Skip to main content

“I am a Canadian, free to speak without fear, free to worship in my own way, free to stand for what I think right, free to oppose what I believe wrong, or free to choose those who shall govern my country. This heritage of freedom I pledge to uphold for myself and all mankind.” ~~ John G. Diefenbaker

FRASER INSTITUTE -- Ottawa must remove disincentives to return to work

Originally published in the Fraser Forum on May 14th

 

The recent jobs report showed the painful impact of the recession, with three million jobs lost since February. Fortunately, many provincial economies are starting to reopen, which hopefully means the economy can begin to recover. But for a strong and quick recovery, the federal government must start to scale back the Canada Emergency Response Benefit (CERB) to remove its strong disincentives for work.

 

The CERB is a $2,000 monthly payment for up to four months for those who have lost income due to COVID-19. Critically, Canadians can earn up to $1,000 per month and remain eligible for CERB. To date, 7.8 million Canadians have applied for the benefit.

 

As the economy recovers, keeping CERB in place too long without reforms imposes strong disincentives on many Canadians to return to work, which impedes recovery. Indeed, some politicians have already started to raise concerns that Canadians are choosing not to work in order to continue receiving the CERB.

 

At a basic level, people face a trade-off between work and leisure. Their decision of whether to work and how much to work is influenced by their after-tax compensation—people tend to be willing to work more (i.e. less leisure), if they can receive more. The CERB, however, distorts this decision because many workers earn a higher income being unemployed or working reduced hours, than if they return to their pre-recession level of work.

 

Consider Jane, a part-time worker who pre-recession worked 25 hours a week at minimum wage (about $14/hour) for a monthly income of $1,400. Jane, like so many in this recession, was laid-off as her employer closed operations. Jane applied for and received CERB, meaning her pre-tax income increased to $2,000 a month.

 

Now consider the incentives she faces as the economy reopens and more jobs become available. If she returns to work at the previous level of employment (25 hours per week) her monthly pre-tax income actually falls by $600. Put simply, Jane has no incentive to return to work at her pre-recession level so long as the CERB is available.

 

The almost insurmountable incentive linked with CERB is for Jane, or indeed any worker, to either (1) not work at all or (2) calculate the number of hours they can work that results in income just less than $1,000 per month, so they’re still eligible for CERB.

 

In Jane’s hypothetical case, she has an incentive to work up to just over 17 hours per week, a reduction of almost one-third relative to her pre-recession hours. Yet her effective hourly wage will increase by almost 300 per cent because of CERB. Put differently, instead of earning $14 per hour, the receipt of CERB effectively increases Jane’s hourly wage to more than $43 per hour, so long as she doesn’t exceed $1,000 in monthly income.

 

Now consider the enormity of the loss to Jane if she exceeds $1,000 per month in income. Suppose her employer can’t attract new workers and convinces her to take on a couple extra hours. Jane earns $28 for two additional hours of work but loses $2,000 because she’s no longer eligible for CERB. There’s simply no incentive whatsoever for Jane or similar workers to work beyond $1,000 per month.

 

The fact that recession job-loss has been greatest for those working part-time and having lower-paying jobs, particularly in sectors such as accommodation and food services, reinforces the need to get policies and incentives right for such workers to allow for a quicker recovery.

 

As the economy reopens, it’s imperative the government introduce reforms, including a gradual scaling back of CERB, so Canadians have the incentive to return to work. Otherwise, well-intentioned policy will impede the recovery, particularly for the very workers CERB was intended to help.

Comments

Popular posts from this blog

THE SIDEWINDER -- Just quit your constant damned whining and do something positive about it

  Living in a democracy is a wonderful thing, but it comes with responsibilities such as voting and being involved. When the dust settled on Saturdays (October 24 th ) BC election, less than two thirds of the eligible voters * took the time to vote - but the loudest bitchers will probably be among the more than one third of voters who sat on their asses and complained about how all politicians are crooks, etc. How many of you constant whiners have ever done anything close to becoming involved; or do you just like sniveling to hear your own voice? Are you one the arseholes who likes to take advantage of everything our democracy has to offer, without ever contributing anything? And I don't want to listen to your crap about paying taxes, blah, blah, blah. There's more to making democracy work than simply voting and then sitting back and let others carry the ball for you. Too many people seem unwilling to get involved - and follow-up - to make sure elected po

AARON GUNN -- He is, at his core, an ideologue, meaning the facts of any particular issue don’t actually matter

Ben Isitt - City Councillor and Regional Director Victoria City Council and its resident-genius Ben Isitt is back with another dumb idea. Introducing a motion to ban the horse-drawn carriages that have coloured Victoria’s downtown streets for decades, calling them “an outdated mode of transportation”. Are you serious?   No one is actually commuting by horse and carriage. They are here for tourists and residents alike to interact with world-class animals and discover the magic and history of our provincial capital. It’s part of what gives Victoria its charm. And the truth is these horses are treated better than anywhere else in the world. They probably live better lives than many British Columbians.   And talk to anyone who works with these horses and they’ll all tell you the exact same thing: this is what the horses love to do. This is what they were bred for and trained for. This is what gives their lives purpose and meaning. But maybe we shouldn’t be su

THE SIDEWINDER: MacDUFF'S NAIVE CALL

I have just struggled through Cheryl Ashlie's column ( MacDuff’s Call: A political novice with a sizeable ego ), in the Sept. 22 edition of The Maple Ridge News. To say the least, Ashlie's comments are naive and show just how totally out of touch she has become with political reality. Ashlie lauds the decision of Darryl Plecas to accept John Horgan's invitation to become the Speaker of the House, a move described by almost everyone else as self-serving and a betrayal of the trust of the constituents who voted for him. Ashlie claims Plecas' turncoat move will help provide good governance but in making this claim, she fails to explain how he will achieve this lofty goal.

Labels

Show more