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The federal wage subsidies are harming innovation: economics professor

Last Updated Jan 20, 2021 at 1:02 pm PST

Prime Minister Justin Trudeau. Photograph by Government of Canada. Government of Canada
Summary

Economics professor says 'the wage subsidy is very badly targeted'

The paradox of the CERB would prove to be costly

Government needs to focus on encouraging innovation and the use of technology

While the federal government’s efforts to save or create jobs was a good idea at first, one economist says wage subsidy programs are holding back Canada’s economy.

When news broke of Linamar doubling their dividend for investors during a pandemic, many scratched their heads at hearing that they were also receiving more than $108 million in federal wage subsidies. While that wasn’t the intention of the subsidies, it was an inevitable consequence of a “shotgun approach.”

“I think the problem with the wage subsidy is that it’s very badly targeted,” said Joel Blit, professor of economics at the University of Waterloo.

“The idea of the wage subsidy was that we wanted to support jobs that would be lost unless we subsidized them, unless the government subsidized them. But it’s very difficult for the government to know which jobs are at risk without the subsidy.”

RELATED: CERB ends for millions of Canadians, new EI program takes its place

The paradox of the CERB, eventually becoming the CEWS, would prove costly.

While the subsidy wasn’t well-targeted, it was still the right move at the beginning, according to Blit. The time has come, however, to transition to a new method.

“The cost is one issue, but the other issue which I don’t think is being discussed enough is that there’s going to be a long-run cost, because it’s stifling innovation,” said Blit. “It’s stifling the ability of our economy to transform itself.”

Giving the economy room to grow may be the end of some businesses, he admitted. Still, keeping some businesses on life support shouldn’t be the goal of the government.

Instead, Blit suggested they should instead focus on encouraging innovation and the use of technology, as that will help move Canada into the economy of the future, and lead to long-term wealth.

“We have to be a little bit careful,” he said. “On the one hand, we don’t want to have something like in the great depression where we have a large fraction of the population that’s unemployed. On the other hand, though, we want this transition to start happening. We don’t want the economy to freeze as it is now.”

Blit said that the government should instead focus on support individuals through this transition, and let the economy adjust itself.

-with files from 570 NEWS