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Dealing with the Economic Impacts of COVID-19

At this time, it is impossible to know the course and consequences of COVID-19 cases arising from the novel coronavirus. A probable outcome seems to be a spread of the illness among the general population, before it stabilizes and/ or an effective vaccine is developed which could take several months or even longer

The medical consequences are clearly of central concern. Fortunately, Canada has a good public health system and officials and health care providers have experience dealing with pandemics. Still, many more people will likely become ill and fatalities will increase and a health care system already operating near capacity will be strained to the limits.

The economic consequences could be severe.  As workers become ill and are encouraged to stay away from work for two weeks or longer, there will be a direct negative impact on production. As Simon Wren-Lewis notes, these impacts will be an order of magnitude greater if the public authorities close schools for a period of time, which would slow the spread of the virus but keep many working parents stuck at home. There could be serious staff shortages in health and other essential public services such as transit and power generation and financial services which we should be preparing for.

As widely noted, global supply chains have already been seriously disrupted, which could lead to shortages of some imported consumer goods and inputs to Canadian manufacturing production, also leading to layoffs.

There may be particularly severe economic impacts in some parts of the service sector, such as tourism, restaurants and entertainment as foreign travel to Canada slows to a crawl, and if people are advised to stay close to home.

In this context, a cut in interest rates such as that just announced by the Bank of Canada is marginally helpful, but not very effective. There is a clear need for more targeted measures in the coming federal government budget, on top of significantly increased funding for public health care services. 

The first priority should be to provide income assistance to affected workers who fall ill or are quarantined or are temporarily laid off. Employment Insurance, both regular benefits and sickness benefits will help some, but far from all. 

Employment Insurance sickness benefits provide 55% of usual weekly earnings up to a maximum of $573 for quarantined workers, provided that the person has worked more than 600 hours in the previous year. This excludes the self-employed and many part-timers as well as those working in the gig economy. 

The federal government should consider granting temporary access to the program to all who are quarantined or self quarantine. As well, the requirement for a medical certificate should be dropped on a temporary basis. It makes little sense to pack the waiting rooms of doctors and emergency clinics with people who have no symptoms but have been exposed to the virus.

It can be noted that changing the Employment Insurance rules was a major part of the federal government response to the global economic crisis in 2008.

A second priority should be to limit layoffs and work against bankruptcies of especially small businesses in heavily impacted sectors.  The federal government should lean on the banks to extend loans at low interest rates, and consider providing other means of financial support.

Hopefully, the COVID-19 crisis will pass in a few weeks or months. We need to be prepared to deal not just with a pressing public health issue, but also with a potentially very serious blow to jobs and the economy.


Andrew Jackson is adjunct research professor in the Institute of Political Economy at Carleton University.