Since the COVID-19 lockdown, the University of Waterloo has released a steady stream of media advisories with Waterloo experts on all aspects of the pandemic -- and many of these feature experts in the Faculty of Arts. Last week included a Q and A with Joel Blit, and this week includes a Q and A with Mikal Skuterud; both are professors in the Department of Economics. Here is what they say about Canada's economy and jobs.
Joel Blit on re-starting the economy
Firms like predictability, something that is in short supply these days. It helps them plan their hiring, investments, and other business decisions. Having a clear plan for reopening is therefore important. Unfortunately, at this point the plan is too vague to be of much use and little has been offered in terms of timelines.
The sooner we reopen, and the more fully we do it, the better for the economy. The gradual reopening is being done out of caution (health reasons), not for economic reasons.
How long do you think it will take the economy to fully recover?
Before this epidemic hit, we were in the longest economic expansion in recent history. We are now likely in the midst of the deepest recession since at least the Great Depression (we may even surpass that). The U.S. economy shrank by 4.8 per cent in the first quarter due to decreased consumer spending and lower business investment. We are likely to see similar or even larger drops in economic output in Canada since we are more exposed to a fall in commodity prices, and our COVID-19 measures were overall more stringent than those imposed in the United States.
Hopes for a “V” shaped recovery are misplaced. There remains too much uncertainty for firms to rehire workers or make significant investments. Consumers’ spending is likely to remain depressed for a while, as they will have accumulated even more debt, and they are likely to be scarred by the crisis.
What are some things that the government should do to help the economy (apart from the COVID-19 supports already in place)?
As we move forward, a driving tenet should be to “never waste a good crisis”. There is an emerging understanding that recessions are needed so that economic resources are redeployed more effectively and so that firms trim costs and develop capabilities for the future.
Government interventions are currently rightly focused on supporting businesses so not too many go under, subsidizing payroll so not too many Canadians lose their jobs, and supporting Canadians who did lose their job. In time, we must shift the focus to more strategic investments for the future. The current supports need to be removed so that firms have incentives to reinvent themselves, developing new products and adopting the latest technologies. Government may even want to directly incentivize investments in innovation and automation, while at the same time supporting Canadian workers whose jobs will be disrupted. We are undergoing an AI and robotics revolution that will change the future of work. The current crisis is an opportunity to invest in this future and emerge out the other end stronger.
Mikal Skuterud on labour force data, CERB and jobs
The biggest shortcoming of the data isn’t what’s missing, but rather what’s being made available for researchers to analyze. Under normal conditions, researchers access confidential data files, like the Labour Force Survey (LFS), through Data Centers operated by Statistics Canada. With these centers being closed, we must now analyze public-use data files which contain less information.
What are the pros and cons of the $2000/month CERB for Canadian workers?
The pro of an emergency income support program like the CERB is that it quickly gets money into the hands of families that have been adversely affected by COVID-19 induced job losses. This is critical for helping families get through this pandemic, as well as to limit the adverse impact of job losses on consumer spending, which can exacerbate the economic shock.
The con of the CERB is that in order to get the money out to lots of people fast, the government is putting little effort into screening whether recipients meet all the eligibility benefits. There is a concern that giving out “free money” is distorting workers’ incentives to work. These kinds of work incentive effects are always a challenge in designing income support programs; this isn’t an argument for not having these programs.
What trends can we expect to see in future survey data?
Without question, the April jobs numbers will look worse than the March numbers did. The question is how much worse. As of April 28, 7.26 million Canadians had applied for CERB support. The key eligibility criterion for CERB is job loss caused by the COVID-19 pandemic. There were roughly 18 million employed Canadians mid-February, before workplaces closed. That suggests that close to one-half of all Canadian workers lost their jobs within a 4-week period. That is a far bigger economic shock than Canada has ever seen, at least since we started collecting data.
The critical question now is how we’re going to come out of this. Many people like to think of labour markets like a game of musical chairs, in which we are competing for scarce empty chairs, and unemployment are the folks who didn’t find a chair. But that, by and large, isn’t what happens.
In thinking about coming out of this pandemic, there is a risk in thinking that the government turned the music off, and we’ll all quickly return to our chairs once they turn the music back on. This economic shock will have all kinds of effects on workers’ and employers’ decisions going forward as they adjust to a world with COVID-19. These adjustments will have long-term impacts on the number of empty chairs, the number of people looking for chairs, and even how fast the music is playing.