Pandemic perspectives four years later: economic transformations

Pandemic perspectives four years later: economic transformations

Dian Cohen

Local Journalism Initiative

We’re still not sure what’s permanent or whether it’s ultimately going to be a win or a loss. That’s true for all institutional change, no less so because it’s been associated with a pandemic. Indeed, many economic changes have been coming for years as a result of new technologies, shifting preferences and better ways of doing things – the pandemic may just be the final push to something new and permanent. Time will tell.

What we do know is that small businesses – the backbone of the Canadian economy – were hardest hit. The number that closed up shop in 2020, especially in the arts, entertainment and recreation, was the highest in recent history. The federal government was quick to create programs such as the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Response Benefit (CERB) in an effort to support them and other parts of the economy. Perhaps that’s why business failures actually declined in 2021.

Government policies however both support and distort: business bankruptcies filed in 2023 were up 41 per cent from the year before, the sharpest increase in 36 years of records, according to the Office of the Superintendent of Bankruptcy. The rate of filing has not abated in 2024 as more businesses decide to throw in the towel. Being unable to repay the government support loans may be a factor.

Before the pandemic, in 2019, well over a million small businesses employed 13 million of the 19 million people in the work force. Despite the upheaval and devastating personal tragedies, that’s still true today – one indication of Canadians’ resilience and optimism. Yet it’s not the same. Labor force participation rates – that is, the number of persons who are employed or looking for a job as a per cent of the total working-age population have not yet regained their 2019 levels. Part of this can be attributed to a re-evaluation of meaningful work, which we’ll talk more about in tomorrow’s segment on social and lifestyle changes.

We work and do business differently. Canadian consumers were moving online to purchase goods before the pandemic – for at least a decade, Internet consumer sales were rising at a faster rate than traditional retail sales. The pandemic added rocket fuel – almost all Canadians have access to the internet and we embraced electronic commerce amid the pandemic disruption in retail channels. Growth continues as more retailers invest in digital platforms to reach consumers. There’s still a long way to go — as a share of total retail, ecommerce accounts for just 13 per cent. Time will tell whether we’ll go back to physical shopping as we used to do it, or whether a new hybrid way of shopping – an outlet to see and touch the goods to be purchased online — will become the norm.

The composition of the workforce has changed, mostly because the worst hit sectors — travel, hospitality and entertainment – employed many more women in relatively lower-paying jobs. There’s no data yet to suggest that the gender pay gap has been worsened by the pandemic, but it can’t have helped. And there’s evidence that income inequality has been growing rapidly – during the first two years of the pandemic, income and wealth gaps were shrinking, as we all struggled to find our personal financial footing. Since then, the wealthiest Canadian households, with more savings to fall back on and greater ability to benefit from higher interest rates, have pulled ahead of the poorest both in terms of their share of the country’s total wealth and in terms of how much income they have left over to spend after essentials are paid for.

Not every business suffered during the pandemic. Essential retailers – grocers, pharmacists, discount stores – experienced unbelievably high sales volume as people stockpiled or simply bought more so that they could cook more at home. Advisors in financial institutions were busier than ever advising people on everything from mortgage deferrals to protecting their savings to reviewing their credit status.

Service businesses that asked their employees to work from home pressured telecommunications companies for more high-speed internet; people who were social distancing demanded more bandwidth for watching videos, playing games and keeping in touch with friends and family. It goes without saying that healthcare workers were in great demand. So were manufacturers of everything from toilet paper to personal protective equipment.

By far the biggest surge in employment was in the public sector, undoubtedly to administer — everything. There is no data yet that this trend is being reversed now that the emergency has passed – indeed public sector employment is the biggest part of the most recent statistics on job growth.  Government spending increased by 20 per cent, almost double the advanced economy average of 11 per cent. Canada’s federal COVID spending totaled $359.7 billion, almost all of which was borrowed. It has added $8 billion to interest costs. Much of this may have been appropriate – data is just now being compiled on how much of the support may have been wasted. Regardless, the burden of repaying the debt will weigh on Canadians for years to come. It will hinder development of new social programs, make it more difficult to control inflation or enhance our standards of living. Higher taxes are likely to be in our future.

Not everything that has or is changing has been caused by the pandemic but several things have been aggravated by it. GDP growth is weak but has overcome the pandemic lows. We have avoided a recession. Inflation has fallen, but not enough to force lower interest rates. High levels of immigration and large increases in non-permanent residents have positive and negative effects: many jobs have been filled although both job vacancies and unemployment remain high. The influx of more than a million people has contributed to the housing crisis. We are not competing well globally.

These issues, as well as financial anxiety and pandemic-related stress are making Canadians feel angrier in general. In particular, younger Canadians are more anxious about their future, concerned about their mental health and more disillusioned by politicians than previous generations. While 4 in 10 of us hope for positive outcomes in 2024, there is much dissatisfaction in large swathes of the population. This will affect not just their outlook on their personal lives but the economy as well.

Tomorrow, how our social lives have changed.

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