Wage subsidy plan is full of big problems

By Nora Loreto

Justin Trudeau announced his government’s most significant aid package for Canadians workers on Friday. The Liberals will subsidize wages by 75% to convince employers to stop layoffs during the coronavirus pandemic. The measure will be available to all businesses, and eligibility criteria are slowly being released.

The decision increases his previous promise of a 10% wage subsidy, to a maximum of $25,000. The new program will cover the first $58,700 of a wage.

The announcement was hailed by employer lobby organizations such as the Canadian Federation of Independent Businesses and the Canadian Chamber of Commerce. The NDP declared victory, as they had called for a 75% employer subsidy several days before the announcement.

Trudeau said that he expects this measure will convince employers to keep paying their workers, even if there is no work for them to do. As non-essential businesses are closed across Canada, this will include a wide swath of the working population. He also encouraged business owners to recall workers who are already laid off.

There’s no question that Canadians are struggling with the work-related impacts of the coronavirus. According to Radio-Canada, more than 900,000 Canadians applied for employment insurance since the start of the pandemic. The government established an emergency relief fund for people who have lost work and who are unable to access EI benefits of $2000 per month. Except this funding won’t be available until April 6 at the earliest and has several conditions attached. Anyone who made less than $5000 last year will not be eligible for the benefit.

The new bureaucratic middlemen

The Liberals have made a mistake in choosing to give aid to Canadians through their employer rather than giving money to Canadians directly. Subsidizing employers to pay their wages will entrench social inequality at a time where we should be working to equalize, not exacerbate inequality.

By giving employers money to pay for 75% of a wage, the government will be funding labour market wage segregation. This means that Canadians who make more money will receive more money from government aid, as a function of percentage offered for their salaries. Someone making $30 per hour will receive more than twice the support than someone making minimum wage.

Having employers dispatch this aid through salaries also creates a level of bureaucracy that will slow down how fast individuals can receive aid. Rather than having money deposited directly by the government through Canada Revenue Agency accounts, or through cheque mailed directly to individuals way that tax relief and tax return money is distributed, employees will have to wait for their employer to be set up with the program before they will be paid.

The problem is that there’s no guarantee that an employer will recall everyone back. With little to no work, it isn’t likely that all employees who have been laid off will be recalled. How many employers will be able to manage paying 25% of payroll while sales have stopped because their store is shut down?

For servers, the subsidy doesn’t include the money they would make through tips. For workers who have been laid off from large corporations who aren’t eligible for this help, they will have to rely on employment insurance, if they qualify for it, which many workers do not.

Reinforcing inequalities in the labour market

But there’s a more sinister reason for why the employer subsidy is bad public policy.  Canada’s labour market is segregated by race, gender and ability. This segmentation means that for every dollar that a man made in full-time work in 2018, a woman made $0.86 on average. If you compare annual earnings between men and women for 2016, which takes into account the prevalence of part-time work among women, the rate drops to $0.69. An Indigenous woman working full-time year round has a wage gap of $0.65 compared to a non-Indigenous man, and women with disabilities experience the largest wage gap, at $0.54, according to a 2012 survey.

Because these inequalities are built into the current system, it means that white men will receive more money from a wage subsidy than white women, followed by racialized men, racialized women, Indigenous women and women with disabilities.

The federal government should have instead offered a lump sum in emergency funding to everyone. It would have been a more efficient and more fair way to distribute this aid. The money could then be taxed, thereby recuperating money from those who didn’t need it. This system would have offered more direct aid that cut out the middleman, and reached people who will fall through the cracks of the current program.

The coronavirus pandemic has created a desperate situation and people need immediate help. The government must reconsider its decision to flow help through employers and instead, offer Canadians relief that will not re-affirm gendered, racial and disabled inequality.