I’ve hesitated to criticize Prime Minister Justin Trudeau because overall, he’s done a good job and let’s face it, there isn’t a practical pandemic playbook. That said, upon reading that the wage subsidy plan was under-performing (not paying out as much as expected: $3B vs $75B), I thought: obviously. The plan means well and is part of the broader steps needed in a recovery but not actually as effective as it could be. The subsidy is on the first $58,700 of an employee’s salary, providing 75% – up to $847 a week – per employee if an employer saw a reduction in sales of either:
a) 15% in March 2020 or
b) 30% in April 2020
compared to either revenue benchmark:
1) average of January and February 2020 or
2) March 2019.
Having had tepid sales in March 2019 and solid January/February 2020 revenues our revenues in March were strong mid-way, before slowing down at month’s end. While they fell in April 2020 relative to 1) they didn’t fall by 30%. We missed that subsidy by a small fraction. That means for the rest of the year, we’re shut out.
Now don’t get me wrong: if our business is resilient enough to not need subsidies – great (even though we will all be paying for it via higher corporate and personal taxes in years to come). But this is how the country – and employees looking for work – loses out.
For one, even supporters of the plan admit that the subsidy may be reinforcing companies that were struggling due to secular trends, and which Covid just accentuated. But say a company is generating close to no revenues, why would it want to pay even 25% of salaries? It would be a deeper hole to get out of. At the smaller end of businesses: restaurants barely break even at 100% capacity, there’s no model where it makes sense for them to open up at 25-50% seating. At the largest end of the spectrum: Air Canada decided to let go 20,000 people after realizing that operating at 5% capacity and at a steep loss wouldn’t permit it to cover 25% of salaries (via the subsidies) of retained employees (although this is more to set the table for them to walk away from the Air Transat deal). Affected employees ought to be encouraged to flow to other industries and companies that are growing and/or could return to growth faster. That ought to be the main policy that drives all other tactics.
The plan I – and I am sure many other small businesses – would have liked to see, is to encourage companies like WatchMojo (who benefit from viewers being at home but hurt by a weaker advertising market) to hire. A lot. I personally don’t have outside venture capital backing me, so left to my own devices, survival instincts would lead me to stand pat. Giving 100% subsidies for 3/6 months would create abuse and fraud. But if the government provided an 80% subsidy to independent small/medium businesses for a period of 6 months (renewable in 3-month increments based on economic growth), I would go on a hiring spree:
- students who could receive paid internships,
- young workforce affected more profoundly
- seasoned professionals (in some cases furloughed but in many cases, pushed out with Covid being cited as convenient excuse in a broad-based effort to rein in soaring labor costs at higher levels, but who could provide guidance and experience to leaner, newer businesses in earlier stages of their life-cycle).
As I’ve said: it’s like Thanos snapped his fingers and half the economy was hit overnight in a near-fatal strike. Those companies will not come back anytime soon (more in No Vaccine, Return to Normalcy). But the other half were spared, but will be hit via ripple effects. Giving a partial economic incentive to those who can’t operate (let alone open up) makes little sense. I stayed silent since it seemed like the right thing to give subsidies first to those most affected, but if the government is now under-whelmed with the subsidiy requests and below budget, then the more effective approach would be for the government to backstop those fortunate who were affected less, operational, better positioned and who can lead the way to rebuild. We were slowly-but-surely building a media and entertainment behemoth & ready to embrace the winds of the storm, but amongst even the fortunate cohort group, it’s normal to feel exposed and reluctant to blitz. Do we retain everybody? We certainly won’t hire as aggressively. Worse? We will be carrying the tax burden since many of those Thanos struck won’t be around to pay any taxes in 2021.
When I read that 40% of employees earning less than $40K per year lost their job and 40% of jobs lost will not come back, that is a devastating forecast for the global economy. But instead of going on the offense, now knowing that we are cut off from subsidies because of missing that threshold by a few percentage points, I am inclined to play it safe and defensively think of cutting expenses because with growing unemployment, a weakening economy, softening ad market, conventional wisdom is to adhere to that “RIP: Good Times” slide in Sequoia’s 2008 deck to reduce costs and batten down the hatches since we won’t be eligible for subsidies in the future. Instead of hiring hundreds of affected workers, we will sit tight at best or at worst, weigh the risk/return ratio of letting go of a few to ensure we don’t turn into Company A.
To quote a fellow media entrepreneur, Covid “has elements of the fear that we felt after 9/11, the financial worry that we experienced in 2008, and the unknown that surrounds a natural disaster like a hurricane or tornado all rolled into one;” ultimately it’s an acceleration of every trend. What was to materialize in the 2020s will happen in 2020. That means many companies will benefit, the cycle of industry, business and labor will continue, but by missing out on subsidies, the policy in fact slows down the role that strong companies who survived can play in thriving and play their part in the recovery.