Parisa Mahboubi is a senior policy analyst at the C.D. Howe Institute.
All COVID-related economic recovery measures in Canada are set to end soon. Employers who have been having trouble filling vacancies are hoping this will spur a flood of people back into the work force, but unfortunately for business owners, the situation isn’t quite that simple.
In the early days of the pandemic, the federal government introduced the Canada Emergency Response Benefit (CERB) to ensure that a broad range of Canadians affected by the pandemic stayed afloat. Government supports like this and the Canada Emergency Wage Subsidy (which is scheduled to run until Oct. 23, 2021) sustained many people and businesses.
But the economy is in a different place now. The number of unemployed people was 1.4 million in August 2021, down by around 420,000 from September, 2020. During the same period, Canada added more than 850,000 jobs, getting closer to the prepandemic employment level.
Despite still high unemployment, job vacancies increased to more than 700,000 in the second quarter of 2021, up from around 560,000 in the last quarter of 2020. For example, the accommodation and food services industry – an industry still far from full recovery – ranked near the top in terms of vacant positions. Many of the remaining unemployed simply aren’t going back to work. Why?
Several factors may discourage unemployed people from returning to work. For example, fear of catching COVID-19, economic uncertainty and the possibility of having another lockdown. Many are also looking to retrain in another industry.
Another potential factor could be related to the design of income-support programs and access to financial supports that may discourage people from seeking a job or opting for self-employment.
When the CERB ended in September, 2020, the federal government temporarily changed the Employment Insurance (EI) program to expand access. It also launched the Canada Recovery Benefit (CRB) for those directly affected by the pandemic but who don’t qualify for EI (e.g., self-employed people). The CERB, EI and CRB all presented, with varying degrees of severity, disincentives for people to return to work, even though the last two require recipients to seek employment (either as an employee or in self-employment).
A temporary change in EI introduced a benefit floor of $400 per week and the CRB initially included a fixed-benefit amount similar to CERB ($500 a week) that was relatively generous for low-income earners. Earlier C.D. Howe Institute publications have warned that high weekly payments can discourage people from returning to the work force.
In July, the government reduced the CRB benefit to $300 per week for new applicants, and the program wraps up on Oct. 23. The current temporary EI changes end on Sept. 25 and there will be a lower minimum benefit of $300 per week, which ends in November. While these changes will spur some workers to re-enter the job market, they will not by themselves eliminate all the problems employers are having in finding workers.
Going forward, the federal government should look to boost the pool of available workers by making improvements to the EI system to encourage recipients to work. The federal government can improve the working-while-on-claim rules through increasing earning limits and reducing income clawbacks. That will balance government supports for families with increasing the returns to them for going back to work. Our small businesses will see a return of many to the work force.
We also need better supports for those unemployed the longest. The longer individuals are out of the labour market, the harder it is for them to re-enter it and find a high-paying job.
The number of unemployed people who’ve been out of work for at least six months or more in August, 2021 was more than twice its prepandemic level. More than 62 per cent of them (more than 245,000 people) were unemployed for at least a year. Many long-term unemployed Canadians will not successfully find a job after COVID-related recovery measures end.
Although participation in education and training can help increase the chances of re-employment, the long-term unemployed are less likely to participate in employment programs due to either loss of skills, low educational attainment or the high costs of re-skilling. These observations suggest the need for government interventions to improve the motivation, skills and employability of the long-term unemployed. Any support for long-term employed also needs to include mental-health support, since long-term unemployment can also be associated with poor mental health.
Programs to get Canadians back into the work force and provide income supports until they do should be designed to make the programs more flexible, inclusive and easier to access; improve work incentives and ensure a smooth transition to permanent work by the end of the benefit period.
To match job seekers with job opportunities, governments should also provide targeted training support, career counselling and mental-health programs. These measures would go a long way toward helping the long-term unemployed get jobs and helping employers fill the positions they need to get their businesses back up to full speed.
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