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The Progressive Economics Forum

Liberal’s EI Plan Rests on Bad Math

Joe Oliver recently announced a Small Business Tax Cut, sorry, Job Credit. Economists across the ideological spectrum denounced it as poorly designed.

This opened up an interesting opportunity for a national debate about what we want E.I. to be – coverage right now is at all time lows, and the accumulated deficit from the last recession will soon be repaid in full.

The Liberal Party entered the EI debate by suggesting a one-year EI premium holiday for employers who hire new workers. It’s disappointing that they completely ignored the possibility of expanding access. What’s even worse is that their plan rests on some pretty terrible math.

How much do they think a one year EI premium holiday for new hires will cost? Why, they can create 176,000 jobs for the low price of $225 million / year.

Sure, you say, the maximum EI contribution for employers is around $1250 / year, and 176,000 * $1250 = $225 million. No problem.

But, wait! How do you define new job? And how many ‘new jobs’ are created in the Canadian economy in any given year? You might think that it’s in the 176,000 range if you listen to any of the coverage of the Labour Force Survey release at the beginning of every month. But you’d be wrong.

The Labour Force Survey counts ‘net new jobs’, which is the the number of new hires minus the number of job leavers in a given month. Between August 2013 and August 2014, there was an average of 6,000 net new jobs every month.

But the total number of new hires is much larger than the number of net new jobs. People leave one job for another, and move into and out of the labour force regularly.

Although Statistics Canada doesn’t measure new hires directly, it does ask “how long have you been in your current job?”. We can say that people who answer “1 month or less” is a pretty good proxy for new hires. By this metric, there were approximately 3.7 million new hires in 2013. That’s 310,000 per month.

The Liberals will have blown through their annual budget for the EI premium rebate about two weeks after it has been introduced.

This plan confirms two things. The Liberal Party of Canada is totally OK with an EI coverage rate of 36%, and they aren’t really sure how the labour market works in Canada.

Enjoy and share:

Comments

Comment from Ron Waller
Time: September 16, 2014, 10:49 pm

It’s appalling to see that when the Conservative party introduces another business tax cut to “create jobs” the Trudeau Neo-Liberals feel they have to do better and offer up a bigger trickle-down tax cut.

The best way to create jobs in our anemic economy is through stimulus spending. Ensuring money goes into the pockets of the people, not shareholders and corp execs.

In this context, the smart move would be to undo the Chretien Liberal cuts to “EI” benefits which turned unemployment insurance into a tax on poor workers who were forced to pay for premiums on benefits they could never receive.

After the Chretien EI cuts, the EI fund exploded to a $54B surplus by 2008. Both the Liberals and Cons used the surplus — money essentially stolen from workers — to pay down government debt.

The old system clearly paid for itself over the medium term. The reason the cuts were made? Neoliberal ideology. Life must be hard for workers or they will have no incentive to work. Disgusting hypocrisy considering the corporate welfare safety net the Masters of the Universe created for themselves privatizing profits and socializing losses.

So 20 years later, the Liberal party has moved even further to the right despite the 2008 global financial meltdown which clearly demonstrated that free market ideology was a colossal failure. (In fact, this was the second global meltdown. The first was in 1929 which produced the Great Depression — and world war.)

Instead of offering Canadians an alternative to Harper, Trudeau offers us an alternative version of Harper. Hope. Change. More of the same.

Comment from Angella MacEwen
Time: September 17, 2014, 9:39 am

Kevin Milligan has clarified that the Liberals meant they would ‘help’ create jobs, and the holiday would apply to ‘net payroll increases’. From CANSIM Table 527-0004 we can calculate gross employment creation by new firms, and net new hires at existing firms. At the national level this adds up to about 360,000 hires in 2012. Net new hires at the firm level will outstrip that significantly. There is no way that the Liberal plan will cost anything close to $225 million / year.

Comment from Ron Waller
Time: September 17, 2014, 6:17 pm

What’s worse is that by blowing the small EI fund surplus, Trudeau will cement Harper’s cuts to EI benefits (and new restrictions.)

I think as incentives go, this is a pretty flimsy one. What are the odds of a business hiring extra personal based on a small tax cut? Businesses tend to hire people the minimum number of people they need. That’s the biggest savings. Same as the NDP job creation tax credit. And as Milligan pointed out before, (criticizing the NDP,) and what you point out, the costs can get out of hand.

When it comes to tax incentives, I believe that targeted incentives get the biggest bang for the buck. Take, for instance, our Canadian Film or Video Production Tax Credit. This has brought a lot of business to Canada.

So when it comes to corporate taxes, we should divide businesses up into three groups. Those who sell to our markets, those who extract our resources and those who produce value added goods and services that can be sold on the world market. You have higher levels of taxation for the first two, and big tax credits for the third.

That way we are bringing in value-added businesses (unlimited expansion) and good-paying skilled jobs. The Martin and Harper unfocused corporate tax cuts (50%) are a huge waste of scarce fiscal resources that need to be put elsewhere (like worker training and tuition grants.) And they are not creating the kind of businesses we need to create to succeed in the 21st century. (Burger King’s tax inversion included.)

Comment from Bob Leore
Time: September 29, 2014, 1:12 pm

Why does UI continue to be “funded” by a regressive tax? Since the federal government issues the currency and is not revenue constrained, why does it persist with these blatantly unfair taxes (and why for that matter do we also accept the fiction that contributions finance a nonsensical separate fund)?

Any progressive worth her weight should be pushing for abolition of all taxes on labour and consumption, replacing them with taxes on economic rent of all kinds (i.e. rent of land, monopoly profits, finance, natural resources), and ensuring chock-full employment through fiscal policy and employment guarantees.

That is superior than a laughable one-year EI premium holiday or employer contribution cut.

Comment from Angella MacEwen
Time: September 29, 2014, 11:45 pm

Bob, EI is not a tax. It’s an insurance scheme + safety net. It’s not available to all taxpayers, just to contributors.

And while ‘regressive’ or ‘progressive’ matters, it’s not the only thing that matters. It also matters how the revenue is used, and if the regressiveness is offset by targeted measures or by an overall progressive tax mix.

I’d like to see a progressive federal government raise the GST and use the money to fund public services.

Comment from Bob Leore
Time: October 1, 2014, 1:01 am

Angella, your naivete is off-putting. UI “premiums” are most certainly a tax, and an acutely regressive one at that as they are compulsory and capped at a maximum income. They should be abolished and replaced with an explicit job guarantee/activist fiscal policy that ensures nobody who wants to work stands idle. Unemployment must not be tolerated in a democratic society.

Furthermore, despite its absurd name, EI is not an insurance scheme because “premiums” are the same for all workers regardless of risk profile and all who find themselves unemployed do not receive compensation. The program is a relic of the Depression when the only way to get a few scraps of income to the unemployed past the reactionaries was to call it “insurance”. It needs to go.

Thankfully, we can do much better now that we need not worry about how to “fund public services” anymore. A national government with a sovereign currency can assure full employment through direct spending: basically “use the computer” as Bernanke told Scott Pelley to mark up the size of people’s accounts with fiat currency/credits in pursuit of the public purpose.

Under a non-convertible currency, taxes are no longer needed as a source of revenue and are more a tool for managing aggregate demand/inflation and achieving equity.

In my opinion, a progressive government would not employ a GST or similar broad-based consumption/employment tax. These taxes are deeply unfair to the poor and working people in general, are costly to administer, and reduce sales/increase costs, the basis for job creation and prosperity. The fairest and most efficient tax base to target is always economic rent.

Comment from Angella MacEwen
Time: October 1, 2014, 4:30 pm

I do enjoy a good discussion with people from different points of view.

But my difference of opinion on this issue has nothing to do with naivete. That you attribute my take on the issue to naivete is pretty off-putting itself.

Comment from Bob Leore
Time: October 1, 2014, 10:33 pm

Let’s just say I didn’t appreciate the patronizing tone in your initial reply (and now again) casually dismissing what I wrote because I refused to accept UI as “insurance”. It’s not and continuing to call it “insurance” and worse, “employment insurance”, only provides a sense of legitimacy and thereby the cover to tack another odious tax on labour and leave the rent extractors off the hook.

We lose when we accept the other side’s frame of reference.

Comment from Angella MacEwen
Time: October 2, 2014, 11:46 am

Bob, the ‘other side’ calls it a tax and wants to get rid of it. Which of us has accepted the other side’s frame of reference?

EI is messy, for sure, but it helps workers, and employers have to contribute.

Would I prefer an universal basic income – absolutely. But I don’t see where that’s on offer anytime soon. So let’s not throw out EI just yet.

Comment from Bob Leore
Time: October 2, 2014, 11:49 pm

You’re shifting the terms of our little debate everytime I press you on your original question: “what we want E.I. to be”. I think it’s a terrific question and with Oliver’s cynical ploy a good opportunity to suggest something better.

What I still don’t get is why it’s so important to cling to UI as an insurance plan. As a rhetorical device it may have had some utility during its formation but it has outlived its usefulness. Distilled to its essence UI is an arbitrary and discriminatory social program “financed” by a wicked, regressive payroll tax and has got to go. Thankfully, we can do much better.

Though the “other side” may be pushing for abolition of UI, they are certainly not arguing for abolishing unemployment, either. Their frame of reference, that we cannot afford to eradicate unemployment, that the deficit must be eliminated first, that the debt is too high, that it’s the workers’ fault, is seductive to many but callous and wrong.

As I laid out earlier, we have all the tools we need with our currency-issuing government to eliminate unemployment and ensure that the economy runs at its full potential. That should be priority one as unemployment undermines democracy and amplifies inequality.

So, I would urge that we change the debate away from contribution rates and fund balance which uses the language of the other side and start pushing hard for a new New Deal that directly eliminates unemployment with a much more activist fiscal policy.

What do you think?

Comment from Todd
Time: October 4, 2014, 11:09 pm

I don’t know about Angella, but I think you’re an infantile maximalist who enjoys phrase-mongering a bit too much to be taken anywhere near seriously.

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