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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The economic disruptions of the pandemic showed the shortcomings in Canada’s out-of-date social safety net.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.

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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Germany is the biggest economy in Europe. What if it shifts left? – CNN

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London (CNN Business)Angela Merkel is about to bow out as chancellor of Germany after 16 years, marking the start of a new era for Europe’s largest economy.

The results of Sunday’s election are hard to predict, and the formation of a government could take weeks or months to play out. But when the dust settles, polls indicate that the new chancellor could be the left-leaning Social Democratic Party’s Olaf Scholz, who steered Germany’s economy through the pandemic as finance minister in a coalition with Merkel. Meanwhile, the Greens could more than double their number of seats in parliament.
Scholz’s SPD and the Greens could partner with the pro-business Free Democratic Party, gaining enough power to shift the country’s economic agenda to the left. Taxation and spending could increase as political leaders double down on digitization and climate policy, while wariness about rising government debt may take a back seat.
“Greens and liberals in a coalition would bring the freshest innovative forces that we have had in a while in a German government,” said Carsten Brzeski, ING’s global head of macro research.

Spend more, worry later?

Global banks say that the eventual outcome of post-election jockeying among the parties is far from certain, while advising investors to prepare for two potential results: a coalition of the SPD, Green Party and the FDP, or a narrow victory for Merkel’s center-right Christian Democratic Union, led by Armin Laschet, which would also likely need to team up with the Greens and FDP.
The former option would mark a move to the left, but would be less dramatic than an alliance between the SPD, Greens and hard-left Die Linke. This result, which could produce much more ambitious efforts to redistribute wealth and levy taxes, has been downplayed by analysts, and would likely take investors by surprise.
Whichever combination takes charge will have to manage the ongoing recovery from the coronavirus pandemic. Germany’s economy is on track to grow by 2.9% this year and 4.6% next year after contracting by 4.9% in 2020, according to the latest projections from the Organization for Economic Cooperation and Development.
Yet recent data indicates momentum could be slipping. The Ifo index, which tracks the country’s business climate, fell for the third month in a row in September, according to data released Friday. Slower growth in China, snarled supply chains and surging gas prices are likely to be taking a toll.
This pullback could add to pressure on the country’s new leaders to scrap Germany’s notoriously strict fiscal rules so they can keep spending on the domestic economy.
The country enshrined a so-called “debt brake” in the constitution in 2009, severely limiting public borrowing after the financial crisis with few exceptions. Because of the pandemic, debt rules were suspended until 2023. That allowed German borrowing to jump, with the country’s debt-to-GDP ratio climbing sharply to 70% in 2020.
Though such a ratio pales in comparison with the United States, where debt is now projected to exceed annual GDP, Germany’s centrist parties have been eager to get the country’s public finances back under control. The Greens, meanwhile, want more permanent easing of debt rules.
UBS strategists Dean Turner and Maximilian Kunkel think the debt brake — which has become a key tenet of German fiscal conservatism — is likely to remain in place, since overturning it would require a two-thirds majority in parliament.
Still, they expect Germany’s new leaders will find other ways to increase spending to address the climate crisis, an issue that gained even greater prominence after devastating flooding hit the country in July.
“The one common area of agreement for all parties is the need to tackle climate change,” Turner and Kunkel wrote in a recent research note. Whatever coalition emerges, they continued, green investment “will rise.”

Tackling the climate crisis

Brzeski expects that the incoming governing coalition, no matter its makeup, will create a special investment vehicle to circumvent the debt brake, allowing money to flow to green initiatives.
With a more liberal coalition government, however, some timelines could be moved up.
“[The Greens] would likely push for an acceleration of the green transition of the German economy as a pre-condition for entering government,” Goldman Sachs said in a recent note to clients.
The Green Party has called for a 70% cut in greenhouse gas emissions from 1990 levels by 2030, compared to the current government goal of 65%. It also wants coal plants shuttered by the end of this decade, rather than by 2038, and for new cars to be emissions-free by that point, too.
This could set up a clash with Germany’s most powerful businesses. In its latest strategy update, Volkswagen (VLKAF) said it wanted 50% of sales to come from electric cars by 2030, rising to almost 100% in 2040.
How much the state should intervene could generate friction between coalition members.
“The biggest controversy will be: How do you change people’s behavior?” Brzeski said. “Do you do this by incentives, and by educating people, or do you do this by [increasing] prices and costs?”
A left-leaning government in Germany could also lead to an increase in taxes for the wealthiest Germans, with the SPD proposing a new wealth tax on the super-rich.
But banks are emphasizing that it remains hugely unclear how the election will play out — and the more conservative CDU could still prevail, keeping Germany more firmly on its current fiscal and economic path.

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Province Invests in Wellington County Businesses to Boost Local Economy – Government of Ontario News

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Province Invests in Wellington County Businesses to Boost Local Economy  Government of Ontario News



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Powell meets a changed economy: Fewer workers, higher prices – 95.7 News

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WASHINGTON (AP) — Restaurant and hotel owners struggling to fill jobs. Supply-chain delays forcing up prices for small businesses. Unemployed Americans unable to find work even with job openings at a record high.

Those and other disruptions to the U.S. economy — consequences of the viral pandemic that erupted 18 months ago — appear likely to endure, a group of business owners and nonprofit executives told Federal Reserve Chair Jerome Powell on Friday.

The business challenges, described during a “Fed Listens” virtual roundtable, underscore the ways that the COVID-19 outbreak and its delta variant are continuing to transform the U.S. economy. Some participants in the event said their business plans were still evolving. Others complained of sluggish sales and fluctuating fortunes after the pandemic eased this summer and then intensified in the past two months.

“We are really living in unique times,” Powell said at the end of the discussion. “I’ve never seen these kinds of supply-chain issues, never seen an economy that combines drastic labor shortages with lots of unemployed people. … So, it’s a very fast changing economy. It’s going to be quite different from the one (before).”

The Fed chair asked Cheetie Kumar, a restaurant owner in Raleigh, North Carolina, why she has had such trouble finding workers. Powell’s question goes to the heart of the Fed’s mandate of maximizing employment, because many people who were working before the pandemic lost jobs and are no longer looking for one. When — or whether — these people resume their job hunts will help determine when the Fed can conclude that the economy has achieved maximum employment.

Kumar told Powell that many of her former employees have decided to permanently leave the restaurant industry.

“I think a lot of people wanted to make life changes, and we lost a lot of people to different industries,” she said. “I think half of our folks decided to go back to school.”

Kumar said her restaurant now pays a minimum of $18 an hour, and she added that higher wages are likely a long-term change for the restaurant industry.

“We cannot get by and pay people $13 an hour and expect them to stay with us for years and years,” Kumar said. “It’s just not going to happen.”

Loren Nalewanski, a vice president at Marriott Select Brands, said his company is losing housekeepers to other jobs that have recently raised pay. Even the recent cutoff of a $300-a-week federal unemployment supplement, he said, hasn’t led to an increase in job applicants.

“People have left the industry and unfortunately they’re finding other things to do,” Nalewanski said. “Other industries that didn’t pay as much perhaps … are (now) paying a lot more.”

Christopher Rugaber, The Associated Press

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