Overly generous COVID benefits with Canadian companies: experts

OTTAWA – Benefits rolled out early in the COVID-19 pandemic allowed vulnerable Canadians to stay healthy while maintaining an income, but business supports were excessive and show the outsized influence of corporate groups on public policies, according to economists.

Nearly two and a half years ago, the federal government faced an unprecedented task of shutting down the economy to slow the rapid spread of COVID-19. This shutdown has led to a series of pandemic relief benefits aimed at softening the blow to workers and businesses, the two most important programs being the Canada Emergency Response Benefit and the Canada Emergency Wage Subsidy.

A recent Statistics Canada analysis based on census data shows that two-thirds of Canadian adults received pandemic benefits in 2020, with these benefits cushioning income losses and reducing inequality.

Previous analysis by the federal statistics agency also found that, as expected, use of the wage subsidy program was correlated with a lower likelihood of closure and fewer workforce reductions.

While there was little time to spend elaborating on the benefits and working out the details in March 2020, economists are now assessing the successes and failures of these programs in retrospect.

Miles Corak, a professor of economics at the City University of New York who has written analyzes of these programs, says any assessment must take into account the uncertainty people and governments faced in the times and the urgent need to keep people healthy.

That said, Corak said while CERB was “terribly successful”, the Canada Emergency Wage Subsidy was a “huge failure”.

“The Canada Emergency Response Benefit got the money out quickly in time to keep people home, which is what we wanted to do to save lives,” he said.

On the other hand, Corak said the CEWS “came too late, it was not well targeted and significantly over-insured (companies)”.

CERB was quickly announced in March 2020 and $2,000 per month to Canadians who lost income due to the pandemic shutdown. This was followed soon after by CEWS, which subsidized company employee wages by 75% in the hope of encouraging companies to retain staff.

Corak says that by the time the wage subsidy was introduced, many companies had already let go of their employees.

Another source of criticism for the wage subsidy program was that it subsidized the wages of all workers at affected companies, rather than just those whose jobs were at risk of being lost, which made it particularly expensive.

Jennifer Robson, associate professor of political management at Carleton University, also pointed to the failure of the wage subsidy program. Robson said businesses that would otherwise have closed for reasons unrelated to the pandemic have remained artificially afloat because of the wage subsidy.

“These were not businesses that were going to return to profitability,” Robson said.

Data from Statistics Canada shows that the number of business closures increased significantly in April 2020, but a sharp decline followed, bringing monthly closures down to a level lower than before the pandemic.

About 31,000 businesses closed in August 2020, while almost 40,000 closed in February 2020.

In hindsight, Corak said the wage subsidy program should have been smaller in scale and targeted larger companies with specialized needs where it would be important for companies to retain the same employees, such as the airline industry.

The Canadian Federation of Independent Business said the wage subsidy was “crucial” for small business owners and noted in April this year that only two of its five members said they had returned to normal sales.

Adrienne Vaupshas, ​​Finance Minister Chrystia Freeland’s press secretary, said in a statement that the government’s focus at the start of the pandemic was to protect jobs and ensure a strong economic recovery.

“Today we have recovered 114% of the jobs lost during the darkest months of the pandemic,” Vaupshas said.

Contrary to what some economists have called overly generous support for businesses, some low-income Canadians have experienced a clawback on welfare benefits because they have collected CERB. The Canada Revenue Agency also hopes to claw back benefits paid to more than 400,000 Canadians whose eligibility has been questioned.

In response, the anti-poverty group Campaign 2000 called for a CERB amnesty.

Corak said while it is reasonable to ask those who fraudulently collected benefits to repay them, companies should be held to the same standard.

“The concern I would have is the asymmetry in this response between individuals and businesses,” Corak said.

CFIB has called for more loan relief for small businesses that accessed loans through the Canada Emergency Business Account. The federal government is already offering partial loan forgiveness if repayments are made by the end of 2023.

Robson said that when it comes to shaping public policy, business interest groups have well-resourced public relations teams to advance their interests.

“There’s no such thing for low-wage individual workers,” Robson said.

Corak noted that at the start of the pandemic, the focus was on the role of frontline workers, but over time that shifted to smaller businesses.

“I think the small business lobby has been very effective in educating individual MPs and pressuring the cabinet and government to respond in a way that many unseen and unheard-of mothers, fathers, workers and families n just didn’t have the same voice,” Corak said. .

The danger of the wage subsidy program, Corak said, is that it sets a precedent by oversubsidizing businesses and thereby stifling innovation.

“We’re almost moving towards a basic income for small businesses rather than a basic income for individuals,” he said.

This report from The Canadian Press was first published on August 6, 2022.