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September 11, 2020

From: Jennifer Robson

To: Canadians concerned about the recovery

Date: September 11, 2020

Re: Is this as good as it gets until we get back to “normal”?

Like most countries battling COVID-19, Canada went from the economic equivalent of a medically induced coma to a transitional phase. We have tried to regain as many economic and social activities as possible within certain limits. This rehabilitation phase, I’ve written elsewhere, isn’t going to be quick or easy. A safe and effective vaccine will, as pharmaceutical companies themselves have reminded us, take time to develop and then to administer to citizens. Even after a vaccine (or effective treatment for the virus) is widely available, there will still be millions of Canadians bearing the scars of this unprecedented public health and economic crisis.

  • Many previously healthy Canadians will now have a disability as a result of battling COVID-19. They may face new limitations to their activities and new out-of-pocket costs.
  • More than a million Canadian workers will have been out of work for more than six months, meaning that their long-term earning potential may be permanently reduced.
  • Young people who enter the labour force in a recession may likewise see a lasting and negative impact on employment and earnings.

There is no full recovery, no regaining of even our pre-COVID projections for modest GDP growth, unless all Canadians are included in the economic rehabilitation and rebuilding.

In the US, some observers have started to describe their process so far as K-shaped, that is a bifurcated recovery with a stark separation between the groups that have recovered jobs and income, and those, including whole sectors, that have not and do not have good prospects.

Canadians might feel some greater security, relative to our US neighbours, because our emergency measures have been more timely and effective and our collective willingness to follow some basic public health orders (namely wearing masks) has been stronger. Even so, we are seeing evidence of our own K-shaped differences in outcomes.

Who is being left behind?

  • Moms of young and elementary school-aged kids have recovered just 50 to 60 percent of their pre-COVID paid hours. Childcare providers that parents would normally rely on are now finding it harder to find a sustainable business model with the pandemic’s higher costs and lower revenues, if they’ve been able to re-open at all. Continued uncertainty about the sustainability of in-person school is only going to compound the problem.
  • Low- and modest-wage workers have had the worst recovery so far, with one in five still unemployed or working significantly reduced hours. Gains for some middle-income workers have also started to stall. Meanwhile, Canadians in the top 10 percent by employment income had fully recovered their paid hours by May and are now working more than they did in February.
  • Racialized Canadians are not sharing in the same employment gains, with August unemployment figures that are between three and eight percentage points higher than those of Canadians who are not visible minorities.
  • Young Canadians (under 25) and older workers (aged 55 and over) aren’t sharing in the same gains as prime-age workers, consistent with nearly every recession in living memory. Youth unemployment has been about twice the aggregate national rate for many years, but the gap for youth and older workers has widened, relative to prime-age workers since the March shutdowns. 
  • Entire sectors that can’t readily adapt to physically distanced delivery of goods or services – tourism and entertainment – or where demand remains very low – restaurants, air travel and accommodation – have no viable path to a meaningful recovery in the near future. At the same time, these sectors also employ larger shares of the low-wage workers and groups listed above, compared to sectors like natural resources, public administration or finance.

There are already some early signs that our progress, as a country, is stalling. The pace of aggregate employment gains has slowed. Information on consumer spending and business transactions from bank data suggests that consumer spending growth is slowing. Whatever exuberance there was with the lifting of restrictions, consumers have now bought the clothes, households goods and home renovation materials they were going to buy when things re-opened. If you had been itching to go out for a dinner, you’ve probably done that by now.

And now, case counts are starting to tick upwards in many parts of the country. Ontario has paused its re-opening for the time being, though there are relatively few health and economic restrictions left to lift. In BC, bars, nightclubs and banquet halls have been ordered to close down again to reduce community spread of the virus.

The question we should be asking ourselves right now is not “when do we get back to normal.” Instead, we should be reflecting on where our economic rehabilitation has stalled. We should be asking ourselves if this is as good as it gets.

There is no return to “normal,” no solution to a stalled recovery, if it does not include the people in the bottom arm of a K-shaped recovery.

Jennifer Robson is Associate Professor of Political Management, Carleton University.

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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.