The end of federal emergency-income supports will leave a sizable number of unemployed Canadians with less generous benefits, potentially reducing consumer spending and adding uncertainty to the recovery this fall.
The federal government is phasing out the Canada Emergency Response Benefit (CERB) – which has paid $68.5-billion to about 8.6 million unique applicants – in the coming weeks and transferring people onto other forms of financial assistance, including Employment Insurance.
Barring any significant changes to benefit amounts, several economists project that hundreds of thousands of people will receive less than the $500 provided weekly under CERB, a shift that will reverberate in the economy starting in September.
“CERB was an important part of sustaining economic growth and not making the recession worse,” said David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, a left-leaning think tank. “As we start to ratchet down what unemployed Canadians make, we’ll likely see a larger impact in terms of economic growth, because they don’t have the money to spend in the economy, and they’ll cut back on their expenditures.”
When the program expires, “the pace of recovery might slow as the true effects of an elevated unemployment rate begin to be felt,” Royce Mendes, senior economist at CIBC World Markets, said in a client note last month.
The federal Liberals are aiming for a two-pronged approach to the transition: an expansion of the EI program to include more people, along with a “parallel benefit” for those who still don’t qualify, such as gig and contract workers.
Under existing rules for regular EI benefits, most people receive 55 per cent of their average insurable weekly earnings, to a maximum of $573 a week. To receive $500 a week – the same as CERB – would imply weekly earnings of $909.
At the same time, the COVID-19 crisis has disproportionately affected low-wage workers (those earning less than $16.03 an hour, or two-thirds of the 2019 median wage). Employment for this category of workers dropped 14.6 per cent from February to July, compared to a 2.6-per-cent drop for all other paid employees. Given low-wage employees earn no more than $561 over a 35-hour workweek, they could expect roughly $309 a week on EI.
“Many of the people who are EI-eligible are going to find out very quickly in September that they’re going to make a lot less on EI than they made on CERB,” Mr. Macdonald said.
As well, there are plenty of people who don’t qualify, such as those who make EI contributions, but haven’t logged at least 420 hours of insurable hours over the past 52 weeks or since their last claim, whichever is shorter. Another cohort is the self-employed, who are ineligible for regular EI benefits and numbered nearly three million before the pandemic hit.
One person facing uncertainty is Tim Williams of Vancouver. Mr. Williams travels across North America to sell merchandise at large sporting events – a line of business that isn’t feasible under pandemic restrictions. CERB just barely covers his monthly expenses.
But Mr. Williams has received his final payment, and with the government’s transition plan for the self-employed not yet released, he’s unclear on his financial future. “It’s very, very stressful not knowing what’s going to happen,” he said.
If the parallel benefit results in lower benefits, that could lead to some tough decisions. Mr. Williams has already cut his expenses about as far as possible. He could get rid of some other things, such as internet access, “but it wouldn’t make life very pleasant.”
His situation underscores how CERB has bolstered household finances through troubling times. In its fiscal snapshot last month, the federal government estimated that CERB payments, in aggregate, fully replaced lost earnings. That’s allowed Canadians to keep spending.
After a 31-per-cent drop between February and April, retail sales jumped 18 per cent in May as provinces began to reopen, according to the most recent Statistics Canada data. The agency estimated sales climbed another 25 per cent in June, which would bring consumer spending back to precrisis levels.
“With household spending accounting for more than half of the Canadian economy, it’s a relief to see such a sharp recovery in retail sales,” Mr. Mendes said.
With its policy shift, the Liberal government is trying to encourage more people to accept work that is available, without harming those who still need some degree of support. (CERB has been the subject of debate over whether it’s kept some workers out of the labour force.) For employers, federal wage subsidies will remain in place to support hiring through the fall.
Moreover, people will be able to work and receive benefits simultaneously, helping to dull the financial blow. Under EI’s Working While on Claim component, one can keep 50 cents of benefits for every dollar earned, up to 90 per cent of previous weekly earnings. Prime Minister Justin Trudeau has said the parallel benefit will allow recipients to work more without getting cut off.
“We needed that program yesterday,” said Thomas McKechnie, a Toronto-based food courier, referring to the proposed parallel benefit. “Folks are just dangling by a thread.”
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