The emergency benefits that Ottawa has introduced since the new coronavirus swept over Canada have supported workers so they could stay at home, a key component of the fight to flatten the curve of infection.
But as provinces move tentatively to reboot their economies, politicians and economists are starting to debate how to turn the pull of those benefits into a push back to the workplace – or in economic terms, remove disincentives to returning to employment.
The issue of disincentives for income support programs is a perennial vexation for policy makers. But the novel coronavirus and the design of Ottawa’s newly introduced benefits has magnified that challenge, changing the incentives and disincentives for both employees and employers.
Workers’ concerns about health and safety, the greater vulnerability of some individuals and the possibility of recurring lockdowns mean that the issue of disincentives will be less about straightforward financial considerations than in more normal times.
One of the biggest complications will be child care, with parents worrying not only about availability of spaces, but the safety of their offspring. Any uncertainty about public-health risks at daycares and schools will prove to be a significant disincentive for many Canadians to return to work, predicted Tammy Schirle, professor of economics at Wilfrid Laurier University. “Parents are not going to put their children at risk,” she said, adding that any changes to emergency benefits will need to take caregiving responsibilities into account.
The unprecedented economic shutdown sparked by the virus means that the sheer number of people affected is equally unprecedented. On Thursday, the Parliamentary Budget Officer issued projections that 8.5 million people will receive the $2,000 monthly Canada Emergency Response Benefit (CERB) – nearly 40 per cent of Canada’s work force.
At the moment, the CERB has three obvious embedded disincentives: It does not require recipients to look for work, nor does it require them to accept a job offer, and individuals can only earn up to $1,000 a month.
That means that CERB recipients could maximize their income at $3,000 a month. But earn a dollar more, and they would lose their entire benefit giving them an obvious financial incentive to limit their earnings if their monthly wages are lower than $3,000.
Other relief measures Ottawa has unveiled include the Canada Emergency Student Benefit (CESB), and the Canada Emergency Wage Subsidy (CEWS).
The federal Conservatives have focused their criticism on the CESB, arguing that the original legislation lacked incentives for students to accept jobs.
Already, the student benefit, which requires that applicants attest they are actively seeking work; the CERB has no such stipulation. The revised legislation passed by the House of Commons gives the government the power to issue regulations that could allow students to earn some income alongside benefits.
A working group from the C.D. Howe Institute says the CERB will need to be changed as the immediate threat from the virus recedes, with provisions added that oblige employees to return to work once employers have met public-health requirements, and if wages on offer aren’t lower than before the COVID-19 lockdown.
Parisa Mahboubi, senior policy analyst with the institute, said one option is for industry groups to draft protocols for a safe return to the workplace, with government then approving those rules.
The institute also floated the idea of reworking the structure of the CERB to allow workers to keep a portion of the benefits as they return to work, with a gradual clawback as earnings rise. That change would give individuals the ability to return to work in a limited way without losing their emergency benefits entirely.
Such a move would also be a step toward a kind of basic income for poorer Canadians. Sheila Regher, chair of the Basic Income Canada Network, is urging just such a change. The group issued a policy paper in January that proposed a $22,000 annual benefit for a single adult. Under that proposal, benefits would be reduced by 40 cents for each dollar of earnings, and would be eliminated entirely after a person’s income rose above $55,000.
Prof. Schirle, a C.D. Howe research fellow and a member of the working group looking at household income and credit supports, said a clawback of the CERB could begin at a low level, reflecting the likely difficulties individuals will face in finding enough hours of work. As employment prospects increase, the clawback could rise over time, she said.
The programs launched for employers also are altering the balance between the perennial choice of hiring a new worker or paying out overtime to existing employees, Prof. Schirle said. Before the crisis, employers started hitting ceilings on payroll contributions once wages rose above $54,200, making overtime pay slightly cheaper. But that economic incentive has been reversed under the CEWS program, which pays for up to 75 per cent of employee wages to a maximum salary of $58,700 for eligible businesses. Prof. Schirle said that, if a position is eligible for a wage subsidy, businesses now have a fiscal incentive to hire a new worker rather than use overtime.
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