Why are millions still on COVID-19 income support? It’s complicated

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Small-business owners cite labour shortages as the No. 1 factor restraining sales. On the other hand, two million people are jobless and want work – up 29 per cent from the 2019 average.

Canadians have managed to claw back 92 per cent of pandemic job losses, leaving about 246,000 positions to go, before adjustments for population growth. Despite that progress, there are millions who remain on COVID-19 financial support.

Much like last summer, the reopening process has given way to lively debate over government support programs, and the extent to which they’re keeping workers sidelined.

In many respects, it’s a battle over the low end of the wage spectrum. The hospitality industry, which includes restaurants and hotels, accounts for nearly all of the remaining job losses.

Graph 1

The median weekly wage in hospitality was $456 in July – meaning, half of workers earned more and half earned less. For much of the pandemic, federal financial support has been $500 a week before tax.

Put another way, the decision to work or not is more complicated than it usually is coming out of a recession, and not strictly for financial purposes, given the potential health concerns.

“The question is not whether [disincentives] exist, but how big are those effects?” said Mikal Skuterud, an economics professor at the University of Waterloo. “When workers are making a choice about whether to go back to a low-wage job, having that benefit on the side as an option – of course it affects that decision.”

The path forward is murky. While some benefits are starting to pay less, the federal Liberals recently announced a four-week extension to a variety of business and worker supports to late October – past the date of a probable election, for which the Liberals are firmly in the lead, according to recent polls. (The extensions were floated in the spring budget.)

Furthermore, the country finds itself in the early stages of a fourth pandemic wave, driven by the Delta variant. No wonder the end of unprecedented fiscal support is a moving target.

“It’s a function of the virus,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

Still, “you cannot have continued support until you basically reach the last person – that will be too long,” he added. “In any other economic recession, you don’t have this kind of support.”

Despite a rebounding economy, a lofty number of people remain on pandemic aid.

Between July 4 and 17, around 845,000 people received the Canada Recovery Benefit. Another 1.85 million got jobless benefits through employment insurance, according to a preliminary estimate. Add those with sickness and caregiving benefits, and roughly 2.8 million received some form of jobless support. As retroactive claims are made, the tally will grow.

Why so many? The job market, while improving, is hardly the picture of health.

In July, three million people were underutilized – that is, jobless and wanted work, or employed but lost most of their usual hours. That’s nearly 600,000 more people than the 2019 average.

At the same time, the federal government cast a wider net of support than in a typical downturn, paying people to stay home to curb infections. Consider that in 2009, as the economy was reeling from the financial crisis, there was a monthly average of 770,000 EI beneficiaries, while the self-employed were out of luck.

What’s unclear today is how many on CRB or EI are actually working. Recipients are able to earn employment income, though benefits are then subject to a clawback mechanism. Under CRB, the reduction starts above $38,000 in annual net income, while on EI it applies to the first dollar earned.

CRB was created for those who don’t qualify for EI – notably, the self-employed and gig workers. As of last month, many recipients saw their benefits drop to $300 weekly (before taxes) from $500. The floor on weekly EI payments will drop to $300 from $500 next month.

Mr. Tal suggested CRB might explain the languid return of self-employment, which is still down 7.1 per cent from prepandemic levels, or 205,000 people. Employees, by comparison, are down a mere 41,000.

“Especially in the low-wage, self-employed aspect of the market, they will come back the minute [CRB] is simply not available,” he said.

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A key stipulation of CRB and EI is that recipients must be looking for work. That may partly explain why Canada’s labour participation rate is near a full recovery, much better than in the United States, where millions have dropped out of the job market, hindering the country’s rebound.

The question is how available that labour really is, Bank of Montreal chief economist Doug Porter said. “One has to be a little bit skeptical [about] the extent to which some of those reported as being in the labour force are truly in the labour force, and actively looking for work there.”

For people searching for work, opportunities are growing quickly. By late July, job postings on Indeed Canada were up 41 per cent from prepandemic levels. The rally was particularly sharp in the hard-hit restaurant sector, where food-service roles were up a whopping 72 per cent.

But in a recent analysis, Indeed Canada found former restaurant workers were clicking less on postings for food-service jobs than before the health crisis. “It fits with stories we’ve heard of people just exiting this industry altogether,” senior economist Brendon Bernard said.

So far, wage hikes are fairly subdued, despite anecdotes of short-staffed restaurants and retailers. With government pandemic aid for individuals in place for a while longer, desperate employers may have little choice but to open their wallets.

The unemployed “know that they will be able to secure a job later. They don’t have concerns about not finding a job,” Mr. Tal said. “And in between, they actually sit at home and see their future wage rising.”