CERB’s under scrutiny but CEWS needs a long hard look

Almost from the time it was introduced to provide Canadians with some economic protection from the COVID-19 pandemic there has been hand wringing in some conservative and business circles about the Canada Emergency Response Benefit (CERB).

The claim that the CERB is holding back economic recovery by discouraging people from going back to work was heard again last week when the federal government announced a one-month extension of CERB to September 26, to be followed by a suite of assistance programs extending into 2021. The predictable response to that $37 billion aid package from the head of the Canadian Federation of Independent Business was that it will “serve as a disincentive for many part-time workers to return to their pre-COVID employment.” And in an op-ed in the Globe and Mail, Kevin Lynch and Serge Dupont, former top Ottawa mandarins, observed that “if workers can earn more income staying home safely, there is no economic incentive to rejoin the work force.”

Although the critics have produced no actual evidence, common sense would suggest they are likely right to think that some Canadians, given the choice, would prefer to keep $500 a week coming in rather than return to part-time work at or near minimum wage without adequate child care or a guarantee of a safe workplace. Moreover, as economist and columnist Paul Krugman has pointed out, without programs like CERB and its U.S. counterpart, small business naysayers like the CFIB would have a lot more to worry about.

Tens of millions of (U.S.) workers lost their jobs and their regular wage income -and the job-losers were disproportionately low-wage workers with little in the way of financial resources to fall back on. So absent government aid they would have been forced to slash spending, leading to a whole second round of job losses across the economy. Unemployment benefits, however, sustained many workers’ incomes, averting this second-round depression. So “paying people not to work,” as right-wingers like to describe it, actually saved millions of jobs.

While CERB has been watched with a critical eye, the other big economic salvage operation – the Canada Emergency Wage Subsidy (CEWS) – has received much less political and media scrutiny, despite the fact that, as reported last month the projected program cost jumped 50 percent to more than $80 billion.[1]

Initially the program subsidized 75 percent of an eligible employee wages for companies experiencing a drop in revenue of 30 percent or more and was supposed to end this month. But it has now been extended to December. Although the size of the subsidy has been decreased, eligibility has been expanded through removal of the 30 percent revenue loss requirement.

Much of the commentary around CEWS has focused on how difficult it is to access the program, which had nevertheless paid out $27.5 billion to 290,820 claimants as of August 16. One of the few suggestions that the program may be too generous to business came in a Globe and Mail opinion piece by retired accountant and federal government advisor Allan Lanthier who described the revamped CEWS as a potential windfall for large and profitable corporations.

One aspect of the program leading to his conclusion is the fact that both active and furloughed employees are eligible for subsidy. CEWS was designed to encourage employers to maintain contact with workers by keeping them on payroll during the economic downturn of the pandemic. But it applies not only to laid off employees, but also to those continuing to work. And because any drop in revenue allows businesses to qualify, Lanthier points out that corporations like Rogers and the Royal Bank are in line for significant amounts of CEWS cash while continuing to pay dividends to shareholders.

The Extendicare case

There’s no evidence yet that Rogers or RBC have benefitted from CEWS. Although government is empowered to publish the data, the Canada Revenue Agency says it will not have a list of recipients until the end of the month. But the Toronto Star has ferreted out the identity of one corporate recipient whose CEWS windfall will raise a few eyebrows.

Extendicare, an Ontario-based company, operates 58 nursing homes across Canada, mainly in Ontario and Alberta. According to the Star (itself a CEWS beneficiary) at least 100 Extendicare residents in Ontario died from COVID-19. There were also at least 22 deaths in Extendicare homes in Calgary.

Despite this, Extendicare managed to qualify for $21 million from CEWS, while paying shareholders quarterly dividends totalling $10.5 million. That happy outcome for shareholders results from the fact that Extendicare has a separate home care arm, ParaMed (which has a branch in Halifax). While Extendicare, with Ontario government assistance, was scrambling to cope with emergencies in its nursing homes, its home care affiliate qualified for subsidy. That was apparently because of a downturn in business from pandemic-related reductions in elective surgeries and decisions by some self-isolating clients to cancel home care visits.

Rather than calling for all hands on deck to help out the nursing homes, Extendicare was able to tap into emergency help from the province for its nursing homes while dipping into CEWS for its home care subsidiary in order, as the company’s quarterly report put it, “to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses and better position to resume normal operations following the crisis.”

Extendicare’s subsidy made the news because the company revealed the fact in its most recent quarterly report. We must await the promised CRA list to see how the banks, the telecomm industry and other big business entities are making out. In the meantime, there is already enough information on the CRA website to offer an intriguing glimpse.

Who benefits

The small business lobby has driven much of the public criticism of CEWS, perhaps understandable given the numbers. Adding up the totals for the three and a half months from the program’s inception to July 4 reveals that less than one quarter of the $23.9 billion in subsidies to that point went to small business. Large corporations, with 250 employees or more, received over $8 billion in CEWS funds.

Among industry sectors, manufacturing has received the most – $4.74 billion to support as many as 540,000 employees. Surprisingly, the second highest recipient industry so far has been the Professional, Scientific and Technical (PST) sector, collecting $2.21 billion, just ahead of retail ($2.18b), construction ($1.88b) and accommodation and food services ($1.66b).

What makes that pecking order remarkable is that, according to the North American Industry Classification System (NAICS), many employees in the professional sector would appear to be prime candidates for working from home, able to dispense their expertise without needing to interface directly with the public. According to the NAICS the sector includes legal and accounting services, architectural and engineering services, management consulting, computer systems design, advertising and public relations.

Nonetheless, firms in the PTS sector participated in the CEWS program at nearly the same rate as those more directly affected by the pandemic lockdown. At its peak from April 12 to May 9, CEWS provided support to 268,270 employees, or 28 percent of the PST sector’s average payroll employment for 2019. Using the same metric – peak four-week period as a percentage of 2019 average monthly employment – manufacturing was highest at 34 per cent in April-May, accommodation and food services peaked at 32 percent in March-April, construction was 30 per cent in May-June, while CEWs benefits peaked at just 21 percent of retail/wholesale employees during the initial March-April period.

Subsidy disparity

Average subsidy per PST employee was about the same range as for manufacturing and construction, around $2,700 for each four-week period. That’s about $700 below the maximum payment available under CEWS – $847 per week. The lowest average subsidies per employee – at about $325 a week – went to workers in  food service and accommodation. This highlights both the poor wages prevailing in that sector, and the fact that CERB, at $500 a week, is a far better option for hundreds of thousands who have lost their jobs in the sector.

The highest subsidies, averaging $3,065 per four-week period went to the Mining, Quarrying & Oil and Gas Extraction sector. At the peak in the April-May period, 77,060 employees, almost 40 percent of the sector’s average monthly employment in 2019, were receiving the wage subsidy. The figure dropped to 69,870 in May June and to 19,760 in June-July. All told, oil and gas and the rest of the extractive sector received $747 million from CEWS.

The example of oil, gas and mining company subsidies further drives home the fact that despite the oft-expressed desire for a new normal to emerge from the pandemic, CEWS is mainly about maintaining the status quo. Based on the story so far, tainted shareholder dividends, handouts to big business, wage disparities and largesse for polluting industry are all being further entrenched.

[1] A later estimate from the Parliamentary Budget Office reduced the projected cost to under $68 billion, but the estimate could change again