BUSINESS
06/17/2020 11:57 EDT | Updated 06/19/2020 09:24 EDT

Canada's Economy To Get Boost From CERB Paying Out More Than People Lost: Report

The Liberals’ emergency income support has prevented a sudden financial shock to households. But what happens when it ends?

alexsl via Getty Images

MONTREAL ― Canada’s emergency income support for the unemployed has prevented a sudden financial shock from hitting millions of people in the COVID-19 pandemic lockdowns, more than offsetting the lost income, a new analysis has found.

While that means the country’s economy might actually be a little stronger than expected in the short term, Canada could also face an income shock when the program ends in October.

The Canada Emergency Response Benefit (CERB), which the federal Liberals announced in March, paid out $43.5 billion through May, according to recent government estimates.

That’s more than the $38 billion that Canadians lost in income during that time, according to a report at Capital Economics.

“Together with the confirmation (this week) that the program will be extended by two months, this raises the chance of a stronger recovery than we forecast,” senior Canada economist Stephen Brown wrote.

Watch: Feds not overly concerned about emergency relief fraud. Story continues below.

 

“We now estimate that overall household income will be broadly unchanged in the second quarter compared to the first, despite the slump in employment.”

The federal Liberals first announced CERB as a $2,000-a-month taxable benefit for those who had lost work during the lockdowns. But they soon expanded the program to include anyone who had lost hours in the pandemic and was earning less than $1,000 a month. 

“However, the way the change was implemented seems to have meant that anyone who was already earning less than $250 a week ... has also been able to receive the benefit,” Brown wrote. 

For the average person who lost their job in this crisis, CERB replaces about 82 per cent of income, Capital Economics found.

But about 2 million Canadians who were earning less than $1,000 a month have seen their incomes topped up with the $2,000-a-month CERB, resulting in income gains of between 200 per cent and 520 per cent among this group.

“That would help to explain why the total number of CERB recipients since March, at 8.4 million, has been millions more than the labour market data would suggest,” Brown wrote.

Some 3 million Canadians have lost their job, and another 2.5 million have had their hours cut, since the lockdowns began in April, according data from Statistics Canada.

A similar situation exists in the U.S., where Congress passed an emergency expansion of unemployment benefits to US$600 per week, more generous than Canada’s CERB. According to one estimate, that amounts to an increase in income for 40 per cent of jobless Americans.

While many economists argue this creates a disincentive to return to work, others note that, in a time of pandemic, it’s a good thing that people aren’t desperate to return to work immediately.

Too soon to end CERB?

And while the idea behind the program is that people will leave it as jobs come back, even Prime Minister Justin Trudeau seems doubtful the jobs will come back quickly enough.

“The reality is that even as we start to reopen, a lot of people still need this support to pay their bills,” Trudeau said this week as he announced that CERB benefits would be extended from a maximum of 16 weeks to 24 weeks. The program’s overall end date remains October 3.

“The end of CERB certainly could slow down the recovery if it happened suddenly … even if that was September for some people instead of July,” Brown wrote in an email to HuffPost Canada.

Of the 3 million workers who are out of work right now, many are in sectors that are not scheduled to reopen anytime soon.Deena Ladd, Workers' Action Centre

Anti-poverty activist groups are also sounding the alarm.

This week’s extension of CERB is good news, but “in just a few short weeks, workers will be in the same situation they were this morning ― facing down an economic catastrophe,” said Deena Ladd, executive director of the Workers’ Action Centre.

“Of the 3 million workers who are out of work right now, many are in sectors that are not scheduled to reopen anytime soon,” Ladd said in a statement.

“These workers are extremely stressed about how they will manage to survive. They deserve to know whether CERB will be there for them for as long as they need it.”

Gradual reduction

Capital Economics’ Brown said there is also the question “of whether the program might be too generous for some people and thereby act as a disincentive to go back to work.”

As one possible solution, he suggested redesigning the system to create a “gradient” where people’s benefits would be gradually clawed back over time. For instance, the payments could be reduced to $1,500 a month after two months, and then reduced again after four months, and so on.

The ideal is to design a system where “no one is left with nothing, but ― equally ― (where) everyone is better off returning to work if they are able to do so and there is a job for them,” Brown wrote.