In the Trudeau government’s recent mini-budget, Finance Minister Chrystia Freeland threw so many large numbers at us that Canadians might be forgiven for missing some important announcements. Here’s one number to bear in mind: $99.6 billion. That’s the new projected cost of the Canada Emergency Wage Subsidy (CEWS) through June. CEWS is now the largest component of Ottawa’s pandemic response, outstripping even the Canada Emergency Response Benefit (at $81.6 billion) and its successors. So, what are we getting for all this money?
The cost-effectiveness of CEWS subsidies
When the pandemic hit, the Trudeau government was right to act quickly to introduce sweeping economic measures to help families and businesses get through the crisis. However, as time goes by, it is important to evaluate the efficacy of various programs to determine how much they are actually helping, or whether the money being spent on them might be better used elsewhere. As the largest component of the government’s pandemic response package, CEWS should be subject to close scrutiny.
The idea behind CEWS could make sense. By lowering the cost of retaining workers for struggling businesses, the program should help to reduce unemployment and keep incomes flowing. But at what cost? The problem is that CEWS payments are paid for all workers at affected businesses, not just those facing the prospect of lost earnings. Most of the jobs funded by CEWS would still exist in the absence of the subsidy. For this reason, CEWS is an expensive way of protecting vulnerable workers.
Perhaps recognizing the problems, Ottawa implemented reforms in September to reduce the subsidy rates and phase out the program over time. Examining the impact of the September reforms on claims allows us to develop an estimate of just how many jobs the program has saved overall.
The reform had a substantial impact on program costs. Figure 1 shows the average subsidy paid per employee supported for each claim period (month) through October, the most recent available in the public CRA data. The average subsidy paid reflects the average wage of those who are supported, as well as the impact of the subsidy changes, but it is a good measure of the impact of the reform. The average subsidy dropped from $1,661 in August to $1,039 in September, a decline of about 37 per cent.
Extrapolating from the September experience, we conclude that most jobs supported by CEWS subsidies would still exist even if the subsidy were eliminated. Very little of the funds spent go to saving jobs at risk. Based on the estimate, we calculate that CEWS subsidies cost the government about $14,500 for each job saved per four-week period, or about $188,000 per job per year.
Chosen excerpts by Job Market Monitor. Read the whole story @ There are better ways of helping the economy than CEWS
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