Trudeau’s Next Challenge Is Weaning 7 Million Off Government Aid

(Bloomberg) -- Justin Trudeau is beginning to wean millions of people off government support in what will be one of the trickiest economic policy maneuvers in Canada’s recent history.

Three months after Covid-19 threw the economy into suspended animation, the prime minister is planning to wind down an aid program that offers C$2,000 ($1,480) a month to workers who lost their jobs or had their hours cut because of the pandemic.

The program worked -- almost too well. About 8.4 million Canadians, more than 40% of the labor force, received at least one payment from the Canadian Emergency Response Benefit at one point. Just 1.2 million have stopped receiving it. Removing CERB will be a delicate balancing act.

Pushing people off too quickly could come at a political cost and hamper the economic recovery. Moving too slowly could be just as risky.

Trudeau’s objective is to get people off the program and onto payrolls as fast as possible as the economy reopens -- and quell criticism it’s being abused and could be providing a disincentive for workers to go back to their jobs.

Challenging Math

In a survey of thousands of companies last month, 17% said they had yet to fully reopen because of staffing issues. Of those, about half said they were having trouble recalling staff or getting them to work the hours needed. Health concerns and the attractiveness of the CERB were cited as they key reasons, according to the survey by the Canadian Federation of Independent Business.

The math is especially challenging for companies in low-paying industries. In most of Canada, a worker making the provincial minimum wage for 40 hours a week will earn a little more than C$2,000 in a month.

“We may see the phenomenon of both labor shortages in some instances and record high unemployment,” Perrin Beatty, president of the Canadian Chamber of Commerce, said in a telephone interview.

CFIB issued a statement last week encouraging the government to “shift gears” by making it easier for companies to qualify for wage subsidies -- and more difficult for workers to refuse employment while on income support.

While economists and policy makers have applauded the Trudeau government’s quick release of cash into the economy, that hasn’t stopped Canada’s jobless rate from skyrocketing to among the highest in the developed world. Unemployment is now at 13.7% -- a post-war record.

In Germany, the government is using a wage top-up that lets employers reduce hours while covering the remainder of workers’ paychecks. Unemployment there is just 6.3%.

Businesses in Canada say layoffs were made worse by the slow implementation of a Covid-19 wage subsidy, which didn’t begin delivering cash until early May. By then, many businesses had already suffered nearly two months of little or no demand.

Uptake for the wage subsidy has been lower than hoped. About C$10.5 billion has been distributed -- one quarter of what’s been delivered under CERB.

Labor Shortages

The new worry is that generous aid to individuals could inhibit business from returning to capacity. Combined with legitimate health concerns among workers, some employers are struggling to ramp operations back up because of labor shortages.

One of those is Alpha Meat Packers, which had to shut down temporarily because some workers contracted Covid-19. Since reopening at the end of last month, the meat packer has only been able to run at about 80% capacity, according Terry Tountas, director of operations at the Montreal-based company.

“We have struggled getting our employees back on the production lines,” Tountas said. “Some cite health concerns while others claim to have received compensation for a month’s salary from the CERB and chose to not come to work.”

One problem for Trudeau is that politics are hampering the his ability to curtail the program. The government was unable to pass legislation that would have disqualified people who fail to return to work under “reasonable” conditions, while imposing fines for applicants who provided misleading information. Instead, the government is now simply asking recipients to attest they are looking for work.

Trudeau has pledged not to abruptly end the CERB altogether, announcing this week it will be extended until the end of August for people still in need.

Business Buy-In

At the same time, the government says it is expanding eligibility for wage subsidies, allowing more companies and organizations to qualify. A new formula is likely coming at the end of this month, according to a person familiar with the plans.

The pivot requires a bit of a leap of faith from a government that has been more comfortable helping individuals than supporting corporate Canada.

The initial idea behind CERB was to get money to citizens as quickly as possible, whether they had lost their jobs or not -- a lesson officials had learned from the 2008-2009 recession, when a focus on construction spending delayed the recovery.

It has worked to put cash in Canadians’ pockets and cushion the shock of Covid-19. The problem now is getting businesses to buy into the recovery.

“Creating incentive for employers to bring people back will be important,” Finance Minister Bill Morneau said Tuesday in an interview with BNN Bloomberg television, suggesting changes to the wage subsidy plan are nearly finalized.

Trudeau’s team has shied away from providing industry specific bailouts, even for hard-hit sectors like airlines and tourism. The government launched a bridge-loan program for big business, but it’s not clear if there have been any takers.

The most popular program for business has been low value loans of up to C$40,000 to allow small business to keep paying the bills. More than 655,000 companies have taken advantage, prompting the government to double its budget to C$55 billion.

The next step is to get these companies to start hiring some workers again.

©2020 Bloomberg L.P.