May 22, 2020

Relaunching Alberta Part 2: Adapting CERB to the post-shutdown economy

The Canada Emergency Response Benefit (CERB) has done what it set out to do – to provide broad, quick support to Canadians in a time of urgent financial need. It provides $2,000 per month for up to four months to individuals whose work or health has been impaired by COVID-19.

The Initial Intent

Normally, this amount of financial support would be bound to strict eligibility criteria and tied to rules to incentivize work but, because of the unique nature of the crisis, this was rightfully left out. Instead, it was a “no-one-should-be-left-behind”, broad-based policy measure of relatively significant financial support to ensure all households would have the means to get through the crisis, especially those unable to work and with meagre savings.

CERB was introduced at a time when the future was clouded in uncertainty; no one knew how long the crisis would last or how bad it would be. But as provinces begin the process of reopening, the situation is quickly changing. A program designed for an economy dealing with a health crisis in an induced shutdown is no longer appropriate for an economy trying to get back on its feet.

An Incentive Problem

One issue with the CERB program in its current form is the simple eligible-to-ineligible switch that is flicked off when an individual re-enters the workforce and earns more than $1,000 in the benefit month. For most Canadians, this means that once they accept a full-time job offer, they will immediately become ineligible.

However, over 40% of Canadians typically earn less than $3,000 per month. Therefore, many individuals who were employed before the crisis will find that they would earn less money by re-entering the workforce full time than via CERB, and could rationally choose to continue to apply for the CERB benefit of $2,000 and to either work part-time (earning up to $1,000) or not enter the labour market at all.

Adding to the direct financial disincentive is the cost of transitioning back to work. Many Albertans will need to coordinate and pay for child care – assuming they can find spaces. Transportation costs and commute times are a barrier. And so too is the actual or perceived risk of working in close quarters with others who might be infected.

The combination of negligible financial benefits, added costs and risks, combined with uncertainty could mean that many individuals decide that they are better off in the interim accessing CERB as opposed to re-entering the workforce full time or at all. These issues are only magnified by reports that the federal government is not closely scrutinizing CERB applications, allowing those ineligible for the program to receive payments.

The problem is, this disincentive will cripple Alberta’s economic recovery if employers struggle to rehire workers and fill positions. The previously appropriate ‘no-one-should-be-left-behind’ model does not work when we are looking to move forward.

One way to minimize the disincentive effect would be to modify CERB so that, instead of receiving a flat $2,000 monthly payment, individuals receive some percentage of their pre-crisis pay as they would have under the Employment Insurance (EI) program. Even if that percentage was 100 (subject to a cap), it would remove some of the disincentive. The issue here, however, is one of equity: not only would this impact low-income Canadians the most, but it would also mean that later CERB applicants were afforded less favourable treatment than those who applied for the program earlier.

A better approach – one that strikes a balance protecting individuals and employers, while also promoting economic recovery – is to transition CERB to a phased model which would both incentivize work and also maintain some benefits. This could be patterned after the approach used in the current EI program; for every $1 earned through work, an individual’s CERB benefits would decrease by 50 cents. This short-term transition component would ensure there is still an incentive to work in an economy that will desperately need to ramp up employment, capacity, and sales in order to recover. 

READ MORE: Relaunching Alberta Part 1: Solving the daycare problem

The Need for Greater Flexibility

Beyond this adjustment, the total dollar amount available through CERB should vary with job availability over time and by province. How quickly business picks up is dependent upon numerous factors – consumers’ confidence in health and safety measures and in their financial state, businesses’ ability to navigate new health and safety protocols, and government’s ability to contain the spread of the virus, to name a few.

As a result, workers in some places could face prolonged unemployment due to a lack of job opportunities while in other places jobs could become available quickly. To account for these differences, the generosity of CERB benefits or eligibility windows could be tied to provincial employment numbers, decreasing the maximum benefit as the number of jobs in the province increases and vice versa.

A Call for an Extension

Finally, the expiration of the program is another problem. Beyond October 3rd, individuals will still need income support in place if they test positive for COVID-19, are asked to isolate, or need to care for a sick family member. Regular EI payments will help most Albertans in these situations but for those without access, having income support still in place is crucial. Otherwise, individuals will face a difficult trade-off between paying bills and protecting the health of themselves and others.

A simple solution is to extend a modified CERB program on a limited-eligibility basis to support affected individuals beyond October 3rd. The federal government could then re-visit the program at the end of 2020 to see if it is still needed, or if circumstances have changed sufficiently that it can be discontinued.

As Canada and Alberta’s situation changes, so too should its policies. Policies meant to help individuals through the economic shut-down need to be adapted to give us the best shot at a speedy recovery.

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