Why reopening the economy requires CERB revamp

Program's original design offers poor incentives for workers to return, says policy expert

Why reopening the economy requires CERB revamp

In a recent statement, Canadian Federation of Independent Business (CFIB) President Dan Kelly forecast a “messy recovery” for the country’s economy, in part because of a potential hesitation among employees to return to work. And as a public-policy expert points out, the Canada Emergency Response Benefit (CERB) may play a role in that reluctance.

“[A]s provinces move to re-open some sectors of the economy where health risks are more manageable, CERB’s design could slow things down, given its poor work incentives,” said Tammy Schirle, professor of Economics at Wilfrid Laurier University and CD Howe Research Institute Fellow.

In a memo addressed to Finance Minister Bill Morneau, Schirle noted that certain businesses’ continuing exposure to COVID-19 risks, as well as a lack of safe childcare options, may pose barriers for Canadians hoping to re-enter the workforce. That means the current benefits from the CERB, which are designed to last for just 16 weeks, will not be enough to adequately support their return to employment.

The CERB also creates a financial incentive that may restrict Canadians’ willingness to take on work. The program was designed to encourage people to stay home: it currently offers a $2,000 benefit, which individual Canadians won’t lose access to unless they earn more than $1,000 in a month from work.

“If they accepted even one more dollar’s worth of work, they lose the $2,000 CERB benefit and are left with $1,001 to support themselves and their family,” Schirle said.

She recommended that moving forward, the CERB be modified to not harshly penalize workers who can find work that pays more than $1,000, while at the same time not harming those who cannot find employment. “[A] base benefit of $2,000 could be offered, with an earnings exemption and a reduction in CERB benefits for earned income above the exemption,” she suggested.

Schirle also suggested that the government extend the duration of availability of CERB benefits, adding that it should also consider measures to be fair to low-income essential workers to whom the CERB is not available.

“On May 7, the federal government announced an agreement to boost the wages of low-income essential workers which may offer some balance to any extension of CERB benefits,” she noted.


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