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Employment, Workforce Development and Disability Inclusion Minister Carla Qualtrough listens to a question during a news conference on Aug. 20, 2020 in Ottawa.Adrian Wyld/The Canadian Press

For weeks, the Liberals have labelled their Conservative rivals as heartless for suggesting that the structure of the Canada Emergency Response Benefit was discouraging Canadians from returning to work.

Employment Minister Carla Qualtrough continued to do so on Thursday, even as she unveiled a new benefit that would replace the CERB once it winds up next month, while extending emergency income supports for an additional year.

“Fundamentally, we believe Canadians are honest and that they want to work. There are other parties who think Canadians would prefer to stay at home,” she said after reporters asked her whether the original design of the CERB was a disincentive for workers to return to their jobs. “But we think that recent labour market data shows just the opposite – when jobs are available, Canadians will take them because they want to work and provide for their families.”

Economists agree with Ms. Qualtrough’s assessment of labour market data: So far there is no evidence the CERB created a wave of workers refusing to work. Mikal Skuterud, an economics professor at the University of Waterloo, said the proportion of jobless Canadians (excluding those on temporary layoffs) looking for work in July was only slightly lower compared with July, 2009, during the height of the economic fallout from the financial crisis.

But even as the Liberals critique assertions of disincentives, their recasting of emergency benefits is an implicit acknowledgement that the original CERB pulled in that direction.

Critics of the CERB took aim at three main issues: that it was too generous, with the $500 weekly benefit competing with full-time pay for a minimum-wage worker; that it did not require recipients to look for work; and that it penalized recipients who worked more than a few hours, since benefits were stopped entirely for anyone earning more than $1,000 a month.

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The Liberals’ changes to emergency benefits deal with all three. Weekly benefits for the successor to the CERB, the Canada Recovery Benefit (CRB), are $400, a 20-per-cent reduction. For those eligible to receive Employment Insurance, the government has also set a $400 floor; anyone with an annual income of less than $37,900 would receive higher payments than under regular EI rules that replace 55 per cent of lost income.

Derek Holt, head of capital markets economics at Bank of Nova Scotia, said the current income supports are a necessary and desirable measure, but added that he is concerned that generous benefits may end up competing with wages in the longer term.

Unlike its predecessor, the CRB requires recipients “to look for and accept work when it is reasonable to do so.”

And, most significantly, the new benefit, slated to last 12 months, removes the steep financial penalty that kicked in for recipients working part-time. Under the CERB, recipients could earn up to $1,000 a month without penalty (a change from the original incarnation, which allowed for no earnings at all). Even one additional dollar of earnings resulted in the entire $2,000 benefit being clawed back, an obvious disincentive for lower-wage workers unable to fully return to work.

The new benefit, which mirrors EI rules, is far less restrictive. Recipients face no clawback at all until their annual earnings exceed $38,000. After that, they have to eventually repay 50 cents of benefits for every dollar of earnings. For someone receiving $400 for the maximum possible 26 weeks, benefits would not be entirely clawed back until their annual earnings exceeded $58,800 – far higher than the $36,000 ceiling under the CERB.

Tammy Schirle, professor of economics at Wilfrid Laurier University in Waterloo, Ont., said the new clawback structure is an improvement, particularly since many lower-wage workers won’t see their benefits reduced at all as they return to the work force.

She said the 12-month lifespan of the CRB is also a plus, since it will give Canadian workers some clarity and certainty over income supports should there be follow-on waves of the coronavirus.

But both Prof. Schirle and Prof. Skuterud sounded a note of caution about making such programs permanent, saying that could create noticeable disincentives for Canadians to return to work. (Ms. Qualtrough said Thursday that “it’s too early to tell” whether the changes announced this week will be made permanent.)

Prof. Skuterud said that the disincentive impact of the CERB was likely muted by the fact it was temporary – turning down a job for a few additional weeks of payments might not make long-term financial sense. A permanent program paying out the same level of benefits might well discourage a return to work, he noted. “It’s really important that they be temporary, and people understand that they are temporary.”

Tax and Spend is a weekly series that examines the intricacies and oddities of taxation and government spending.

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