Should Ottawa extend support programs?

While several employer groups are calling for extensions to federal emergency benefits, one economist disagrees with the idea.

Calling the Canada Emergency Wage Subsidy (CEWS) “an experiment not to be repeated,” Miles Corak says the program was not informed by fundamental lessons from economic theory.

“It was not addressed to the fixed costs that actually determine business closures; it did not recognize that a subsidy nominally directed to worker payroll can be shifted to other purposes; and it was not, or in principle could not be, targeted on the margin, on businesses that would indeed have closed in the absence of support. This implies that the job losses actually prevented are much lower than the actual payroll covered, each person-month of employment saved costing $25,000 according to one estimate.”

In addition, “income support of this magnitude paid directly to affected workers would likely not be considered politically acceptable among informed citizens, and it is therefore hard to imagine that the program would pass any reasonable cost-benefit analysis,” says Corak, professor of economics at the Graduate Center at City University of New York, in his forthcoming paper “The Canada Emergency Wage Subsidy: First steps, missteps, and next steps.”

‘Extensions needed’

Several federal business support programs are set to expire as of Oct. 23, and the Canadian Federation of Independent Business (CFIB) is calling on the government to delay the deadline.

“The federal government needs to extend its crucial business support programs now, so business owners can have more certainty heading into the fall and winter months,” says CFIB president Dan Kelly.

“It is important to keep in mind that the only businesses that receive any help from the wage and rent subsidies are those with significant losses in revenue.”

The Canadian Labour Congress is also urging Ottawa to extend the emergency benefits.

“Our economy still hasn’t met the government’s own benchmarks, their own fiscal guardrails they set for Canada’s labour market. With so many still unemployed, many for over a year or more, and so many others still unable to qualify for EI – there remains a critical need for emergency supports like the CRB,” says Bea Bruske, president of the CLC.

The Calgary Chamber voiced similar concerns.

“These supports have provided vital stability for entrepreneurs, employees and businesses during the most difficult economic times in recent history,” it said.

“Though third-quarter statistics on economic recovery mark an improvement from the previous quarter, the outlook for the coming months indicates continued economic uncertainty… Ensuring people are able to maintain their employment helps accelerate our economic recovery; high workforce participation leads to higher spending and greater economic growth.”

Many employers in Canada, such as Reitmans and the Second Cup, have taken advantage of the CEWS program during the pandemic.

Further support requested

Earlier this month, CFIB sent a letter to Deputy Prime Minister Chrystia Freeland urging Ottawa to extend CEWS and CERS until Nov. 20 as a first step. The federation also says government should:

• further extend the Canada Recovery Hiring Program, CEWS and CERS, to March 31, 2022
• return the maximum wage and rent subsidies to 75 per cent for all sectors of the economy, as promised to the tourism sector by the Liberal party during the election
• offer additional funding through the Canada Emergency Business Account (CEBA) loan and delay the repayment deadline to the end of 2024
• change the Canada Recovery Benefit to ensure it does not incentivize workers to stay at home rather than returning to the labour force.