The Canada Emergency Wage Subsidy: First steps, missteps, and next steps

The Canada Emergency Wage Subsidy can reasonably thought of as an experiment not to be repeated. This post is an excerpt from the conclusion to my forthcoming paper called “The Canada Emergency Wage Subsidy: First steps, missteps, and next steps.” Download a copy and read the full paper.

The Canada Emergency Wage Subsidy as an employer-based response to the pandemic intended to prevent business closures and prevent layoffs was certainly a program constructed in haste, but perceived to be necessary in the face of limits in the capacity of better designed existing programs, particularly the national unemployment insurance program.

Even so, the program was not informed by fundamental lessons from economic theory. It was not addressed to the fixed costs that actually determine business closures; it did not recognize that a subsidy nominally directed to worker payroll can be shifted to other purposes; and it was not, or in principle could not be, targeted on the margin, on businesses that would indeed have closed in the absence of support. This implies that the job losses actually prevented are much lower than the actual payroll covered, each person-month of employment saved costing $25,000 according to one estimate.

Income support of this magnitude paid directly to affected workers would likely not be considered politically acceptable among informed citizens, and it is therefore hard to imagine that the program would pass any reasonable cost-benefit analysis.

Going forward it will also be important to recognize the practical considerations that shaped, and perhaps even motivated, this program. Their downsides should be recognized. They call for policy makers to be as concerned with program delivery as they are with program design, offering ongoing investments in the modernization of physical and human capacity to deliver benefits.

One positive consequence of the Canadian experience is that these investments have been promised to overcome limitations in the capacity of the country’s unemployment insurance program. The expectation should be that in the future this program will play an even bigger role should it be necessary, particularly provisions within it designed to promote work-sharing which reduces the reliance on layoffs by offering benefits for adjustments to work-hours.

The practical experiences during the pandemic also call for policy makers to recognize that programs may interact and should be designed to complement each other. Other programs, notably the Canada Emergency Response Benefit, making real-time direct payments to individuals suffering income losses, were in some measure a substitute for the Canada Emergency Wage Subsidy, which was slower out of the starting gate and undersubscribed when it mattered most to the most vulnerable businesses during the first weeks and month of the pandemic. Success in making direct transfers to individuals to some degree made the wage subsidy less relevant, delays in getting it off the ground made it less necessary.

Finally, the practical considerations of public policy also call for policy makers to avoid policy drift, the development of vested interests that can prolong the duration of a program after its need has passed, or pervert its intent by informing it design. This calls for increased reliance on programs designed as automatic stabilizers, rather than on discretionary interventions.

The Great Gatsby, then and now

This post is excerpted and adapted from my introduction to The Century Press edition of F. Scott Fitzgerald’s The Great Gatsby. I’m grateful to the Press for the opportunity to introduce this great novel from an economist’s perspective, and to be part of its handsome leather bound and letterpress first edition. Go to https://www.centurypress.ca/products/the-great-gatsby-pre-order to learn more about a book that is as much pleasure to hold as it is to read.

“Our faith in possibility may be glorious, but it’s easy to forget that one possibility is always failure,” writes Sarah Churchwell, introducing the chapter in her 2014 book discussing Fitzgerald’s high expectations as he awaited the reviews of what he felt was his greatest work, a novel that he anticipated would vault him into the pantheon of American literature.

The reviews were not good: “F. Scott Fitzgerald’s Latest A Dud”; “a strange mix of fact and fancy”; “not a great novel … neither profound nor imperishable … [but] timely and seasonable.” The Fitzgerald scholar’s book, Careless People: Murder, Mayhem, and the Invention of The Great Gatsby, which is my source for these excerpts, uses the reviews at the time to support her insightful thesis, that The Great Gatsby can be seen as solidly situated in a specific time and place, with characters and plot having real-life counterparts.

Fitzgerald’s year in New York City—the places, the people, and even the lurid stories of a double murder in nearby New Jersey that was fodder for the papers—was easily recognized by his circle of friends and acquaintances writing those reviews. To them the novel must have appeared as much diary as it did fiction, as much journalistic as imaginative narrative. Been there, done that.

Yet as the decades passed, as gossip and headlines faded from memory, Fitzgerald’s book did not fade, and a century later it continues to resonate. To appreciate why, Churchwell’s thesis should be taken further: The Great Gatsby can be seen as solidly situated in a specific economic time and place, it is not just character, but also underlying strictures of social inequality, that drive the novel’s hapless protagonist to his ending. The novel remains as relevant to our age as it did for the Jazz Age because Gatsby’s economic time and place are also our times and places.

The story helps Americans, indeed citizens of all countries facing the challenges of rising inequality, wonder all the more about the hollowness of the metaphor legitimizing it, of the unkept promise of the American Dream.

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“We don’t have a chance in hell …”, Canada’s poverty reduction strategy needs real voice

Source: https://twitter.com/ESDC_GC/status/1364596131590791171

The Minister of Employment and Social Development in the Canadian federal government, Ahmed Hussen, recently tabled an annual report taking stock of the country’s poverty reduction strategy.

The advisory council responsible for the reported dedicated it “to all those courageous people who shared their stories, successes and struggles with the Council in the hope that we would in turn share them across Canada. You are at the heart of this report.

People with “Lived experience” is how policy wonks and political staffers refer to them, stressing the importance of consulting citizens who are struggling with the challenges of living in poverty and facing the barriers of moving toward a better life.

My three-year old post explaining Canada’s official poverty line continually garners views because it ranks high on a Google search for “Canada poverty line.”

This means it gets read by a whole group of people who are not policy wonks, and often by people with “lived experience,” who often cry out and share their stories by proposing a comment for my web page, which if it has done any good helped them to realize how far below the poverty line they may well be.

I hesitate approving their comments for public viewing because of their revealing and personal nature.

But maybe I shouldn’t. They have voice, but they need to be listened to. So here is one more voice that encapsulates so much, and in many different ways, of what makes policy to the poor so important, but also reveals the limits of current actions.

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In pandemic times, the unemployment rate is not what it seems

Interpreting job market statistics demands a lot of care right now. The pandemic has muddied the statistical waters and created the illusion that unemployment rates are significantly higher in Canada than in other countries.

The leader of Canada’s official opposition claims the Canadian unemployment rate is higher than in other rich countries. Source: https://twitter.com/erinotoole/status/1367181227338264578?s=20

Erin O’Toole, with a sense of indignation and urgency, has boldly proclaimed that “We lead the G7 in unemployment.”

Statistics in the service of partisan politics are often, to put it gently, rather elastic in their meaning, so it is natural to wonder: do we really lead the pack in the dubious distinction of having the highest rate of unemployment?

Statistics Canada reported Friday that the unemployment rate stands at 8.2 per cent, a full two percentage points above that of the United States. As opposition leader Mr. O’Toole points out by citing the Organization for Economic Cooperation and Development, that’s higher than in many other rich countries.

But more care is needed to uncover the true meaning of these numbers, because the pandemic has twisted the workings of the statistical machinery that in normal times serves us well.

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Employment Insurance for the future of work, right now

This posts offers my written statement for a presentation made on February 23rd to the Canadian House of Commons, Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities as a part of its Review of the Employment Insurance Program.

 

Employment Insurance has been found wanting.

It has been found wanting for decades.

It was slow to respond to the Great Recession of 2018, and left many Canadians, particularly in central Canada, with poor and inadequate income insurance.

It was slow to respond to the collapse of commodity prices in 2014 that devasted the jobs and livelihoods of many Canadians, particularly in Alberta, leaving them with poor and inadequate income insurance.

And of course, it was slow to respond, indeed stalled almost completely, to the COVID pandemic, leaving all working Canadians, almost without regard to their station in life, with poor and inadequate income insurance.

But many Canadians have long been shut out or at best under-served by this crucial pillar of our social insurance system, a program that is solely under federal responsibility.

Workers in the arts and culture industries; self-employed workers; lower paid workers with intermittent jobs; quitters, new labour market entrants, the young as well as those in mid or late careers.

Employment Insurance has been found wanting, many Canadians have experienced that for decades, and now is well beyond the time to do something about it.

The government can proceed immediately with a series of important changes that are well within its administrative capacity, but it also must proceed with an eye to more fundamental changes in the near term that may require more consultation.

But before I outline these immediate-term and near-term possibilities, let me tell you what Canadians don’t need more of.

They don’t need more platitudes about getting a better education, getting more training. The EI program already transfers almost $3 billion to the provinces for programs of this sort, some are effective, some less so.

But the government doesn’t need to spend more money on training through EI, and putting more responsibility on individuals to adjust to the storms of a turbulent job market.

Canadians, in the first instance, need better and more complete income insurance. My suggestions are directed to this need.

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An Employment Insurance system for the 21st century: Lesson 2, The future of work calls for better income insurance

The COVID pandemic has fast-forwarded many changes in the way employers manage, monitor, and motivate their employees. The future of work is here and will involve more insecurity for many workers. The Canadian federal government can offer better and more appropriate income insurance by responding with both quick and easy, and with more fundamental changes to the Employment Insurance program.

 

The 2020 Speech from the Throne boldly claims that “This pandemic has shown that Canada needs an [Employment Insurance] system for the 21st century, including for the self-employed and those in the gig economy.” That is a tall order, a major overhaul of a complicated program in the span of the next couple of months, with little or virtually no consultation of stakeholders or engagement of experts outside of the government.

Will Minister Qualtrough, her cabinet colleagues, and of course the Prime Minister, get it right?

After all the need for EI reform has long been recognized, with lessons learned well before the onset of COVID19, but always politically convenient to put off. What does the 21st century hold for us?

Well, we’ve seen a good deal during its first 20 years, and some big lessons are pretty clear.

I draw three lessons, and these should be used to judge what the government has in store. You can read about the first here: Big shocks matter and need a response in real time.  This post discusses the second and the reforms it calls for: Lesson 2 is “The future of work has arrived and needs better income insurance for all.”

 

Continue reading “An Employment Insurance system for the 21st century: Lesson 2, The future of work calls for better income insurance”