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Redesigning Canada's social safety net for the post-pandemic economy – Policy Options

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The economic disruptions of the pandemic showed the shortcomings in Canada’s out-of-date social safety net. Issues like the inability of the Employment Insurance (EI) program to process a large number of claims in a short period of time, self-employed or gig-workers’ lack of EI eligibility and the absence of sufficient job-protected leave, sent federal and provincial policy-makers scrambling for solutions.

These flaws add to the longer-run challenges that are facing Canada’s workforce. Exposure to global competitive forces cause major price fluctuations in natural resource markets along with manufacturing plant shutdowns, and heighten the potential impact of artificial intelligence and robotics on jobs. Mounting concerns about these issues have led major international agencies such as the International Monetary Fund, the Organization for Economic Co-operation and Development and the World Bank to promote an “inclusive growth” agenda, aimed at keeping trade between countries open while also committing to protect and invest in the displaced and most vulnerable.

The Institute for Research on Public Policy’s research on the Social Safety Net for Working-Age Adults is motivated by these concerns. The program makes the case for broadening our definition of safety net beyond the traditional boundaries of income-support programs to include not only so-called active labour market measures that provide employment services to the unemployed and incentives to work, but also the broader set of rules and regulations that underpin labour institutions and frame labour relations. Examining how these three pillars of our safety net intersect and complement one another should help draw attention to what policy levers need to be pulled.

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Income-support programs

The sudden effect of public health restrictions to fight the transmission of COVID on Canadians’ employment led to a dramatic redesign of income supports. With EI unable to process a wave of new claims, the federal government created the Canada Emergency Response Benefit (CERB) to provide financial support to employed and self-employed Canadians who stopped working because of the pandemic. Eligible recipients could receive $2,000 for a four-week period and could re-apply if still without work at the end of this period. CERB was recently transformed into the Canada Recovery Benefit (CRB), which is roughly similar in design as the CERB and has been extended to Oct. 23.

The universality of access to these new benefits kickstarted a serious debate in Canada about whether a basic income program (BI) should be adopted going forward. A few months ago, the IRPP held a webinar with a group of experts on this topic to explore what role a BI could play in a revised social safety net. This panel included Garima Talwar Kapoor of Maytree as well as Lindsay Tedds and David Green, both members of the British Columbia Expert Panel on Basic Income, which released its report Covering All the Basics: Reforms for a More Just Society in January 2021. The IRPP panel was cautious about the potential for a basic income program to fix most of the issues in Canada’s safety net, and suggested that alternative, targeted programs might be a more practical approach.

On this score, policy interventions have mostly targeted poverty reduction among certain groups – such as seniors, families with children and single parents. In fact, Canada’s First Poverty Reduction Strategy specifically targets reducing one measure of the poverty line, defined as the number of households that do not have enough money to buy a specific basket of goods and services that allows them to meet their basic needs. But this measure does not consider the depth of poverty that people experience. Targeted poverty reduction measures have left behind singles without children even though they are the largest group among those who live in deep poverty – those with incomes below 75 per cent of the poverty line. Considered by many to be “the forgotten poor,” their difficulties are often exacerbated by a complex set of issues related to mental health disorders, addictions, violence and abuse, homelessness and the overall traumatizing effects of entrenched poverty.

An IRPP report summarizes the findings of extensive research to better understand changes in the Ontario social assistance (Ontario Works) caseload for singles in Toronto. As part of this project, the IRPP invited three experts (Ron Kneebone, Alain Noël and Sherri Torjman) to propose policy responses for governments to consider. All three stressed the importance of targeting reduction in deep poverty measures in addition to the overall poverty rates and doing so in part by boosting the income support provided to working-age adults who live alone.

In response, Nick Falvo examined welfare income and the extent to which singles’ social assistance caseloads are influenced by the generosity of benefits as well as other factors. These include changes in eligibility rules, general economic conditions and the minimum wage. Although increasing social assistance benefits could result in a modestly higher number of singles on social assistance, there are ways to mitigate this impact. This could be done, for example, by directing benefit increases to singles who live in regions with relatively high costs of living and/or including singles on social assistance in the list of groups with priority access to federal-provincial housing benefits.

Modernizing EI

The 2021 federal budget recognized the need to reform Canada’s EI system, committing to consultations with Canadians and employers on future, long-term reforms. These consultations will “examine systemic gaps exposed by COVID-19, such as the need for income support for self-employed and gig workers; how best to support Canadians through different life events such as adoption; and how to provide more consistent and reliable benefits to workers in seasonal industries.”

A commonly cited concern about EI is how the program provides only short-term support – between 14 and 45 weeks of benefits – to unemployed workers. When individuals’ EI benefits expire before they find a new job, they often have to draw down on their financial assets and/or rely on significantly less generous social assistance benefits. To pre-empt such outcomes, policy-makers have on seven occasions since 2004 temporarily increased the maximum number of weeks during which targeted claimants are entitled to EI benefits.

Utilizing administrative data on EI claims, David Gray and Philip Leonard examined EI benefit-duration spells to analyze patterns and incidence. They also examined the behavioural changes and program costs associated with benefit extensions. In most instances, the measures were either inappropriate or inadequate. However, they did find that benefit extensions during major recessions, such as the pandemic, are warranted. EI needs sweeping reforms to become more responsive to economic downturns and to better support unemployed workers’ adjustments to changes in the labour market over time. Gray and Leonard made a number of policy recommendations to address the problems that long-term workers on EI face in transitioning back to work.

Incentives to work and EI

EI not only provides financial support for workers who have lost their jobs, but also strives to help recently unemployed Canadians keep a foothold in the labour market. It does this through provisions that encourage claimants to take part-time or casual jobs while keeping a portion of their EI benefits, known as Working While on Claim (WWC). Stéphanie Lluis, Brian McCall and I examined the results of several pilot projects that tested changes in WWC parameters from 2005 to 2018, and reviewed the evidence for similar programs in other countries. The WWC provisions can help unemployed Canadians remain attached to the labour force and successfully transfer to permanent jobs, but these rules should be improved.

One change would see the federal government relax WWC rules during a recession, which would allow claimants to work more hours on claim while retaining more of their EI benefits. Plus, different measures could be introduced for displaced workers who have more difficulty finding new employment than other groups of unemployed workers. For instance, wage insurance, which tops up the income of those who take a job at a lower pay than they earned prior to the layoff, could be more effective in encouraging a return to work than current WWC rules.

Employment standards and labour laws

Although income-support programs get the most attention as a policy option to provide greater security to workers, there are limits to what these policies can achieve. The CRB is temporary. At the same time, EI rules can be twisted only so much to accommodate the range of income-support needs among Canadian workers. Finding ways to make self-employed workers eligible for regular benefits in case of job loss is one of the biggest, and likely insurmountable, challenges facing EI. The solution to the rapid growth in “gig” workers who are not entitled to regular EI benefits, however, might be found in labour legislation.

There is a debate raging in the courts over whether certain categories of workers in the new economy should be considered regular employees or independent contractors under labour laws. The legal status of these workers affects their ability to qualify for minimum employment standards protections (e.g., minimum wage, sick days and other unemployment benefits). In California, laws have been adopted (and subsequently reversed for app-based companies) to make certain companies treat workers as employees, not independent contractors. Further, courts in the U.K. are designating a new category of “worker” under labour laws so that gig workers are not considered independent contractors. What lessons should Canadian legislators draw from these experiences?

Other legal issues have important implications for modern workers. As a result of the immense hardship faced by some workers during the pandemic, the federal and provincial/territorial governments enacted emergency measures to expand job-protection rights for workplace leaves, and to provide income replacement for workers taking leave. But what should policy-makers do to sickness and caregiving leaves when these temporary programs end? And what should legislators do to modernize the current model for collective bargaining in Canada while getting buy-in from employers?

An agenda for change

Canadians will head to the polls in Ontario and Quebec next year. Nova Scotians are about to vote in an August election, while a federal election call looms this summer. The policy platforms put forth by the parties during these elections, and in the budgets that precede them, should give a sense as to whether profound changes to income-support programs and labour laws are on the horizon or if we will return to the status quo.

To stay informed of the big challenges ahead and to read bold ideas to reform our safety net for workers, follow the IRPP’s research.


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Surprise Growth Makes South Africa’s Economy Bigger Than Before Pandemic Struck

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(Bloomberg) — South Africa’s economy is bigger than before the coronavirus pandemic struck, after growing faster-than-expected in the third quarter on increased farm output.

Gross domestic product expanded 1.6% in the three months through September, compared with a contraction of 0.7% in the previous quarter, Statistics South Africa said Tuesday in a report released in the capital, Pretoria. The median of 12 economists’ estimates in a Bloomberg survey was for growth of 0.4%. The economy grew 4.1% from a year earlier.

Full-year growth may also surprise on the upside. The central bank forecasts an expansion of 1.8% and the National Treasury 1.9%. For the nine months through September, an early indicator of where full-year growth may land, GDP grew by 2.3% from last year.

The 2.3% expansion in the first three quarters is a “reasonable indicator” of the annual number, said Joe de Beer, deputy director-general of economic statistics at the agency. “I can’t see it differing by more than” half a percentage point “from just a mathematics point of view,” he said.

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“After taking into account the firmer-than-expected third-quarter figure, we expect growth to average closer to 2.5% in 2022, before slowing to just above 1% next year,” said Sanisha Packirisamy, an economist at Momentum Investments.

At an annualized 4.6 trillion rand ($265 billion) in the third quarter, GDP is about 53 billion rand bigger than the fourth quarter of 2019, before the pandemic struck. A contraction in the prior three months had reversed gains made in the first quarter that made it bigger.

The quarterly expansion comes even after Africa’s most-industrialized economy experienced record power cuts because state electricity utility Eskom Holdings SOC Ltd. couldn’t keep pace with demand from its old and poorly maintained plants. Industries behind the better-than-expected growth were agriculture and transport, which grew 19.2% and 3.7% quarter-on-quarter respectively.

Strong exports of mineral, vegetable and paper products also contributed.

Still, South Africa’s economy remains stuck in its longest downward phase since World War II and hasn’t grown by more than 5% annually in 15 years. The government’s National Development Plan, a 2012 economic blueprint co-authored by President Cyril Ramaphosa, says that level of expansion is needed for sustainable job creation in a nation where almost a third of the workforce is unemployed.

Slow structural reforms, political uncertainty and high levels of crime continue to weigh on fixed-investment spending in South Africa, with private companies wary of committing large sums of money to domestic projects. Gross fixed capital formation climbed 0.3% from the previous quarter.

Household spending, which comprises about two-thirds of GDP, declined 0.3% in the third quarter. It’s likely to come under further strain from high inflation and interest rates that are at a level last seen more than five years ago.

Weak growth is forecast for the final quarter because of continued rolling blackouts and a strike over wages that took place at Transnet SOC Ltd., South Africa’s state-owned logistics company that operates most of the harbors in the nation, in October. The central bank forecasts expansion of 0.1% this quarter.

Lackluster economic growth and mounting price pressures pose a threat to social stability in one of the world’s most unequal societies and may stymie efforts to reduce fiscal deficits and debt.

–With assistance from Simbarashe Gumbo and Rene Vollgraaff.

(Updates with economist comment in paragraph five. An earlier version corrected household spending figure in paragraph 11)

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World Economy Heads for One of Its Worst Years in Three Decades

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(Bloomberg) — The world economy is facing one of its worst years in the three decades as the energy shocks unleashed by the war in Ukraine continue to reverberate, according to Bloomberg Economics.

In a new analysis, economist Scott Johnson forecasts growth of just 2.4% in 2023. That’s down from an estimated 3.2% this year and the lowest — excluding the crisis years of 2009 and 2020 — since 1993.

However, the headline figure is likely to mask diverging fortunes, with the euro area starting 2023 in recession and the US ending the year in one. By contrast, China is projected to expand more than 5%, boosted by a faster-than-expected end to its zero-tolerance Covid strategy and support for its crisis-hit property market.

Differences will also be on display when it comes to monetary policy after a year in which central banks “dashed toward restrictive territory in a pack,” Johnson wrote.

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“In the US, with wage gains set to keep inflation above target, we think the Fed is headed toward a terminal rate of 5%, and will stay there till 1Q24. In the euro area, meanwhile, a more rapid decline in inflation will mean a lower terminal rate and the possibility of cuts at the end of 2023.”

In China, where authorities are torn between a desire to support the recovery and concern about the weakness of the currency, “limited” rate cuts are on the cards.

Read more: Global Growth Set to Slow From 3.2% in 2022 to 2.4% in 2023

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Securing good jobs, clean air, and a strong economy – Prime Minister of Canada

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Autoworkers have been a keystone of the Canadian economy for generations. By investing in the future of the auto industry, we are not only securing good middle-class jobs, we are fighting climate change, and building an economy that works for generations to come.

Since January alone, Canada has secured several historic manufacturing deals for electric vehicles (EVs), hybrids, and batteries – deals that will create and secure thousands of good, middle-class jobs and provide the world with clean vehicles. Today, we are seeing the results of one of those deals start to roll off the line.

The Prime Minister, Justin Trudeau, was joined today by Premier of Ontario, Doug Ford, to open Canada’s first full-scale EV manufacturing plant, General Motors of Canada Company’s (GM) CAMI assembly plant in Ingersoll, Ontario. Starting today and going forward, the plant will build fully electric delivery vans – the BrightDrop Zevo 600 – which will help cut pollution and keep our communities healthy for our children and grandchildren.

Thanks in part to a $259 million investment from the Government of Canada, GM’s CAMI assembly plant was able to retool its operations to build these electric vans. By 2025, the plant plans to manufacture 50,000 EVs per year. This investment has helped secure thousands of well-paying, high-quality jobs across GM facilities, and is helping advance the electrification of Canada’s automotive sector.

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The Government of Canada will continue to work to attract investment from companies around the world as we build our EV supply chain – from mining critical minerals to manufacturing batteries, and vehicles. By taking action today, we are positioning Canada as a global leader in EVs, fighting climate change, securing good jobs, and building an economy that works for all Canadians – now and into the future.

Quotes

“When we invested in GM’s project to build Canada’s first full-scale electric vehicle manufacturing plant in Ingersoll, we knew it would deliver results. Today, as the first BrightDrop van rolls off the line, that’s exactly what we’re seeing. This plant has secured good jobs for workers, it is positioning Canada as a leader on EVs, and will help cut pollution. Good jobs, clean air, and a strong economy – together, that’s the future we can build.”

The Rt. Hon. Justin Trudeau, Prime Minister of Canada

“Today is proof that our historic investments in EV manufacturing are paying off. With the first BrightDrop vans coming off the assembly line, we’re seeing the skill of Canadian workers making a huge difference as the world moves to EVs. Our government, in partnership with GM, is cementing Canada’s leadership in the EV supply chain.”

The Hon. François-Philippe Champagne, Minister of Innovation, Science and Industry

“This milestone represents GM at our best – fast, flexible and first in the industry. The BrightDrop Zevo is a prime example of GM’s flexible Ultium EV architecture, which is allowing us to quickly launch a full range of electric vehicles for our customers. And, as of today, I am proud to call the CAMI EV Assembly team the first full-scale all-electric manufacturing team in Canada.”

Mark Reuss, President, General Motors

“This is a very exciting moment – a revolution in the way we transport people and goods. Today marks a huge day for BrightDrop, as we expand our footprint and begin producing the Zevo electric vans at scale, and a huge milestone for Canada on the road to a brighter future. Opening the CAMI plant is a major step in providing EVs at scale and delivering real results to the world’s biggest brands, like DHL Express, who will be our first Canadian customer.”

Travis Katz, President and CEO, BrightDrop

Quick Facts

  • The Government of Canada’s $259 million investment supports GM’s more than $2 billion project to reignite production at its Oshawa assembly plant, after operations stopped in 2019, and transform its CAMI assembly plant in Ingersoll.
  • The investment is being made through both the Strategic Innovation Fund and its Net Zero Accelerator Initiative.
  • The Government of Ontario made a matching contribution of up to $259 million toward the project.
  • Founded in 1918, General Motors of Canada Company (GM) is one of the largest automotive manufacturers worldwide. It is headquartered in Oshawa, Ontario, and is one of Canada’s largest automotive manufacturers.
  • GM is planning to introduce 30 new electric vehicles by 2025, eliminate tailpipe emissions from new light-duty vehicles by 2035, and become carbon neutral in its global products and operations by 2040.
  • The automotive sector contributes $16 billion to Canada’s gross domestic product and is one of the country’s largest export industries.
  • The automotive sector supports the employment of nearly 500,000 Canadians.
  • The 2030 Emissions Reductions Plan, released in March, puts Canada on track to achieving our goal of cutting emissions by 40 to 45 per cent below 2005 levels by 2030 while continuing to build a strong economy.
  • To make zero-emission vehicles more affordable and accessible, the Government of Canada offers incentives of up to $5,000 off the purchase or lease of a light-duty zero-emission vehicle through the Incentives for Zero-Emission Vehicles (iZEV) Program. Since May 2019, close to 176,000 Canadians have taken advantage of this program.
  • Since 2015, the Government of Canada has invested $400 million in building approximately 35,000 zero-emission vehicle charging stations across the country.

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