Where the Lopsided Economic Impact of COVID-19 in Canada Goes From Here

All economic downturns are unfair. Some people inevitably get hit harder than others. But almost a year into the COVID-19 catastrophe, the data makes it abundantly clear: the impact of this crisis is uniquely unequal.

A new analysis of data by CIBC shows people in temporary work, older workers, and low-wage workers were far more likely to have lost their jobs in 2020, says CIBC deputy chief economist Benjamin Tal. “This was the most asymmetrical recession in Canadian history,” said Tal. “It was narrow, but very, very deep. If you were hit, you were hit very hard.”

Analyzing data from Statistics Canada, Tal found that more than half of the job losses last year were from people who had temporary work; 31% of unemployment is among people who are self-employed; and all job losses were among people who had lower than average wages.

More than a million Canadians remain under- or unemployed while millions more simply adjusted to working from home. The second wave of COVID-19 cases and increased restrictions in many parts of the country have clobbered the most vulnerable workers who were already struggling. But many Canadians who were lucky enough to keep their jobs have been able to cut expenses on travel, commuting and child care. In doing so, they’ve saved more than $170 billion, collectively.

Stock markets have soared to all-time highs even while the global economy collapsed. Since bottoming out last April, both the Dow and the S&P are up more than 60%.

Djenaba Dayle lost her job as a server at events in Toronto when the pandemic hit last March. When COVID-19 began spreading last year, Dayle knew tough times were coming. She applied for the Canada emergency response benefit (CERB) and eventually the new extended employment insurance programs. But it’s still not enough, she said. “It’s either pay my full rent and not eat or eat and get behind in my rent.”

On the other side of the country, Cole Westersund has experienced both sides of the pandemic’s economic divide. Last March, he was terrified that his work as a real estate agent in Vancouver would grind to a halt along with the rest of the economy. Then, about a month into the pandemic, some restrictions began to lift. And suddenly his phone started ringing, he said, and business has been booming ever since. The sale of recreational real estate, such as cottages, has soared 11.5% in the first nine months of 2020. 

But Westersund said it’s important to remember every purchase is also a sale. And many of the clients selling their properties were listing because times were so tough. “Stepping into a client’s house, knowing full well that the reason that they’re selling is because they need the money, it’s a difficult conversation to have,” he said.

It is the definition of a K-shaped recovery. People on the lower branch have seen their fortunes fall and have not yet recovered while those on the upper branch have prospered. 

Experts worry the increased division between those two branches may outlast the pandemic. “Some of these effects could end up being permanent, and the bottom part of the K could persist for quite a while,” said former Bank of Canada governor Stephen Poloz, speaking at an online event on Jan. 13 hosted by Western University’s Ivey Business School.

The concern is that the worsening inequality of the economic downturn will lead to what economists call scarring: long-term job losses that result in lower growth and drag the whole economy down.

The wage gap, says Tal, is growing worse than it ever has, and a lot of it is because of the expanding gig economy, which features temporary, self-employed workers in service jobs with low wages. “This shows that we need to build a system that protects workers in the gig economy, because that’s taking a growing share of the economy,” said Tal.

Already, Tal says, some of the elements of that system are taking shape in the form of tweaks to Employment Insurance, the since-expired Canada Emergency Response Benefit and other income supports for workers not previously covered.

On the upside, most experts agree the recovery is nearly here. Daily COVID-19 case numbers are finally starting to decrease. Vaccines are beginning to roll out. Economic forecasts from the major Canadian banks suggest blockbuster growth in April, May and June. “It’s a massive acceleration of growth that we’re expecting over the next couple of years or so,” said Derek Holt, vice-president and head of capital markets economics with the Bank of Nova Scotia.

It’s been decades since Canada has seen that level of growth. Growth like that means investment and building — and that means jobs will be created. It means everyone benefits.

Source: CBC
Source: Toronto Star

COVID-19 Recession: Why Traditional Economic Tools Will Not Restore Job Losses

At every Canadian election, federal or provincial politicians promise to create more jobs. Easier said than done at the best of times. The COVID-19 recession adds unique elements to the challenge.

Instinctively, governments will use expansionary monetary policies (interest rates and money supplies) or expansionary fiscal policies (taxation and government expenditures) or both to stimulate job growth. Unfortunately, these policies can take up to six months or more to prompt economic gains if, in fact, they will work at all during the current atypical recession. The exception may be government funding for necessary infrastructure programs.

The Bank of Canada has lowered interest rates with the hope that this will cause consumers to borrow and spend more resulting in businesses expanding and hiring additional workers to satisfy increased demand. However, once a major recession is underway, most people are too poor to spend or borrow no matter how low interest rates are. Banks can become unwilling to lend as personal credit scores tumble and personal savings are depleted.

Lower interest rates might help some in the middle class to renegotiate mortgages or consider new house purchases. As for the upper middle class and the rich, it has been shown that interest rates rarely effect their spending habits and that includes the expansion of their businesses.

Canada is also using quantitative easing to increase the supply of money and liquidity in the economy. As with lowering interest rates, there is no concrete evidence that using quantitative easing will lead to increased consumer spending and therefore job creation during the current severe recession. It might assist the rich to acquire more possessions and stock markets might spike, but it will do little for those who have lost their jobs or are afraid they might.

The Canadian government and provinces have taken extraordinary and laudable efforts to get cash straight to individuals and small businesses in need. However, as would be expected at this time, these singular allocations have been modest and temporary. At this writing, the federal government is attempting to re-establish the employment insurance program as the focus for ongoing funding.

A compelling argument can be made for establishing a guaranteed annual income even as the current crisis continues. This would assist ordinary Canadians to better weather the ups and downs of the economy, now and in the future, with one simple, reliable and well-funded program.

Infrastructure programs can create many jobs and robust economic spinoffs. However, the fact remains that most of these jobs are temporary and only available to certain trades and professions. Governments could institute focused and expedited training programs to allow a broader spectrum of the unemployed and underemployed to participate in these projects.

If the quantity and size of infrastructure programs were maximized, then the number of jobs created as we ease out of this recession might well be sufficient to allow small- and medium-sized businesses to reopen. Reducing payroll taxes for new hires would provide a further incentive.

In short, policies such as infrastructure projects, efficient retraining, reduced payroll taxes and the beginnings of a guaranteed annual income system are some the of tools we can rely on to help restore economic growth during and after the pandemic crisis.

In the longer term, governments in Canada need to come to terms with the fact that our future must include a focused industrial strategy using skilled workers trained in all the proven tools for cleantech advanced manufacturing. As the European industrial heartland has shown, an advanced sector is capable of weathering heavy economic storms.

Given the sorry state of Canadian entrepreneurialism, this shift will likely require Crown corporations to lead the way and then, perhaps, pass off what is created to the private sector. The notion of handing out money, free land and tax exemptions to start-up, small and medium sized businesses is completely discredited. Instead, a focused industrial strategy based on advanced manufacturing is the future.

Source: Times Colonist

COVID-19 Changed How We Work. Will It Stick?

How we work was heating up to be an important debate long before the pandemic added rocket fuel to remote working capacity. Now, millions of people have spent the past 10 months in a pandemic-imposed trial. They have set up a corner of their home as an all-in-one office, school and living area.

At the peak of the pandemic lockdowns in April, more than 40% of those still working at least half their usual hours were working from home, according to Statistics Canada. That number declined to around 26% in September 2020 before “increasing slightly in the fall,” the agency said.

“In three industries — professional, scientific and technical services; finance, insurance, real estate, rental and leasing; and public administration — working from home has remained at elevated levels,” it said. In areas such as education, which was affected by school shutdowns and the shift to remote learning early in the pandemic, only about a third of people were working from home by December compared to close to half in April.

The question among experts, economists and business owners is how many of them will return to their workplaces when the crisis is over.

Demand for flexibility

It’s not just employees pondering a return to the office.  Margaret Szots, a talent development manager with the City of Toronto, is also trying to figure out what the future will look like. She was working on a way to give employees more flexibility before COVID-19 hit. The benefits are clear — people don’t have to commute, they’re saving money and they’re saving time, she said. However, the long-term impact remains mired in uncertainty, she said. “We were already on a trajectory to this new way of working,” she said. “[The pandemic] pushed us that much more quickly … We’re not going back to the way we were.”

San Diego-based Kate Lister, president of the Global Workplace Analytics consulting firm, predicted the pandemic would be “the tipping point for remote work.” Early in the pandemic, she estimated, “25% to 30% of the workforce would work from home multiple days a week when the threat was over.”

“It felt like a bold assertion. Now, nearly nine months into the world’s largest work-from-home experiment, if anything, I’m feeling my estimate might be low,” she writes in a January 2021 report on remote work.

For employers, remote work has offered benefits such as reduced real estate costs, less absenteeism, lower employee turnover and increased productivity, the report found.

Looking ahead

Companies big and small are looking at their workforces now and trying to figure out how things will look in six months or a year.

Facebook said as many as half of its employees will work remotely for the foreseeable future. But people who want to work remotely won’t be the challenge, CEO Mark Zuckerberg said. “It’s going to be that there are more people who want to get back into the office than we can support,” he said.

Avery Shenfeld, CIBC’s chief economist in Toronto, agreed. “I keep hearing all these people [saying]: ‘We’re all going to work from home forever,'” he said. “No [we won’t] because it’s not effective.” At least it’s not effective for everyone.

But that’s not to say there will be a flood of people rushing back to their offices next spring or summer. Even once restrictions loosen, it’s not like giant office towers can just open the doors and let everyone back in. Some health and safety restrictions will remain in place even as other broader restrictions are lifted.

Getting everyone to stay home was relatively simple. Finding a way to get them back to the office will be a much more complicated affair.

Source: Globe and Mail