Where the CRB ends: Economists watch labour market, GDP as pandemic benefits wind down

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The second of two massive financial support programs that helped Canadian workers through the pandemic is set to expire in two weeks, but economists are taking a wait-and-see approach when it comes to what the end of the benefits will mean for the labour market and the economy as a whole.

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Launched in September last year as a successor to the Canada Emergency Response Benefit (CERB), the Canada Recovery Benefit (CRB) has delivered up to $500 a week to Canadians who lost their jobs, or saw their hours or income decline, due to COVID-19. Those programs, plus enhanced employment insurance, have provided Canadians with more than $147 billion in direct assistance during the pandemic.

The unprecedented level of support helped push household income five per cent above the pre-pandemic trend in the second quarter, said Stephen Brown, senior Canada economist at Capital Economics, a scenario he once thought impossible.

“It’s very rare to see household income rise during a recession,” Brown said. “If you had told me that would happen two years ago, before the pandemic, I wouldn’t have believed you. I don’t think anyone would have.”

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Brown described the supports as among the most “generous” in the world. Afflicted Canadians could rely on up to $2,000 per month, regardless of how much they made when they had a job. Some European countries, by contrast, supplemented only up to 75 per cent of a person’s prior income.

While Canada’s supports helped propel a recovery on the demand side, the question of whether they were too generous has been a topic of some debate.

Following a better-than-expected increase in June’s employment numbers that showed Canada added 230,000 jobs, gains began slow despite the relaxation of public health measures into the summer.

“What we were seeing a little bit more recently with the economy opening up is that it could be a factor keeping workers from re-entering the labour market or getting a job,” Sri Thanabalasingam, a senior economist at Toronto-Dominion Bank, said of the CRB, which is due to expire on Oct. 23.

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Beginning in July and August, however, benefits began winding down.

The milestone jobs recovery in September, when 157,000 positions were added marking the full recuperation the three million jobs lost during March and April last year, suggests in part that people, facing the end of the road, began looking for work, said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce.

Brown calculates that when CRB and enhanced EI come to an end, some 1.1 million people will suddenly find themselves without income. He figures that would lead to an annualized reduction in transfers to households of $28 billion between August and November. Along with the impending end to business benefits like the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS), he estimates GDP will contract 1.7 per cent “over the space of just two months,” something that could prolong the recovery.

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There are some hopes for business subsidies as Deputy Prime Minister Chrystia Freeland hinted at a press conference that the Liberals could be looking to extend CEWS and CERS. “The prime minister and I have had a number of conversations about it already,” Freeland said on Oct. 6 of the impending expiration.

“There are some sectors that continue to be particularly hard hit —  tourism and events are some examples. We are working on ways to ensure that support is there for them. We’ll have more to say about the specifics soon.”

However, the government hasn’t hinted it will extend CRB for individuals.

While Tal said he doesn’t believe benefits in their current form should be extended as that would only keep people on the sidelines longer, he also doesn’t expect those coming off to all rush into the labour force immediately.

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“What does this mean for the broader economic recovery? The labour shortage will be with us for a while,” he said.

The most recent data from Statistics Canada shows workplaces have some 800,000 positions vacant.

The ability of employers to fill those positions isn’t being helped by the swollen ranks of long-term unemployed. September saw little change in number of those who have been out of work for 27 weeks or longer, a cohort that made up 27.3 per cent of all unemployed people last month and is more than double what it was in February 2020.

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“If there’s any sort of erosion in skills, it makes it harder for them to find work,” said Thanabalasingam. “Having said that, there’s also strong demand for labour, especially in those high-touch sectors.”

Some may have given up on work altogether, Tal added. The participation rate for people over the age of 55 hasn’t recovered to its pre-pandemic levels, unlike the participation rate for people 24 and under, suggesting that some have thrown in the towel and decided to retire early.

Overall, however, participation rates are back to levels seen before the pandemic, suggesting Canadians are more willing to return to the labour market, Douglas Porter, chief economist at Bank of Montreal wrote in a note to clients.

“After losing nearly 3 million jobs during the harrowing two months of March and April 2020, the Canadian economy took just 17 months to get back to quasi-normal, for a full cycle of 19 months,” he wrote. “In the 2008 downturn, the job losses lasted 8 months, and the recovery took 19 months, for a full cycle of 27 months.”

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