Good afternoon, everyone.
Mr. Chairman and honourable committee members, I am very pleased to have this opportunity to speak to you today.
In response to COVID-19, the C.D. Howe Institute has put together four crisis working groups to rapidly distill expert policy advice, and it has published a high volume of articles on a daily basis to address issues related to this crisis. One of these groups is the household income and credit support group, which has dealt with the immediate labour market and income impacts of the crisis and the transition to go back to work and reopen the economy.
Today I'd like to summarize an overall evaluation of the Canada emergency response benefit program, or CERB, highlight its current issues and provide some policy options to address them, based on our work and the output of our working group.
The Canada emergency response benefit was an early and critical element in the federal government's response to the crisis. In support of a stay-at-home strategy to flatten the curve, the CERB was particularly necessary to ensure that households stay afloat while the restrictions are in place. The introduction of the program was also in part an attempt to fill coverage gaps in employment insurance, the EI program. For example, workers in precarious employment, such as part-timers, are less likely to meet the minimum required insurable hours to qualify for EI. Labour market statistics show that the crisis has affected hourly-paid low-wage workers the most, highlighting the importance of this program.
With attention increasingly turning to reopening the economy, the CERB, however, is becoming a problem. The program has been very popular. There were more than 8.4 million unique applications as of June 4, which was about 44% of the employed labour force in Canada in February 2020. Although the heavy use of the CERB could be related, to some extent, to the slow rollout of the Canada emergency wage subsidy program and lack of a strong message and clarification on CERB eligibility in the beginning to prevent program misuse, the sheer number of applicants can be indicative of problems with the CERB itself that need to be addressed.
First, its eligibility criteria are very broad, and, unlike the EI program, there is no requirement to remain available to work and be actively looking for a job. Second, the amount of the benefit is relatively generous for low-income earners, and it is not linked to pre-pandemic income. Third, the clawback rate is too harsh with this program, since the benefit goes to zero for the first dollar of income earned above $1,000. All these factors create significant disincentives to return to work, particularly among low-income earners, slowing the recovery.
What is the best way forward?
With reopening strategies differing across the country's industries, the government needs to shift away from a national one-size-fits-all income support plan and create better-tailored income supports.
In general, two options are available for providing continued income support to CERB recipients who, after exhausting their maximum eligibility period, may remain unemployed without access to EI benefits.
The first option is to extend the CERB but introduce new phase-out modifications based on some features of the EI program that can help tackle work incentive issues and support transition to work. The EI features to consider for modifying the CERB are the following: the requirement to remain available to work and be actively looking for a job; the working-while-on-claim provision of the EI program through setting appropriate income-tested clawbacks, learned from international experiences; the linkage between the amount of benefit and pre-pandemic income; and the EI parental sharing benefit, to allow parents to share child care responsibilities when no child care option is available.
To provide income support, there is a second option, other than reforming the CERB. It's to expand the EI program by reforming eligibility criteria to take on the role of the CERB.
The decision on which program to reform largely rests on the length of the crisis and recovery period, and the number of CERB recipients in need of post-CERB financial support. Therefore, more and better data is needed to make informed decisions about an income support transition model.
When planning out the next phase in the short term, the government should aim to preserve fairness among those who would continue to receive the CERB and others who would continue to work without receiving the benefit. One proposal for balancing concerns of work incentives and fairness would be to combine a modified CERB with a temporary working bonus program that offers an earned income tax credit for low-wage workers.
To address the coverage gap for those who are not able to return to work, the working bonus and the modified CERB can be complemented by targeted supplemental measures, such as a refundable child care tax credit for parents returning to work, and a boost to the Canada child benefit.
Longer-term policy options to support Canadians during the pandemic crisis and recovery should also include investments in retraining, re-skilling, and upskilling to address long-term displacements and structural unemployment, because the labour market is changing.
The above-mentioned policies can provide policy-makers with options to support Canadians during the crisis while easing the transition to go back to work. These were my main points to highlight. Thank you for your attention, and I look forward to your questions.