What Canada’s COVID response can teach the U.S. about social safety nets

October 23, 2020, 11:00 AM UTC

For many Americans, accessing financial assistance during the pandemic has been like chasing a dot on the horizon: The closer you get, the further away it is. 

And some people never catch it. Research from Columbia University published in October shows the poorest Americans are now even poorer, despite the generous top-up unemployment benefits paid out by the $2.2 trillion CARES Act. By September, the researchers noted, “the monthly poverty rate for Black and Hispanic individuals was 25.2% and 25.8%, respectively, compared to 12% for white individuals.” 

Layers of state bureaucracy, outdated computer systems, and, in some states, anti-welfare attitudes kept timely help out of the reach of many. In states such as Florida, where about a quarter of the population is Latinx, people waited well into the summer to get their unemployment benefits. The result has been unpaid bills, long lines at food banks, and increasing difficulty at catching up financially. When people finally did get their benefits, Evercore ISI policy economist Ernie Tedeschi told Fortune that roughly one-third of it went to paying down debt; one-third was spent on consumption (mainly food); and one-third was put into savings. The July 31 expiration of the $600 unemployment add-on and the impending end of the $300 Lost Wages Assistance program means people will soon start running out of those savings.   

At the same time, the American economy is being kept afloat primarily by low-income household spending, according to Brookings Institution economist Gary Burtless. “The biggest proportional and absolute drops in spending have been on the part of higher income people,” he said. 

The failures in timing and efficient, centralized disbursal of aid, plus the labyrinthine complexity of accessing unemployment benefits and other help, were key factors causing major financial damage to Americans, according to researchers and economists who spoke to Fortune

It didn’t have to be that way. 

On the other side of the U.S.–Canada border, Canadians received $2,000 deposited directly into their bank accounts three days after filling out an online form on the federal revenue agency’s website. “It gave people the ability to do what they had to do during the pandemic: stay home, not get on the bus to go to work, those sorts of things,” said Margot Young, a law professor specializing in constitutional and social justice issues at the University of British Columbia. 

That Canadian assistance program, called the Canadian Economic Recovery Benefit (CERB), was accessed by nearly 9 million people—about a quarter of the population. In all, the Canadian government has paid out C$81 billion (about $61 billion in USD) in benefits since CERB’s April launch, which provided retroactive payments to March 15. In October, it ended and was folded into a newly reformed unemployment system expanded to include self-employed and gig workers. 

Canada isn’t a utopia amidst the pandemic, and CERB didn’t catch everyone. Its initial version was designed for people who were totally unemployed; it was later updated to allow people earning up to C$1,000 a month to qualify. People on disability and welfare receiving less than $2,000 a month were angry; they now had proof they had been receiving less than what the government determined to be a livable wage. Students who couldn’t find a summer job received only $1,250 a month over the summer, and Canadian provinces were ill-prepared to cope as COVID swept through migrant worker populations, particularly those in agriculture and food processing. Women were disproportionately affected by the pandemic as they took on homeschooling and more caretaking duties of children and elders. Other measures—$40,000 interest-free emergency loans to small businesses, six-month mortgage deferrals, eviction moratoriums for renters—were badly needed lifelines, though they only pushed off inevitable strife.     

“But certainly, Canada has done more, and more consistently, for more people than in the U.S. And we have been rewarded with much more robust job recovery and fewer business failures to date,” Armine Yalnizyan, a prominent Canadian economist and Atkinson fellow on the future of workers, tells Fortune. In September, statistics show Canada’s labor force participation was at 64.8%, compared with the U.S.’s 61.4%. Additionally, Canada’s third-quarter economic growth outpaced the United States’ by 16 percentage points.  

Canada has also had a much smaller percentage of its population become sick with or die from COVID-19. Compared with U.S. figures, Canada has had one-third of the deaths and one-fifth of the confirmed infections, after adjusting for population size differences—an outcome partly owed to the speed of Canada’s emergency benefits, which enabled people to shelter in place faster. As for health care—the biggest piece of Canada’s social safety net and the elephant in the room—it’s still unknown what role the country’s universal single-payer system played in those outcomes. However, as Boston University assistant professor of health law, policy, and management Paul Shafer noted, data indicates people in states without expanded Medicaid are faring worse because health insurance is more strongly tied to employment.  

“There’s some data from the Urban Institute that showed that in states that didn’t expand Medicaid, adults within a family that lost a job were about three times more likely to become uninsured,” said Shafer. “So it goes back to this story of where you live has a lot to do with how well you’re supported during this.”

Regardless of jurisdiction, though, managing debt and organizing debt forgiveness will be what comes next for everyone. The politicization of pandemic debt will cause governments at every level to rise and fall for years to come. 

In the U.S., the “not on my taxpayer dime!” sentiment is strong, and it has long been an underpinning of the systematic weakening of the country’s social safety net. According to UCLA professor Martin Gilens’s book Why Americans Hate Welfare, individualism, economic self-interest, the trope of the “undeserving” welfare recipient, and racial discrimination each contribute to American attitudes on wealth redistribution through taxation. 

Canada’s social safety net and collectivist mindset are stronger, yes, but Yalnizyan argues that there are sound economic reasons why it’s better for federal governments to hold pandemic debt instead of individualizing the debt. 

“If you’re going to say households that lost their jobs should be shouldering the debt, that’s cool—but that’s the most costly form of carrying debt,” she said. Households pay higher risk premiums for debt—think interest rates on credit cards and lines of credit—and the poorest households often pay the most because they are the likeliest to turn to noninstitutional lending like high-interest payday loans. The longer household debt stays in the system, the worse off everyone is.    

Yalnizyan explained that in terms of cost of debt, “households pay more than small businesses; small businesses pay more than big businesses; big businesses pay more than municipalities; municipalities pay more than provinces [or states]; and provinces [or states] pay more than the federal government.” 

“The federal government has the least risk on paying back loans and for borrowing money, which makes it the lowest cost borrower in the ecosystem of debt. And debt is rising because of the pandemic,” she continued. “So if you are a true fiscal conservative, you will want the system of debt to be paying the least amount of money to the lenders—and that would be the federal level of government.”

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