, April 9, Statistics Canada reported that more than one million people in Canada lost their jobs in March reflecting the first wave of layoffs resulting from the COVID-19 pandemic.
Ontario experienced the largest job losses in raw numbers, with the number of employed people declining by about 403,000, followed by Quebec at 264,000 and British Columbia at 132,000.
And the April job loss numbers are expected to be much, much worse.
This post is primarily an analysis of what Canadians need from the federal government to stabilize an economy in free-fall and get people back to work.
However, a quick summary of how Canada got itself into a position where it had to shut down much of the economy to stop the pandemic is in order. Put bluntly, the economic meltdown was entirely preventable had our governments acted in early January when it was clear that the coronavirus pandemic was coming our way.
Instead, our governments sat on their hands during January and February leaving it no choice but to implement the draconian lock-downs in March that are throwing millions out of work.
What Canada should have done to contain the virus
First, containing the transmission of any infectious virus – especially one as contagious as COVID-19 – requires aggressive action. Defensive moves like closing businesses or social distancing are effective only when combined with rigorous, systematic efforts to get ahead of the spread of the disease.
In Singapore, South Korea, and other countries that have stanched the spread of the coronavirus, public-health authorities followed a simple process. First, widespread testing identified those who were infected even before they showed symptoms (which many never do). Then, aggressive contact tracing identified everyone with whom the infected person had interacted. Finally, everyone identified was subjected to a mandatory 14-day quarantine.
This process not only contained the outbreak in a number of Asian countries; it also avoided some of the extreme lockdown measures used elsewhere, including Canada and the US. Success in these countries was rooted in an uncompromising approach involving mass testing, contact tracing, and selective quarantining.
US, Canada have not been able to replicate the Asian success
So how have the US and Canada done compared to countries that effectively contained the virus?
The US has largely blown its response to the pandemic with disastrous results both in health and economic terms.
For example, although the US had many of the methods used in Asia at its disposal, it failed to deploy them effectively. The Center for Disease Control and Prevention (CDC) has trained more than 3,600 disease detectives. But they have been unable to do their jobs, owing largely to early testing failures at the CDC, and a generally chaotic response to the pandemic from the Trump administration.
Canada has done a middling job – certainly better than the US. Canada has roughly a third of the US confirmed COVID-19 cases on a per capita basis and a fourth of deaths due to the virus (again on a per capita basis).
B.C. appears to have sharply reduced the spread of the virus with only 24 new cases reported on Sunday and 37 on Monday. Public health experts point to B.C. as the model in Canada for containing the virus.
Ontario and Quebec are struggling to contain the virus with Quebec far ahead of Ontario in terms of testing but still reporting alarmingly high rates of confirmed cases. Ontario’s testing program has failed miserably and has by far the lowest testing rate nationally. Even more astounding is that it has the testing capacity to test far more people – it is presently only using 25% of its testing capacity.
Ontario and Quebec have also failed to protect nursing home residents. Many of the COVID-19 related deaths in the two provinces are residents of nursing homes.
Canada needs a massive wage subsidy program now
Given that Canada did not contain the virus in the early stages and has been forced to make the (likely correct) decision to close down large segments of the economy to contain the virus, what should the government economic response to the mass unemployment it has imposed on the country be?
First, not the US response!
For the second straight week, the U.S. workforce set a dismal record for unemployment insurance claims. On Thursday morning, the Labor Department reported that 6.6 million people filed new claims for unemployment benefits last week. That figure is twice as high as the previous record of 3.3 million, set just seven days ago.
This brings the two-week total of initial claims to nearly 10 million. That’s 10 million Americans who have lost their jobs—and, in many cases, their health insurance—in the spiraling chaos of a public-health crisis. Ten million Americans who have been thrust into unemployment-insurance programs, with their company on pause, their start-up ruined, or their business closed, and no clear timeline for reopening. Ten million Americans, many effectively quarantined by local law, simultaneously dealing with sudden confinement and sudden joblessness, separated from their daily habits and prohibited from leaving their apartment to commiserate with colleagues, or seek comfort in the arms of family.
The U.S. economic rescue package implicitly encourages layoffs and increases spending on the unemployed. Jobless benefits have been expanded, and many households will receive one-time payments of $1,200 per adult—plus $500 per child.
Strengthening the US jobless benefit programs in this way was likely necessary to keep families from starving, given that the US has no experience with large scale wage subsidies but does have an unemployment insurance infrastructure to accept applications and deliver benefits. But had the U.S. reacted swiftly and creatively to the prospect of a historic government induced recession, this level of layoffs would not have been inevitable. They could have paid workers a living wage to stay with their employers
Canada may have missed its best opportunity to avoid mass layoffs as well, but at least a large-scale program has been announced which is definitely a step in the right direction. That program is the Canada Emergency Wage Subsidy.
The program would give employers funds to cover 75 per cent of wage costs up to $58,700 – or $847 a week.
The Canada Emergency Wage Subsidy takes a page out of Europe’s playbook and directly pays businesses to meet their payroll obligations and retain their employees.
This accomplishes several important goals. By reducing layoffs, it keeps workers employed by their companies, so that firms will have an easier time ramping up after the crisis passes. By reducing unemployment, it keeps workers from having to take it on themselves to wait for hours on the phone, or online, to secure jobless benefits. By at least attempting to freeze layoffs, it could reduce anxiety for millions of people who, at this moment, don’t know where their next job is, or when they should realistically think about applying for work.
Just the announcement of the program prompted Air Canada to re-hire 16,000 laid-off workers. And Europe is using this approach in a massive way.
Perhaps the most far-reaching scheme set up in recent days was in Sweden where the government has said it will heavily subsidise workers’ salaries so that they will still receive 90% of their pay while working reduced hours. This is alongside an initiative that allows businesses to defer tax payments for up to a year. Denmark has announced similar measures; it is subsidising 75% of salaries for firms promising not to lay-off staff.
In terms of income subsidies for affected workers, so far Germany, France, Italy and Spain are also setting up schemes, although details of the mechanisms of many programmes are still to be decided.
Government moves to improve wage subsidy program – but when will it get out the door?
The Trudeau government should be commended for its Canada Emergency Wage Subsidy proposal (as well as the separate Canada Emergency Response Benefit which can be accessed here) but business leaders and social policy analysts are warned that program conditions initially imposed by the federal government will leave out many people and employers.
For example, Canada’s community of tech start-ups was particularly disappointed with the fact that employers would have had to demonstrate a reduction in revenue of 30 per cent each month in comparison to the same month a year earlier, to qualify for the wage subsidy.
Business groups say a company’s monthly income can fluctuate considerably, especially if it is relatively new.
Jim Balsillie, a former chairman and co-CEO of Research in Motion and the current chair of the Council of Canadian Innovators, said many small and medium-sized companies don’t generate monthly income statements.
According to a draft of the wage subsidy bill obtained by the Star late Tuesday night, Ottawa is now willing to cover the majority of wages for businesses that lost 15 per cent of their revenue in March, instead of the steeper 30 per cent the government had proposed earlier.
But businesses still need to demonstrate the larger 30 per cent drop in revenue to get the subsidy in April and May, compared with the same months one year earlier, the draft bill says.
The draft also includes new flexibility by allowing certain businesses to use January and February as the reference point for their falling revenue.
Canada was not prepared for a coronavirus type pandemic and its initial response to the virus threat in January and February was completely inadequate.
Instead of implementing a massive testing, isolation and contact tracking effort in those early weeks as some Asian countries did, our governments largely sat on their hands wasting the two months notice they had after the virus’ potential for devastation was clear from daily news reports from China’s Wuhan province.
Because of their failure to contain the virus in the early weeks, Canada’s governments have been forced to close down large parts of our economy throwing millions of Canadians out of work.
The government deserves kudos for its positive, last minute changes to the proposed wage subsidy program. However, Canada now has a very short window of opportunity to follow the Northern European approach and preserve jobs. However, on order to be successful such a program must be up and running in the next two weeks – otherwise too many businesses won’t be able to hold on and will close up for good.
Canada needs to preserve as many businesses and jobs as possible during the government imposed shut down and the only way to do that is to institute a massive wage subsidy program immediately.
If we don’t act now on such a program, Canada is facing an economic catastrophe.