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The Canada Recovery Hiring Program was designed as a fiscal lure to speed up the pace of businesses expanding their payrolls by either taking on new workers or increasing the pay of existing employees.Fred Lum/the Globe and Mail

Demand for Ottawa’s hiring subsidy program for employers has been anemic, with less than a fifth of budgeted funds allocated between June and mid-October last year, data released to The Globe and Mail indicate.

The Canada Recovery Hiring Program, or CRHP, was launched last June and extended to May, 2022. It was designed as a fiscal lure to speed up the pace of businesses expanding their payrolls by either taking on new workers or increasing the pay of existing employees. Few firms had bitten on that lure by mid-October, however.

CRHP’s budget was always much smaller than the Canada Emergency Wage Subsidy program that propped up business payrolls from the start of the COVID-19 pandemic. But the hiring subsidy program disbursed just $120.1-million of its original $595-million budget between June 6 and Oct. 17, data from the Canada Revenue Agency indicate.

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By contrast, CEWS disbursed $14.8-billion during that same period, and as of mid-December was close to exhausting its $100.5-billion budget. Businesses have been able to receive payments from one, but not both, of those subsidy programs.

In part, the discrepancy reflects the designs of the two programs. CRHP has tighter eligibility rules, excluding publicly traded companies, for instance. In addition, businesses qualifying under CEWS receive subsidies for virtually all employees, but CRHP payments provide payments only for added payroll outlays – most of an employer’s wage costs would not be eligible.

Applications can be made up to six months retroactively, so the tally of claims under CRHP up to mid-October is likely to increase. (The same is true of CEWS, whose final claim period ended in late November.) In an e-mail, the CRA said the data are “preliminary and potentially incomplete.”

But the data also reflect a two-tier economic recovery. Overall employment has rebounded close to prepandemic levels, with some sectors booming as consumer spending habits change. Other sectors, most notably traditional retail and hospitality, are still struggling under the combined weight of those altered spending patterns, and continuing public-health restrictions.

Finance Minister Chrystia Freeland’s office did not have any comment to add to the CRA statement. However, the government did revamp the hiring subsidy program on Oct. 21, extending it to early next May and increasing subsidy rates. Together, those two changes boosted the cost of CRHP to $2.2-billion, including $1.6-billion for fiscal 2021-22. That would mean almost $1.5-billion in additional claims for the current fiscal year – a much faster pace than was the case through to Oct. 17.

Miles Corak, a professor at the City University of New York’s department of economics, said there is ample economic research that shows that expectations of future revenue growth figure much more prominently in the hiring decisions of businesses than marginal changes in their wage costs. That limits the pull of any hiring subsidy program. (And the pull would be further weakened because Ottawa’s hiring subsidies last just a few months.)

In that context, the economic volatility created by successive waves of infection and lockdowns is a significant drag on hiring plans. “We’re living in terribly uncertain times,” Prof. Corak said.

The economy has not just been bruised by the pandemic; it has also been transformed, creating winners and losers. “Some firms are hiring and they’re going to hire, whether this subsidy is in place or not and probably don’t need it,” he said.

Other companies, including stores and restaurants, have seen consumer dollars shift away from them. That group would be less likely to expand, he said, and in turn, less able to qualify for hiring subsidies.

Even companies between those two extremes might simply pause any hiring plans while the pandemic rages, Prof. Corak added.

To be eligible for hiring subsidy payments, a business must have suffered a revenue loss (that provision did not apply for the first four-week claim period) and be expanding its payroll. A business that has thrived during the pandemic and was hiring would not be eligible. And a company that had seen its revenue decline but was not adding staff, or otherwise increasing its payroll costs, would also be ineligible. But that second, struggling company could be eligible for wage subsidy payments.

Dan Kelly, president and chief executive officer of the Canadian Federation of Independent Business, said he is not surprised the hiring subsidy program has “not found its stride,” since CEWS provides more generous payments for companies that are not expanding. He also pointed to an uneven economic recovery – both in breadth, with some sectors still suffering, and in tempo, with several “false starts” in 2021.

He said a recent survey of CFIB members showed that 24 per cent think they will lay off staff in the next three months, while 16 per cent expect to increase their payroll. Mr. Kelly applauded Ottawa’s moves to loosen rules for both the hiring subsidy and the two successor programs to CEWS target payments to the hardest-hit businesses.

Mr. Kelly said he hopes the government continues to provide assistance to companies to maintain employment. He added that such support should continue as a transition measure for “a couple of months,” even after public-health restrictions are permanently lifted, since it will take time for consumers to resume prepandemic shopping habits. “They’re not racing to the malls,” he said.

Prof. Corak, however, said there is a danger that both the wage and hiring subsidy programs could slow down a necessary adjustment to the realities of a postpandemic economy by propping up companies that are no longer viable, and stalling the reallocation of capital and workers to firms that have successfully adapted.

“I don’t think we want these programs to exist longer than they have to,” he said.

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