Skip to main content
tax and spend

The Canada Recovery Benefit starts to wind down next month, with a reduction in benefits a first step toward the COVID-19 pandemic income-support program vanishing completely by the fall.

The federal Liberals have yet to spell out what will happen in the long term, beyond promising a two-year consultation period on what permanent changes are needed to employment insurance. But economists say the income-support programs constructed on the fly over the past 15 months could be used to design fixes to many long-standing deficiencies in Canada’s EI system.

The CRB, introduced last fall to support self-employed workers and others who did not qualify for regular EI payments, is better attuned to the needs of the modern economy, and does a better job in creating a path back to sustained full-time employment, those economists say.

“The way the CRB is designed, it’s very good,” says Stéphanie Lluis, an economics professor at the University of Waterloo.

In a recent study published by the Institute for Research on Public Policy, Prof. Lluis and her two co-authors, IRPP research director Colin Busby and University of Michigan Ann Arbor professor Brian P. McCall, concluded that the current structure of EI – which claws back 50 per cent of earnings from a job starting with the very first dollar of wages – provides little incentive for claimants to take part-time or casual work while still receiving benefits.

A better structure, they say, is one that allows claimants to earn some wages below a threshold without any reduction in benefits, and only then introduces a clawback at higher levels, but still allows individuals to add to their income through working.

In real life, the federal government has done just that with the CRB, which takes a much different approach than the EI system. Under EI, claimants lose 50 cents for every dollar they earn; once their earnings equal 90 per cent of their benefit, the clawback increases to 100 per cent. Every extra dollar of earnings is simply transferred to the government, eliminating any economic incentive for further work.

Pilot projects from 2005 to 2012 exempted some earnings, but then reduced benefits dollar for dollar beyond that point. That approach encouraged claimants to work, but only up to the point the clawback kicked in.

The CRB, designed on the fly during the pandemic, works much differently – and looks a lot like the system that Prof. Lluis and her colleagues recommend. Under the CRB’s rules, claimants can earn up to $38,000 in a tax year before benefits are reduced at all. At that point, there’s a 50-per-cent clawback, the same rate as the one for EI claimants. But CRB recipients, that rate does not rise to 100 per cent, meaning there is still an economic incentive to continue working while receiving benefits.

The IRPP study suggests a clawback rate of 40 per cent, but Prof. Lluis said there is nothing magic about that number. An optimal rate could be higher or lower, and would depend on further research, she said, adding that better data are also needed on how EI claimants respond to incentives to work while receiving benefits.

The timing of the clawback is another way the CRB is better than EI, Prof. Lluis says. Under EI, the clawback is calculated on a weekly basis, discouraging recipients from accepting full-time work lasting a short time. Not so under the CRB: Clawback calculations are done on an annual basis. So, a worker offered a short-term contract has a much stronger economic incentive to accept a job offer under the CRB’s rules.

The broader reach of the CRB is another advantage compared with EI, says David Macdonald, senior economist with the Canadian Centre for Policy Alternatives. Part-time and self-employed workers are more easily able to qualify for benefits.

Another pandemic-spurred innovation worth keeping, he says, is the minimum payment levels established. Prepandemic rules for EI set benefits at 55 per cent of a recipient’s average insurable weekly earnings. The CRB pays a fixed weekly amount of $500, or $450 after a withholding tax is deducted. EI now has a $500 minimum, too, and recipients can be paid more if their insurable earnings are high enough.

A minimum weekly payment helps out lower-paid workers, particularly part-timers, Mr. Macdonald said. But Prof. Lluis and other economists have said those minimum payments could become a disincentive for claimants to return to low-paid work.

However, the government is moving to reduce CRB payments after July 17, with weekly amounts for new claims falling to $300. The CRB is scheduled to end in late September, although Ottawa has allowed for the extension of the program until as late at Nov. 20, if public-health considerations require it. And the government has extended income supports and other programs shortly before their expiry dates several times during the pandemic.

Maria Lily Shaw, an economist at the Montreal Economic Institute, said Ottawa’s decision during the pandemic to reduce the regional disparities in qualifying standards for EI benefits was a positive move, and should be made permanent. Ms. Shaw said a nationwide standard would make EI harder to access in the Atlantic provinces, and discourage seasonal workers from using it as a permanent source of income. “You have to break the dependence that’s been created,” she said.

But Ottawa did not make it harder for workers in areas of high unemployment to qualify; it made it easier for claimants elsewhere.

So far, the government has proposed just limited changes, most notably the extension to September, 2022, of the uniform national standard for qualifying for EI payments. That will make it easier for part-time workers, for instance, to access benefits.

Broader reforms will take much longer, with the Liberals saying they plan to conduct “targeted consultations” over two years to examine systemic gaps such as income support for self-employed and gig workers.

Any permanent change to the structure of EI will have to wait on the outcome of those consultations.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

Sign up for the Tax and Spend newsletter.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe