The government must encourage the preservation of employment links

Montreal, June 9, 2020 – The economic catastrophe due in large part to physical distancing measures has led the various levels of government to implement relief measures. A new publication launched by the Montreal Economic Institute provides a critical look at the relief measures currently in effect all while identifying the principles that should guide government action. The researchers notably observe that measures aiming to preserve employment links, like wage subsidies, are the most conducive to rapid economic recovery.

Prioritizing tasks only the government can carry out

“While it can be tempting for governments to take on additional responsibilities in times of crisis, the reality is that it’s better for them to prioritize those tasks only they can carry out successfully,” observes Peter St. Onge, Senior Fellow at the MEI and co-author of the publication. “This includes essential missions like mass testing, quarantine of those who get sick, contact tracing, repatriating Canadians stranded overseas, and even stockpiling essential medical equipment,” argues the researcher.

“On the other hand, government has to stop overregulating large swaths of the health sector and give more latitude to nurse practitioners and pharmacists, and to doctors working in the private sector, so that they can do more to come to the aid of the population,” adds Mr. St. Onge. While certain improvements of this kind were carried out by the government, the researcher considers that these were too timid, and that they should be permanent.

Targeting relief

“Since mandatory physical distancing measures prevent numerous economic activities, it makes sense for governments to indemnify affected individuals and businesses,” says Mr. St. Onge. “As much as possible, benefits must encourage work or at least the preservation of the relationship between businesses and employees in order to facilitate the quickest possible economic recovery.”

The researchers also point out that measures that discourage work are likely to make unemployment and recession worse.

Mitigating long-term consequences

“It is important for relief programs to have fixed end dates to keep these expenditures from becoming recurring ones. It’s all the more important for the federal government, since it was already running deficits,” declares Gaël Campan, Senior Economist at the MEI and co-author of the publication. “We must also choose the least restrictive measures and allow businesses that can operate safely to continue their activities. This is the best way to avoid unexpected supply chain disruptions and job losses,” concludes Mr. Campan.

The Economic Note entitled “Principles for Responsible Government Relief During a Crisis” was prepared by Peter St. Onge, Senior Fellow at the MEI, with the collaboration of Gaël Campan, Senior Economist at the MEI. This publication is available on our website.

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