The recovery is under way – but it’s unlike anything we’ve seen before.
The COVID-19 pandemic delivered a huge blow to Canada’s economy this spring as businesses across the country shut down as part of a broader effort to slow the spread of the novel coronavirus. Real GDP collapsed at an annualized rate of 8.2 per cent in the first quarter, the sharpest drop since the financial crisis of 2008-09.
The lockdowns triggered a historic wave of unemployment, resulting in some three million jobs lost in March and April alone.
Now, as provinces allow businesses to reopen, the Canadian economy is showing signs of life. In May, the number of employed people climbed by nearly 290,000. With restrictions easing further, the coming months are set to show further gains in hiring.
But beyond a short-term snapback of some jobs, the labour market isn’t likely to return to health any time soon.
Companies are finding it’s unfeasible to reach previous staffing levels. Sales are weak and customer traffic is low – often by design due to physical-distancing requirements.
Moreover, workers also have compelling reasons to stay home: virus fears, lack of child care and government income supports that replace a significant portion – and sometimes the entirety – of their earnings. Many are opting to receive the Canada Emergency Response Benefit (CERB), for example, rather than return to their jobs.
The CERB program is just one of several complications facing businesses and slowing the return of millions of lost jobs as the economy reopens. Companies are back in business across Canada, but the after-effects of the pandemic shutdowns could last years.
For the restaurant industry, reopening in a pandemic is no easy feat.
Before the crisis hit, Oliver & Bonacini Hospitality employed about 3,500 people in dozens of restaurants and event venues across the country. Today, with only some restaurants in operation, fewer than 500 are working.
President and chief executive Andrew Oliver said that some former employees have declined to return because of the CERB payments they’re receiving – enough that the program is a factor in delaying the reopening of some restaurants.
Under CERB, workers significantly affected by COVID-19 are able to collect $2,000 every four weeks, to a maximum of 16 weeks, over any period from mid-March to October. Ottawa rolled out the benefit quickly in early April to mitigate damage wrought by the virus, and it’s helped millions of early applicants meet their financial obligations. But payouts for the first wave of continuous recipients will end July 4.
Even so, Mr. Oliver said a large portion of his employees would not be able to earn close to their precrisis wages because restaurant capacity is constrained by physical-distancing requirements, which limit business and the tips that many employees depend on.
The situation is “proving people are willing to not work if you pay them enough to not work,” Mr. Oliver said. “If they aren’t sure they’re going to make tips, or they’re not sure they’re going to be busy, why would you risk that for [money] that’s guaranteed [if you] stay home?”
At Field House Brewing in Abbotsford, B.C., persuading workers to return was a challenge, said founder Josh Vanderheide. Several former employees were worried about health and safety, and were also receiving income from CERB.
“Being in hospitality, $2,000 is actually a fair amount of income for a lot of people,” Mr. Vanderheide said.
Over time, the brewery and restaurant was able to rehire as many workers as it could, given weaker sales. Most of the 55 employees who were there before the pandemic are back. But for some, sticking on CERB made more sense.
“In fairness, it’s not that they’re lazy,” Mr. Vanderheide said. “If people were working one or two shifts a week, there was more of an incentive for them to wait and see what was going to happen with the economy.”
The uneven economic recovery stands to make life difficult for those who have shouldered the burden of job losses to date: women, young people, gig workers, the lower paid and the less educated, along with recent immigrants.
Making matters worse, economists warn of a second wave – not of infection, but business closings – that will hamper job growth during the recovery phase.
“I’m concerned that when several of these companies reopen, they will be able to manage reduced capacity for a segment of time, but eventually will find that it’s not profitable,” said Frances Donald, chief economist at Manulife Investment Management.
It all adds up to a painfully slow return to the employment levels before the pandemic.
“I would be really surprised if we won back half of those [three million] lost jobs within the next year,” said Jim Stanford, economist and director of the Centre for Future Work, a think tank. “And I think getting back the next half will take several years of rebuilding.”
The outlook echoes that for the United States, where the Federal Reserve warned this past week of chronic unemployment. “My assumption is that there will be a significant chunk, well into the millions,” of “people who don’t get to go back to their old job,” Fed chair Jerome Powell said.
At Daniel Chocolates in Vancouver, operations are coming back to life. The company’s chocolate factory resumed production several weeks ago, and three stores reopened in late May.
But in many respects, the situation is rough. In-store sales are less than 50 per cent of normal, because of fewer walk-in customers and reduced hours. The drop is particularly steep at the Robson Street location, which usually counts on tourists and downtown office workers who are now largely housebound, co-owner Monique Poncelet said.
Fortunately, the chocolate maker is able to lean on wholesale sales to bolster revenue. It also participates in the federal wage subsidy program, which covers 75 per cent of an employee’s salary for eligible companies, up to a maximum of $58,700, and is scheduled to run until the end of August.
Even with those subsidized wages, however, Daniel currently employs 10 people at its factory, compared with 14 a year ago. And just five people now work in the retail outlets, down from 10 last year.
“I don’t think [full rehiring is] going to happen for a long time, to be perfectly honest,” Ms. Poncelet said.
For many companies, sales are still in hibernation. Just 15 per cent of small businesses said their sales have returned to normal, according to a recent survey by the Canadian Federation of Independent Business (CFIB). Presumably, that figure will improve as more businesses reopen and consumers get more comfortable opening their wallets.
But in many industries – particularly those in which physical distancing is a challenge, such as the arts, hospitality and transportation – a return to normal looks a long way off.
The Fairmont Hot Springs Resort in southeastern B.C., a short drive from the Alberta border, will be reopening its overnight accommodations on June 26. But so far, bookings are “still very soft,” said CEO Vivek Sharma, who predicts many operators in his industry will go under.
“Most of the hospitality and tourism businesses make 60 to 70 per cent, if not more, of their revenues in the three to four months of summer,” Mr. Sharma said. “In the absence of travel being opened up, there’s no guarantee that they will be back up and running even next year if they can somehow survive the massacre of this summer.”
The restaurant industry is in dire straits, too. With two-metre distancing rules in effect, Mr. Oliver said the idea of 50-per-cent occupancy is a myth.
“Because rents are so high, and margins are so low, the industry has got as many tables and chairs as they can in a restaurant,” he said. “I have yet to find one [owner] saying he’ll get to 50-per-cent occupancy,” One-quarter to one-third is more likely, he said.
Restaurants are only able to reopen under such restrictions, Mr. Oliver said, because of the federal government’s wage subsidy program. The program aims to reduce layoffs, and he thinks Ottawa should extend it.
“If they don't extend the wage subsidy past August … you will see a massive amount of people being laid off again in our industry,” he said.
For some businesses, there are still too many obstacles to reopening and rehiring. A separate CFIB survey recently found that 12 per cent of business owners were thinking about bankruptcy or winding down their companies.
“We’re talking about over 100,000 entrepreneurs that are actively considering closing their doors for good,” CFIB president Dan Kelly said. “We’re not through this. There is still a lot of economic damage to come.”
In recent weeks, there have been several high-profile business closings, resulting in thousands of permanent layoffs. Reitmans Canada Ltd., for one, announced it is shuttering its Thyme Maternity and Addition Elle brands, affecting some 1,400 workers.
“I’m worried we’re now going to see a second-order effect in job losses, from businesses that could be operating under the health restrictions, but no longer see a market for what they’re doing,” Mr. Stanford said.
The impending closings, Manulife’s Ms. Donald said, will be largely in the services sector.
“This is problematic because within the services sector is where our most vulnerable Canadians tend to work,” she said. “We’re talking about lower-income [employees], primarily women, newly landed immigrants – those who are least capable of sustaining a large income shock are those who are going to see the most prolonged levels of unemployment.”
Lately, however, there have been some encouraging signs of renewed consumer confidence. Several of Canada’s largest banks have said spending by holders of their debit and credit cards has improved since the depth of the lockdowns, although it remains well below levels a year ago.
Will the gains continue? That’s a key question as government benefits wind down. Unless CERB changes between now and early July, many eligible workers will then shift over to Employment Insurance (EI) benefits, while others could cease receiving federal income support.
“For many [low-income] individuals, a switch from CERB to EI will mean a further income drop,” Brian DePratto, senior economist at Toronto-Dominion Bank, recently wrote in a report. “Thus, while spending is showing clear signs of healing at present, the longer-term durability hinges on a recovery in labour markets and thus employment incomes.”
In some cases, companies want workers. But getting them back is not always easy.
Among companies that were partly open or fully closed, 17 per cent said staffing issues kept them from reopening completely, a recent CFIB survey found. But staffing alone paled next to other blockages; for instance, 37 per cent said sales would be too low to make a full reopening worthwhile.
Still, the results show that just because positions are open doesn’t mean people will fill them.
No doubt, CERB has skewed incentives. How the program evolves remains a crucial question.
With many workers now in their final four-week stretch of coverage, there will be mounting pressure for the federal government to amend CERB. Certainly, many people wish to return to the labour force but can’t for legitimate reasons – say, they have children to look after – or work in industries with scant availability of jobs.
“I don’t think there’s any doubt that CERB and other emergency measures are going to have to be extended,” Mr. Stanford said.
But the details will need to change, several economists said, to ensure that people aren’t being overly encouraged to stay home.
A working group at the C.D. Howe Institute has floated several options, such as extending CERB with an income-testing mechanism that reduces payouts as recipients earn more from employers. At present, CERB recipients can still earn up to $1,000 in work income during the four-week periods. By including a phase-out component, people would be less inclined to limit their work availability.
Other concerns may be tougher to address. For parents – women in particular – a lack of daycare, schools and summer camps will hinder their ability to rejoin jobs.
François Roberge, the CEO of La Vie en Rose and Bikini Village, said 3 per cent of his employees have been unable to return to work because they couldn’t find someone to look after their children. The two brands employed about 3,000 people at more than 260 outlets in Canada before the pandemic, and about 1,000 workers have returned to date.
Already, those difficulties are showing up in the data. Statistics Canada found that among parents, women registered fewer job gains in May than men, and were more likely to lose hours.
To some degree, these pressures will ease as more pandemic restrictions are lifted. Still, daycare won’t be as readily available as before, school is out or nearly so, and summer camps aren’t guaranteed to return. Moreover, some parents aren’t keen to enroll their children, given virus fears.
“There is a legitimate concern that people have about being safe for themselves and their families,” Mr. Stanford said.
Those fears run deep. Among companies that recently struggled to recall or recruit staff, 60 per cent of owners said prospective workers were concerned about physical health, the CFIB found.
Martin Steenblok, the owner of a pest-control business in B.C.’s Fraser Valley, lost a full-time employee because she lives with and takes care of her mother, who has heart and lung conditions. “She didn’t want to take the chance of catching [the virus] and taking it home to her mom,” he said. “I don’t blame her.”
Under provincial law, Mr. Steenblok is required to keep the position open for his employee. The current plan is for her to return after the next flu season, in March of 2021. In the interim, Mr. Steenblok is turning down customers and his sales have suffered.
“When you say no to someone,” he said, “it’s hard to get that business back.”
In earnest, the recovery began last month.
The number of employed Canadians climbed by about 290,000 in May, unwinding just less than 10 per cent of the three million jobs that were shed in March and April. Given that some provinces (notably Ontario) had yet to embark on reopening during Statscan’s survey period (May 10 to 16), the coming months should see an explosion of hiring activity.
For many workers, there’s ample evidence to suggest a quick return to work. Statscan says about 1.1 million are on temporary layoff, while more than two million others are employed, but have lost the majority of their usual work hours. There’s also been an uptick in postings on Indeed Canada, an online job listings service, although the total is still down significantly from last year.
Beneath the surface, however, pain will endure. Unemployment will drag on. Skills will atrophy, making labour re-entry tougher. Companies will realize they can make do with fewer employees, or employ new technologies instead of people.
“My concern is that when we see [positive job] numbers like we did [last week], I worry that will sway policy makers into restraining from additional stimulus, out of fear of longer-term debt, which of course is an issue, but it's not the most pressing issue facing us,” Ms. Donald said.
“There’s going to be a segment of this economy that requires multiyear assistance.”
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