Even when they recede, pandemics and other great crises seldom leave social and economic arrangements as they were. It is now up to Canadians to decide what the legacy of the COVID-19 will be.
What kind of economy will emerge from the crisis? Will it be one that honors the dignity of work, rewards contributions to the real economy, gives workers a meaningful voice and shares the risks of ill health and hard times?
We need to ask whether reopening the economy means going back to a system that, over the past four decades, pulled us apart, or whether we can emerge from this crisis with an economy that enables us to say, and to really believe, that we are all in this together.
The logic that ordinary people need security is as true in normal times as it is under crisis. The federal government alone has announced $145 billion worth of new or enhanced programs to deal with the economic fallout of COVID-19. Most of the dollars associated with these programs are scheduled to be spent over the next four to six months.
Do we want to simply fold these programs up as they expire over the next few months, or do we want to re-fashion them into something permanent that will contribute not just to long-term economic growth but to a fairer, more just, Canada?
In the next weeks and months, Canada Fact Check will attempt to propose a practical vision that combines a more robust Canadian social safety net with new programs that will promote good paying jobs that reflect global challenges such as climate change, pandemics, and the transition to a digital economy.
Canada’s “Big 3” federal COVID-19 stimulus programs
The federal government has introduced a number of COVID-19 related programs but the three major pandemic economic stimulus measures are: The Canadian Emergency Wage Subsidy (CEWS), the Canada Emergency Relief Benefit (CERB), and the Canada Emergency Business Account.
The $76 billion CEWS is a wage subsidy program that will pay 75% of the first $58,700 normally earned by employees, up to $847 per week. The subsidy is expected to last for three months — retroactive from March 15 to June 6. The government has said that the money from the program will begin to be delivered to employers later this week. The legislation governing the program allows the government to extend the program to Sept. 30 by regulation (i.e. without further parliamentary approval) but the government has not given any indication that it will do so.
The second major program is the $35 billion CERB. It pays $500/wk. for up to 16 weeks to Canadians who have stopped working because of COVID-19. It temporarily replaces the Employment Insurance (EI) program and increases the weekly payment for those who would have received less than $500/wk. through EI and reduces payments to $500/wk. for those who would have received more than $500/wk.
The third major program is the $9 billion Canada Emergency Business Account, which is meant to provide interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover operating costs for businesses that have seen a reduction in revenue during COVID-19. It is administered through Canada’s banks.
To date, more than 7.3 million Canadians have applied for CERB. Another 96,000 employers have applied for the CEWS’ 75 per cent wage subsidy to cover about 1.7 million workers. Finally, 518,000 businesses have applied for $40,000 government-backed loans to stay afloat through the global pandemic.
Because the CEWS is scheduled to expire on June 6 and the government must make a decision within days as to whether it will be extended or not, this post will focus on the benefits of extending this program and on options for making it permanent.
The future of the Canadian Emergency Wage Subsidy program
Some social policy advocates have suggested that Ottawa should retain the CERB (the $500/wk. benefit for the unemployed) after its scheduled end on Oct. 6 and transform it into a Universal Basic Income. However, there’s been little suggestion of hanging on to the CEWS past its June 6 termination date or much of a discussion of what the social and economic benefits would be of making some variation on the CEWS a permanent part of Canada’s anti-recession tool kit. Made permanent, a wage subsidy for businesses could be a major component of a comprehensive strategy that would support high levels of employment even in economic downturns.
As such, there is an extremely strong argument for extending the program in its current form after June 6 when the program is due to expire. Firms will still need enormous help to rehire and rebuild their operations in the June through September period, and a federal wage subsidy needs be part of that. It makes no sense for companies like Air Canada and WestJet to rehire thousands of laid-off workers (which they immediately did once their eligibility for CEWS was confirmed by the federal government) only to have the wage subsidy end at the same time they will actually be able to put the furloughed employees back to work. Many of the workers re-hired by the airlines are now being paid to sit at home as the wage subsidy is back-dated to March 15.
But even when the economy is “back to normal,” there will be recessions and other dips in the business cycle, and it would be nice for Ottawa to have a permanent lever it could pull to try to prevent mass layoffs and actively encourage higher employment. Even if we were near “full employment”, a wage subsidy could be used to help coax employers into giving some people at the margins a second — and maybe a third — chance in life.
The most compelling reason for making some variation of the CEWS program permanent is that in order for employers to receive financial assistance from the program, they have to retain employees and continue wages and benefits. In contrast to the CERB and Employment Insurance, it would require people to work for their wages, with all the good things that entails.
Again, the legislation enabling CEWS contains the flexibility for the government to prescribe by regulation additional qualifying periods that end no later than September 30, 2020. Therefore, the federal government should announce immediately that the program as it currently exists will be extended to Sept. 30 and then use the time leading to September 30 to re-design it to make it a permanent program that would be an important component of a high wage, high employment strategy.
A permanent, revised CEWS should also incorporate elements of the current work-sharing program — whereby employees whose hours get reduced by an average of 10% to 60% can claim Employment Insurance for lost wages. In response to the mass unemployment caused by the government shutting down large parts of the economy due to COVID-19, the work sharing program has already been extended to 76 weeks from 38.
Work sharing and wage subsidies in Europe
European countries seeking to protect workers from COVID-19 are overwhelmingly using wage subsidies as their principal anti-recessionary instrument and are looking to Germany for a model.
Across the continent, countries are rolling out their own version of Kurzarbeit, a German program that translates literally to “short-time work.” Under the program, financially distressed employers can drastically reduce worker hours, and the government will pay most of their lost wages. The goal is to help companies preserve jobs during a downturn, making it easier for them and the broader economy to recover later.
Kurzarbeit has existed for more than a century in Germany, but it gained international attention during the 2008 financial crisis, when the number of workers enrolled in it climbed from around 50,000 to more than 1.5 million in a year. The program is widely credited with helping Germany weather the crisis and recover relatively quickly; economists believe unemployment would have risen by twice as much without it. Kurzarbeit’s long history and acceptance by both employers and unions is one reason why it works so well in Germany. And because layoffs must clear a higher bar under German law than in Canada and the US, making layoffs more onerous and costly, companies are eager to avoid them.
More than half of the COVID-19 stimulus programs now implemented across Europe involve a version of wage subsidies combined with short-time work, according to a Quartz analysis of OECD and IMF reports. In some cases, these programs are brand new (as in Canada); in others they represent an expansion of an existing Kurzarbeit-like scheme (many of which were launched after the 2008 financial crisis).
Canada has a once in a life-time opportunity to refashion its basic social safety net and economic growth strategies in a way that will not just stimulate economic growth but will honour the dignity of work and create the foundations for a fairer, more just, Canada.
Taking a page from Europe and making the Canadian Emergency Wage Subsidy program permanent and integrating it into a coherent wage subsidy/work sharing program, would be a significant contribution to this project.
In our next post, Canada Fact Check will look at CERB, Employment Insurance and the future of Canada’s income support programs for the unemployed.