Dear Friend,
Below is a commentary that appeared in the National Post this morning. Please share with your colleagues and friends.
Wishing you the best,
Niels
Niels Veldhuis | President
The Fraser Institute
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Boost EI but don’t create new government ‘wage subsidy’ program
By Niels Veldhuis and Jason Clemens
As part of the $27 billion aid package to support Canadian workers and businesses, small businesses will be eligible for a temporary wage subsidy to help prevent layoffs. The $3.8 billion program will provide up to $25,000 in subsidies per employer.
But will a subsidy equal to 10 per cent of employee wages (to a maximum of $1,375 per worker) really prevent layoffs?
Canadian business groups certainly don’t think so. Both the Canadian Federation of Independent Business, which represents small and medium-sized businesses, and the Business Council of Canada, which represents Canada’s largest companies, don’t believe the subsidy will prevent layoffs and believe it’s not nearly large enough.
Both groups are pushing for a massive “wage-subsidy program.” More specifically, the Canadian Federation of Independent Business is asking government to “implement a 75 to 90 per cent wage subsidy program” and the Business Council notes that “the proposed 10 per cent wage subsidy for small businesses was a step in the right direction… But more needs to be done.” Business Council president Goldy Hyder said businesses are saying, “I want to do everything I can to keep my employees. The best model is, pay me to pay them.”
While we certainly agree that the federal government’s temporary wage subsidy is unlikely to help prevent layoffs, what isn’t needed is another massive government wage subsidy program—particularly a program that could be rife with potential fraud and abuse, and take significant time to organize, administer and actually get money into the hands of Canadian workers.
A better way forward is to boost employment insurance (EI) benefit rates while allowing employers to temporarily lay off workers without the need to provide severance.
It’s important to understand temporary layoffs do not signal an end to the relationship between employers and workers, particularly in this environment. Rather, this is a temporary situation where the relationship is ongoing and there’s an understanding that the person’s job and compensation will more than likely resume in the near future. If it doesn’t within a pre-defined time, then indeed the layoff would permanent and normal severance would apply.
Indeed, while temporary layoffs are permitted by various provincial Employment Standards legislation, common law has developed to limit—or worse—in effect ban temporary layoffs. Fortunately, some jurisdictions have already recognized this issue and are taking steps to provide employers more flexibility. New Brunswick, for example, recently suspended the requirement for employers to give notice or pay severance if layoffs are due to COVID. Other provinces and the federal government should follow suit.
Workers that are temporarily laid off would be eligible for Employment Insurance which the federal government has already adjusted). Indeed, recent expansions to the EI program have increased both benefits and eligibility for workers, helping to ensure those who face job loss or reduction in work receive proper income support.
Moreover, governments could temporarily increase the EI benefit rate (55 per cent) and level of income covered ($54,200). For example, Ottawa could immediately raise the percentage of income covered to 70 per cent and the maximum income amount to $81,300 (one-and-a-half times the current maximum).
This would be markedly better than creating a new program that requires a new system of eligibility requirements, a new distribution system, and a new system of monitoring to ensure money actually flows to employees and fraud is prevented.
In addition, the federal government could loosen regulations regarding additional income earned or received while laid-off workers receive EI benefits. This could allow limited temporary work for laid-off employees and potential additional top-up payments by employers in the position to do so. Current EI regulations limit or prohibit these types of additional payments.
Again, the immediate goal is to stabilize income for both workers and employers in the most effective manner possible to stabilize the economy while the government and health professionals get control of the spread and treatment of COVID-19.
Of course, the EI program must revert back to normal levels after the economic uncertainty caused by COVID-19 subsides. Crucially, many emergency measures rightly introduced now must be undone eventually, to avoid impeding economic recovery.
If we want to increase income-support measures, best that we piggy-back on existing programs and make it easier for Canadians to access and receive the support needed now, rather than create entirely new government programs.
Niels Veldhuis and Jason Clemens are economists with the Fraser Institute.
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