The Canada Pension Plan enhancement will cost 64,000 jobs by the time it’s fully in effect, according to a new analysis from the Canadian Federation of Independent Business.

The report, conducted through the policy and economic analysis program at the University of Toronto’s Rotman School of Management, predicted negative job impacts would last until the late 2020s, after which the effect will transform into constrained wage growth and higher government deficits. “New macro-econometric analysis shows that the initial effects are likely to be four-and-a-half times greater than what the Department of Finance indicated publicly,” the report stated.

“Rather than temporarily constraining employment by only 0.07 per cent from status quo projections in the mid-2020s, the hit is more likely to be negative 0.32 per cent — equivalent to 64,000 jobs.”

Read: ‘Exciting time for retirement’ as CPP deal signals premium boost to 5.95%

The impact will hit certain types of workers particularly hard, according to a news release issued along with the study on Wednesday. “Employers will naturally respond to increased labour costs by looking for ways to streamline their labour needs, by adding new technologies or focusing hiring on higher-skill workers,” said Ted Mallett, the federation’s chief economist, in th news release. “The result is that lower skilled — generally younger workers or new Canadians — are likely once again holding the short end of the employment stick.

“The CPP debate focused too much on the false premise that employers don’t pay enough for their employees’ retirements and not enough on finding the best savings model to meet Canadians’ needs.”

According to the analysis, household disposable incomes will also suffer, to the tune of $700 in 2025 (in today’s dollars) and remain in the red at negative $400 as late as 2040. If the government makes no change to fiscal policies, the report estimates federal deficits will grow by roughly $4 billion per year because of higher employment insurance payments in the early years and constrained incomes later on.

The analysis suggested the government could have tempered the negative job impact by opting to increase only the employee portion of the CPP. Had it chosen that approach, wages would increase by an average of $400 per person by 2024, the report found. “Employees would tend to see the premiums as what they are meant to be — deferred earnings — and not wish to cut back on their supply of labour because that would affect their future entitlements,” the report stated.

“Employers, on the other hand, would see premiums as an additional cost of labour. Their natural response in the short run, therefore, would be to reduce their demand for labour relative to other forms of productive capacity such as capital or technology or to concentrate their labour among higher-skill groups where wages are above the maximum pensionable earnings level.”

Read: CPP reforms a ‘convenient time’ to consider more complex DC design

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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