Canada has never seen anything like this before.
In just a few days, companies across the country – from multibillion-dollar stalwarts to family-run restaurants – have cut their operations to the bone, laying off scores of employees. Sometimes it’s a few workers. Other times it’s everyone. Either way, an unprecedented number of Canadian workers are left to navigate government programs –some created just days ago – that will hopefully provide enough cash to cover expenses as the COVID-19 pandemic ravages the country’s labour market.
“I can’t recall anything that looks quite like this before,” said Wayne Lewchuk, economics and labour studies professor at McMaster University. “It’s pretty catastrophic.”
For many Canadians, job losses during the last financial crisis are still fresh in mind. Only this situation is substantially worse.
Consider that over an eight-month period ending in mid-2009, roughly 425,000 Canadians lost their jobs, according to data from Statistics Canada’s labour force survey. All told, employment declined by 2.5 per cent.
Already, the federal government has received about 500,000 applications for employment insurance benefits this week, an “unprecedented situation,” Prime Minister Justin Trudeau said Friday.
It’s not hard to envision a COVID-19 disruption that makes the financial crisis look like a blip.
As of December, 1.14 million worked in food services and drinking establishments, according to a Statscan survey of payroll data. More than 200,000 worked in accommodation, and roughly 175,000 in clothing stores. Another 80,000 worked in air transportation, 65,000 in performing arts and spectator sports, with 54,000 more in the motion picture and video industries.
In no time, all of those industries have experienced either partial or full shutdowns. Not only that, but other industries are slashing staff levels, too.
The services side of the economy – where eight out of 10 Canadians work – has been directly hit, affecting retail salespeople, hotel and casino workers, as well as restaurant staff, many of whom work in low-wage jobs with little financial cushion. Layoffs are also mounting on the goods-producing side too, in the auto and energy sectors.
Two weeks ago, business was good at La Vie en Rose and Bikini Village, mainstay stores in malls across the country. Then, sales collapsed. On March 13, in-store sales dropped by 70 per cent for La Vie en Rose and by 90 per cent for Bikini Village from year-ago levels, said Montreal-based chief executive officer François Roberge.
Mr. Roberge decided on Tuesday to close all 258 stores across the country and lay off about 3,200 employees. “To be honest, Wednesday night when everything was done, I had a couple drinks,” he said.
In downtown Toronto, this is typically the busiest week of the year for the Old Spaghetti Factory. In the first two months of the year, business was booming – until March, when it collapsed.
All 130 workers were temporarily laid off on Tuesday, the day the 49-year-old restaurant closed its doors. A few managers have stayed on to wind down the operations; there’s enough to keep them on payroll for another two weeks; beyond that it’s hard to know.
“This week’s been crazy,” said Graham Hnatiw, director of operations. “We didn’t think it would go to zero this quickly.”
The federal government’s 10-per-cent wage subsidy is not enough for employers to maintain headcount, Prof. Lewchuk noted, and he’s concerned people with no financial means will have trouble accessing benefits, particularly those who don’t have computers to apply. “Exactly how people are going to access some of these benefits, particularly at the bottom of income scale, is worrisome.”
Four sectors are most at risk and first to be hit, said Armine Yalnizyan, economist and Atkinson fellow on the future of workers: retail trade, educational services (which includes childcare and camps), information and recreational services and accommodation and food services, amounting to more than six million people. “This is the first wave … and those sectors are marked by a lot of low-wage jobs.”
Several million are self-employed, with little cushion for economic hardship, she said, suggesting the need for immediate measures such as emergency welfare services, increased capacity at food banks and leniency on rent payments.
Casual and temp workers overwhelmingly work on the services side of the economy and will be disproportionately affected, said RBC senior economist Andrew Agopsowicz. “Widespread ‘social distancing’ is shaping up to be a demand shock of previously unseen magnitude for the services sector.”
In the United States, Canada’s largest trading partner, Goldman Sachs projects growth will plummet at a 24-per-cent annualized rate in the second quarter, or substantially worse than anything the U.S. has seen “in the history of modern GDP statistics,” the bank’s economists wrote in a note.
In Canada, a recession “is now unavoidable,” said Jean-François Perrault, chief economist at the Bank of Nova Scotia said in a note Friday.
Business owners say they need immediate measures to help shelter them through the storm. Restaurant chain The Burger’s Priest employs about 500 workers, most of whom are still working, for now. Keeping them on “depends on the support we get from government, insurance, landlords and utility companies,” said Alex Rechichi, president of Crave it Restaurant Group, adding that the most pressing issue is lease holidays or forgiveness for commercial tenants. “If there isn’t a manageable solution to this one issue, we will witness mass permanent closures, unemployment and mortgage defaults for commercial landlords.”
Demand has buckled – but it’s also shifting by the day. Some areas are adding workers. Telehealth services are booming; health-care workers are coming out of retirement; federal funds are flowing to ramp up medical-equipment supplies, grocery and drug stores are hiring and Amazon is adding scores of warehouse workers.
What’s different about this crisis is that thousands of successful companies, with viable business models, are seeing their revenue decimated overnight. Inevitably, that raises concern of how those companies will keep the lights on when bills come due.
But creditors may be more lenient than some assume, said David Ullmann, partner at Toronto-based Blaney McMurtry who has handled some high-stakes cases such as representing landlords during Target Canada’s insolvency proceedings.
Mr. Ullmann said banks and landlords would rather come to a peaceful resolution with debtors – perhaps allowing deferred payments or partial loan forgiveness – than see good businesses fail. “A landlord doesn’t want to close a restaurant and go look for another tenant right now,” he said.
If necessary, however, companies can file an insolvency proposal, buying them several months of creditor protection as the pandemic situation plays out.
“The system actually works really well for healthy businesses that can survive a period of disruption, and then go forward to where they were before,” Mr. Ullmann said.
But if the pandemic drags on long enough, he cautioned, creditors may lose patience.
In Vancouver, Landsea Tours & Adventures has gone from 130 employees, to four currently and by next week, “probably zero to one,” said Kevin Pearce, president and owner. The company has been in operation for 35 years.
“We have survived a few global economic events, epidemics and tragedies. This is truly unprecedented times, and the effect on the [tourism] industry in B.C. is frankly catastrophic.”
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