It appears that we will have some sort of modification to Employment Insurance. The main measure involves an extension of benefits to some EI recipients who may be at risk of exhausting their benefits, and that – and the prospect of an election – appears to be enough for the NDP and the Bloc. For the NDP in particular, this is an embarrassing climbdown.
But it didn't have to play out this way. It was always obvious that any sensible change to EI would be one that addresses the plight of the long-term unemployed. At least, it was obvious for those of us who are faithful readers of WCI:
- Is Ignatieff playing with the right Employment Insurance instrument?: "It seems to me that the focus of attention should be on the benefits period."
- On the sheer pointlessness of reducing hours for EI eligibility as a counter-cyclical policy: "Just what problem is this supposed to solve? How many people are there
who were hired three months ago – in the teeth of the worst labour
market in a generation – and who are now unable to claim EI?" - What is the problem that EI reform is supposed to solve?: Here I'll quote from this op-ed in the Toronto Star because he summarises the point better than I did: "[S]lightly more than 80 per cent of the net increase in unemployment was 'covered' by a corresponding increase in EI beneficiaries. This improves to nearly 90 per cent if we focus our attention on the 25-and-over demographic group, which comprises the vast bulk of families." The EI safety net did its job when it came to dealing with the newly-unemployed, and did it surprisingly well. (Am I the only one who noticed that the Star editor gave it a title that contradicted what Jeremy Leonard said?)
So insisting on a 360-hour rule, or on a common standard (or whatever) was never going to address a real problem; the real problem was always going to be the plight of people who had the misfortune of exhausting their benefits in the middle of a recession. This point required not much more insight than the ability to read a calendar, but it seems to have entirely escaped the assembled intellect of Her Majesty's Loyal Opposition.
As things stand now, Stephen Harper is the clear winner of the political battle over EI reform: his government came up with the more sensible proposal (that is, more sensible than fiddling with the hours-worked eligibility rule), has seen it survive a vote of confidence, and (if the polls are anything to go by) is getting political mileage out of it.
But this victory was by no means inevitable. I suspect that if the Liberals and the NDP had identified the real problem last spring, they would be in a much stronger position now.
Yes, I know I didn't talk about the Bloc. That's not an oversight: it was a non-combatant in this skirmish.
Worthwhile Canadian Initiative 
Seeing the insane Kenyan Gambit played in a live game stunned them.
…or I’ll guess internal opposition polling says Ontarionians are 40% carbon-heavy voters over the summer.
Phil: Ontarians.
To be fair to the oppo, the government has been as cynical or perhaps moreso. They have had a report on their desk suggesting this reform all Fall, all Winter, spring as summer. They decided to spring it on us now, presumably to try to stave off an election. I don’t think they intended the reform if there was no imminent threat of defeat.
Oh, I don’t doubt you there. The labour economists at Human Resources Canada would have certainly told their political masters that if something had to be done, the margin where a policy change would be most effective would be the extension of benefits. The actual proposal is at best a half-measure. For example, the start date is Jan 1, 2009 – why not October 2008, when the recession actually started?
But if the opposition had realised back in May that the issue of long-term unemployed should be the focus of attention, they could fairly claim that they had forced the Conservatives to meet them halfway. Instead, Harper managed to brusquely dismiss the opposition’s proposals and make them look weak and/or silly.
You should distinguish between the NDP and Liberals. The NDP has consistently proposed a package of EI reforms, including a lower entrance requirement, no clawback of severance pay, a higher level of benefits and a longer duration of benefits. The only reform that Liberals were willing to support was a lower entrance requirement, so it became the focus of political debate.
The extension of EI benefits is not “an embarrassing climbdown” for the NDP. The party has always called for a benefit extension. The government’s proposal is an improvement worth enacting, but much more is needed.
If there is “an embarrassing climbdown,” it is having to vote with the Conservatives after having made a virtue of voting against them. However, the NDP could not reasonably vote down extended EI benefits just for the sake of maintaining its track record of opposing the Conservatives.
Sorry, but I’ve been paying attention to this file, and if the NDP ever said anything about making extending benefits the priority of EI reform, then I missed it.
[edited to remove reference that I belatedly realised was out-of-date.]
They (all of them) are putting politics before policy.
If they put policy first, I have to imagine that circa late fall ’08/early ’09 when our largest trading partner, on whom our economy is totally dependent, was starring a credible threat of GD 2.0 in the face, any thinking human being with even a modest understanding of economics and history would have realized that long term unemployment was very likely to be an issue. For anyone who is even modestly progressive the policy response that follows is a no-brainer: extend EI benefits. Once you come to that conclusion, the political games are about implementing a defensible and coherent policy. You may get out maneuvered, but you’ll never succumb to the ‘gotchas’ or the appearance of floundering.
Conversely, if you start off being clueless and focus on the political game … well, we’ve seen what sort of rubbish that leads to.
The focus on the benefits period as the ONE thing to do is a short term issue because of the recession.
The fundamental issues are twofold, not enough unemployed qualify and the payments in are greater than the payments out. To fix these properly will require more than 1 change to EI. The NDP is taking the longer term view.
What do you mean by “not enough”? Should people who don’t contribute to the system receive EI? Should people who quit or are fired for cause receive EI? Should people be entitled to benefits until retirement age?
The NDP is not taking the long view, because they have clearly not thought about these issues. Or if they are, they’re not discussing them in public.
“Should people who don’t contribute to the system receive EI?”
Another issue they could have taken-up: coming-up with something to backstop for small business owners and the ‘self-employed’ (many of whom really aren’t, but that’s a rant for another day). Maybe a mandatory savings program a la Singapore or re-jig the RRSP system to make it easier for the self-employed to dip-into savings if they become unemployed – just model it after the HBP and LLP programs.
I don’t know that the inspiration for opposition proposals was a consideration of what would be best to help in the context of a recession. In other words they aren’t as stupid or at least not stupid in the sense of this discussion.
The lowering the threshold idea was always in my mind more about leveling entry requirements across regions – picking up on the now mostly forgotten crusade by western premiers to do that (though it morphed into a more complex proposal afterwards)and to a lesser extent Ontario’s long standing complaints about regional unfairness in EI.
I assume this is only brand new entrants. Possibly, I would think they could use some form of support, but not necessarily EI. I am certainly not in favour of the current practise of using EI eligibility to determine access to employment assistance programs. One thing I think should happen is that if you are in school full time, the EI clock should stop.
Yes, as a check on unscrupulous employers. There are more of them than free riders, or at least, they make more of a difference even if they are not numerically superior. Besides, in an inflation control system that depends on the construction of unemployment, what exactly is a free rider?
Yes.
There are some of us who have thought about the issues. They are not contentious within the party. I would agree that the party could do better at communicating them.
Should people be entitled to benefits until retirement age?
I’m pretty sure that you didn’t answer the question I meant to ask. What I meant was whether or not there should be a point at which benefits are exhausted.
As for question number 2, I think you might do well to read a bit about the problem of moral hazard as it applies to insurance. Giving EI to people who quit or fired for cause is the equivalent of paying out fire insurance to someone who burns down his own house.
“Should people who quit or are fired for cause receive EI?”
“Yes, as a check on unscrupulous employers”
Keep in mind that the EI law says that an employee is ineligible if they were terminated for misconduct. That’s not the same as ‘for cause’.
In Canada, there is no such thing as ‘at will’ employment. If an employer wants to fire you, they must have a reason. The EI laws call out a specific reason that makes someone ineligible: misconduct (see the jurisprudence for a definition).
For example, say someone is willing to do their job, but for whatever reason, they become unable to do it. The employer and employee have to make a reasonable effort to try to fix the problems, but if they fail the employer can fire the employee for incompetence. That’s a ‘for cause’ termination, but the employee would still be eligible for EI. On the other hand, if someone is fired for punching a colleague or fraud, they’re out of luck.
Benefits should have a finite lifetime, they should taper off and transition to other forms of income support.
The moral hazard is equivalent to free rider, no? Any evidence of the actual cost? In particular, is there any evidence to suggest that it has actual effects on unemployment rates? I’m a theory Y person on motivation. There are lots of reasons people will work, even in the presence of the EI option.
In an environment where the Bank of Canada is keeping the unemployment rate up it’s not a significant cost if some people choose to use EI, the jobs they leave will be filled anyway.
I would expect that any job that is so bad that EVERYONE would prefer to stay on EI rather than take it should not exist.
The moral hazard is equivalent to free rider, no? Any evidence of the actual cost?
Yes, actually. Do you recall this post?
In an environment where the Bank of Canada is keeping the unemployment rate up
Waah? Where do you get this stuff? The Bank hit the zero lower bound months ago. More fundamentally, the Bank of Canada does not control the long-run rate of unemployment.
I think he’s referring to NAIRU, given the BoC targets inflation.
The quote from the paper did not include any indication of how big the effect was, only that it existed. Did the paper itself have that information? I can’t get to it immediately. The idea of stomping on moral hazard for workers marginally connected to employment is more than a bit offensive when you look at the moral hazard being shoveled at the banks.
I did not write the other comment well. I am indeed referring to NAIRU, or more generally to the notion that the BoC’s inflation control mechanisms have the effect of driving the unemployment rate up. Currently the BoC is not increasing the employment rate, but it has in the past and I fully expect it to do so in the future. Full employment is no longer allowed in this country.
I don’t see how bad labour market policies in Canada can be justified by bad bank regulation in the United States. Canadian banks were not bailed out.
And the employment rate (employment as a fraction of the working-age population) hit its highest level ever in February, 2008.
To repeat the question that no-one seems to want to answer, what is the problem that needs solving? (Apart from that of long-term unemployed, that is.)
An insurance system that only covers 50% of the unemployed in a recession (40% in Ontario) is inadequate.
Plus it overcharges for what it delivers.
EI is doing what it’s designed to do: providing short-term income support for people who have recently lost their jobs, to people who contributed.
Given the incentives built into EI, it’s not the appropriate instrument for dealing with the self employed – some sort of self-insurance scheme would be worth looking at.
I’d be much happier to see someone work on a GAI, so that the bad incentives in EI (“we’ll give you money, but if you get a job, we’ll take it away”) don’t have the predictable – and observed – ill-effects.
As far as GAI goes, I know you wrote a post on it, but I find the details of how it would work (what marginal rates are involved) and what it would cost pretty fuzzy. I’m guessing we would need a fairly high marginal rate between 0$ and the breakeven point to ensure that the scheme is affordable, but not so high as to be a disincentive to work. What is that rate? 50%, 60%? A rate that high would have to be disheartening to someone earning minimum wage.
I don’t know – but then again, no-one knew how to set up UI way back when, either. I expect that the best thing to do will be to begin modestly and make incremental changes as we learn how things are working on the ground. I think HRC has enough expertise (and can call upon more; they have close links with academia) to make a reasonable first stab at it.
If only someone would give them the mandate to do it.
Almost Chretein’s legacy, choosing instead now-scrapped daycare. I think the main obstacle to giving everyone $4000/yr or whatever is there is a vested beauracracy of pensioners, EI, welfare and disability recipients who would need to be neutered to fund part of this. Probably have to grandfather and build it as existing rolls are scaled back. The concept doesn’t work at all if you don’t clawback existing entitlements and you still need a welfare staff functioning as psychiatrists deciding which recipients don’t have basic independant living skills. Maybe initially leaves people more homeless (assuming no concommitent low income housing construction) than existing safety net.
Economically best but probably politically hardest is to remove existing transfer programmes one at a time and using any savings to seek and give to the poorest working class. Welfare rolls are easiest. You fire most employees, giving them a GAI cut if necessary, transfer rolls to income tax forms, and pass on certain cost-savings to expand GAI recipients list. Shelters cost about $35/bed to run. I assume some tax dollars some donations. About 1/2 residents are working poorest capable of paying rent, yet strangely some jurisdictions don’t let you apply for welfare while in a shelter. If you can capture just 1/2 of shelter costs (Churches, United Way and Sally Ann have lots of worthy causes) you can survey or assess which residents can collect. Some US States have a progressive 5 year max welfare rolls limit. Could just adopt that and build on it. EI is another easy port whose rolls could double given administrative savings. Nice to pretend is 2000.
Once upon a time the idea that banks could own stockbrokers and insurance companies was considered a moral hazard. Bailouts are just the most egregious form of moral hazard the banks wallow in, not the only one.