Payments under the Canada Emergency Wage Subsidy hit a peak in the summer of 2020, and then declined rapidly after tighter COVID-19 restrictions resumed in the fall and winter, data on claims show.
The pattern of payments indicates that disbursements were driven more by changes in the rules of the program than the state of the pandemic and the economy. That picture is only now becoming clear, because of the ability of companies to apply for payments under the programs months after claim periods expired. The program ended late last October, and the six-month cutoff for claims was in late April.
As the chart below shows, CEWS payments peaked in May, 2020, and $10.1-billion in payments were allocated in the third claim period of the program. Those payments were designed to defray payroll costs for participating companies, encouraging – but not requiring – them to avoid layoffs. (The data do not include any payments made under Ottawa’s other, smaller wage-subsidy programs.)
Job losses were mounting, the economy was deflating and businesses were severely restricted by emergency public-health measures. Claims then began to fall through the summer. But the payments were still substantial, even though many public-health restrictions had eased. In August, 2020, $8.1-billion was allocated.
A much steeper drop came in the fall of 2020. In October (designated as claim period 8 under CEWS), just $3.87-billion was allocated, a drop of close to two-thirds from the May peak, and less than half as much as was allocated in August. (A further decline in the summer of 2021 resulted from continual reductions in subsidy rates.)
The decline in payments in the fall of 2020 was driven not by a dramatic improvement in the economy or looser public-health measures, but in a change to the design of the program itself. In July, 2020, the federal government announced that it would loosen CEWS rules to allow more businesses to access payments.
Until those changes, only companies that could show a revenue decline of at least 30 per cent were eligible to receive CEWS payments. But once they qualified, companies then received wage subsidies for 75 per cent of each eligible employee’s salary, up to a limit.
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That created a binary system in which some companies received large subsidies, while those that fell even slightly short of the 30 per cent benchmark got nothing. The July changes made CEWS much more flexible, eliminating the all-or-nothing approach and scaling benefits to the amount of a company’s revenue decline.
More businesses were eligible, but businesses that had previously received the 75-per-cent subsidy then saw their payments scaled back. As this second chart shows, the average subsidy per employee dipped somewhat in July and August, when the rule changes started to take effect.
But the biggest drop did not take place until September. That’s because Ottawa allowed existing CEWS claimants to continue using the old rules for claim periods 5 and 6, if that resulted in higher payments than an application under the new regulations.
That grandfathered protection disappeared in September, driving down average payments. By October, the average subsidy per employee was less than a third of what it had been in May.
Dan Kelly, president and chief executive officer of the Canadian Federation of Independent Business, said the program may have “overrewarded” companies in the summer of 2020. The CFIB was one of several groups asking the federal government to loosen CEWS rules so small businesses with less severe revenue losses could receive some support.
In theory, payments under CEWS should have risen sharply in December, 2020, and January, 2021, when Ontario and other provinces instituted snap restrictions to curtail a winter wave of the coronavirus, including severe restrictions on retailers. That didn’t happen, however, with payments actually falling in period 11, which ran from the third week of December to mid-January. In the following claim period, payments did rebound but were only marginally higher than two months earlier.
University of Toronto economist Michael Smart said the lack of a surge in payments is potentially misleading, since the generosity of the program was also declining at the same time, with the same amount of revenue decline resulting in smaller payments. However, the number of employees being supported through CEWS also declined over the same time period, indicating the reduced generosity of the program was not the only factor at work.
Mr. Kelly highlighted a paradox to explain that discrepancy. CEWS payments were linked to the size of payroll. So a retailer that was effectively locked down – as was the case for many Ontario restaurants in the post-Christmas period – and laid off most of its staff would dramatically diminish the size of any wage subsidy it could claim. That had the perverse effect, Mr. Kelly said, of depriving badly struggling companies of support under the CEWS program
That factor could also help to explain why the sectors most directly impacted by those winter lockdowns – retailers, and accommodation and food service companies – did not receive the greatest share of CEWS funds.
Measured on a dollar basis, manufacturers received the highest share of payments over the life of the program, with 17.5 per cent of payments. Then came construction companies, followed by the professional, scientific and technical services sector. Accommodation and food services companies and the retail sector came in fourth and fifth, with 8.7 and 7.3 per cent of total payments.
Lower wages in accommodation and food services, and in retail, compared with other sectors explain some of that gap. But even when measured by the number of employees subsidized, manufacturing still takes top spot, with 15.1 per cent of the total. On that measurement, the accommodation and food services sector and retailers accounted for the second and third highest shares, at 14.1 and 10.6 per cent.
Prof. Smart said the payment data demonstrate that the CEWS program was inefficient, incurring “massive expense” to preserve relatively few jobs. Prof. Smart said one issue is that what was initially seen as a quickly designed emergency measure was extended several times, with many companies continuing to receive payments month after month. That helps to explain why business insolvencies fell during the sharp economic contraction of 2020, he said.
And that points to a hidden reality of the CEWS program, Prof. Smart said. “It was about saving businesses, not jobs.”
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Patrick Brethour