Stephen Gordon on EI

I recently had the pleasure of serving with Stephen Gordon on a panel about economics and blogging. Over at Worthwhile Canadian Initiative, he has been leading a one-man crusade against reducing the eligibility requirement for Employment Insurance (EI) benefits to 360 hours.

His stated goal is to provide better protection for unemployed workers and counter-cyclical fiscal policy. It strikes me that he could advance this goal more effectively by spending less energy opposing greater access to EI benefits and more energy proposing longer duration of benefits (his preferred reform).

These policies are hardly mutually exclusive. Indeed, the labour movement, NDP and Bloc have long advocated both.

By my reading, Stephen has three objections to a lower entrance requirement. I do not think that any of them withstand much scrutiny.

1. Very Few Workers Would Benefit

Stephen scoffs at the notion of a “wave of workers who were hired in the last couple of months – during the worst labour market in a generation – and are now facing unemployment”. This formulation implicitly assumes a standard, 40-hour work week. However, the accessibility issue mainly concerns workers in part-time and nonstandard jobs who take much more than a “couple of months” to accumulate 360 paid hours.

Stephen tries to support this objection empirically by estimating that 4.2% of employed workers might have at least 360 hours but not enough to qualify for EI benefits under current rules. He suggests that perhaps 2% of employed workers will be laid off during the balance of the recession. On this basis, he concludes that only 0.1% (i.e. 2% of 4.2%) of currently employed workers would benefit from a 360-hour threshold.

His implicit, and totally incorrect, assumption is that job losses are evenly distributed among employees of differing job tenure. In the real world, unemployment is far more likely for employees with less tenure.

Nonstandard jobs with fewer paid hours tend to be more precarious in general. In almost any workplace, it is easier to get rid of probationary or temporary employees than permanent employees. In unionized workplaces, layoffs generally must be carried out according to seniority. Other things being equal, employers prefer more experienced workers over less experienced workers.

The 0.1% figure equals about 12,000 workers. By contrast, Jack Mintz (another opponent of greater EI accessibility) notes that in 2007 some 100,000 unemployed workers who otherwise would have qualified for EI benefits were excluded for lack of hours. Some of these 100,000 workers presumably would still have fallen short of a 360-hour threshold.

However, with many more workers unemployed today, the number who could benefit from this lower entrance requirement is almost certainly more than 100,000. Stephen’s figure is an order of magnitude too small.

2. Many Workers Would Abuse the System

Stephen claims that many Canadians would stop working as soon as they accumulate 360 hours and climb aboard the magic carpet of EI benefits. This claim seems to conflict with the preceding claim that a lower entrance requirement would affect very few workers and inject very few stimulus dollars into the economy.

It is worth noting that workers cannot collect EI benefits if they voluntarily quit, are fired for misconduct, or are laid off by a family member. So, abuse of EI could occur only where an arm’s-length employer were complicit in laying off and hiring workers after every 360 hours.

While such employee-employer arrangements are possible, they must be assessed in a broader economic context. If labour were in short supply, there would be an economic cost to workers choosing to leave the labour market to collect EI. However, if there are more workers than jobs, such behaviour simply opens job opportunities for more willing workers.

The federal government already provides EI benefits to support work-sharing that prevents layoffs. What Stephen characterizes as “moral hazard” could be viewed as another form of job-sharing supported by EI.

It seems to me that we should try to create enough jobs to reach full employment before worrying too much about fine-tuning incentives to expand labour supply.

3. There Are Better Uses for the Money

When confronted with arguments that a 360-hour threshold would actually help people in need, Stephen’s stock response is that there are “better ways of spending that money.” Again, the notion that a lower entrance requirement entails a substantial financial cost seems to contradict the claim that it would benefit very few workers.

Of course, it is useful to have theoretical debates about optimal public policy. But we should not let the perfect become the enemy of the good in the midst of a real political debate about whether or not to enhance EI benefits.

Giving the Conservatives ammunition to resist enhancing EI does not imply an automatic redirection of equivalent funding to a larger GST credit, Working Income Tax Benefit or other “better ways of distributing that money”. Indeed, a more likely outcome of not enhancing EI is that there will be no meaningful improvements to Canada’s income support programs in the near future.

That brings me back to where I started. Stephen may legitimately believe that putting additional public money into the GST credit or Working Income Tax Benefit is preferable to making EI benefits more accessible. If so, I would encourage him to put his energy into making the case for these worthy policies rather than making the case against a lower entrance requirement.

7 comments

  • I rather thought I had.

  • Lowering the eligibility requirements to 360h universally is foolish, irresponsible policy, even if it is intended to be temporary (which never happens).
    Stephen makes a better case IMO.

  • Question: Unemployment. What causes it?
    Answer: U.I. (E.I.) according to Stephen Gordon, the Fraser Institute, Pierre Fortin, and many other economists.
    Explanations:
    1.Macroeconomics has undergone a major revision, must now have micro-foundations. New Keynesian economists think people prefer liesure to work. It is simple really, when it pays to be unemployed people will choose UI before a taking a job. Do not notice the manufacturing economy tanking in March 1989. Consider this a period for an experiment in measuring the micro behaviour of those individuals drawing their insurance.
    2. Historical amnesia. The great depression aka the outbreak of laziness, was before our recent advances in economic theory.
    3. Assume unemployment is voluntary. Do not ask if workers at GM, Stelco, Nortel, etc, laid themselves off.
    4. Ideas around the non-monetary aspects of employment in providing a self-image for people, giving them standing in the community, a sense of personal worth, a role as family provider, a network of peers, and way of life are not part of the economics curriculum, so can be assumed not to matter.
    5. A rising tide floats many ships, do not ask what happens when the tide goes out.
    6.UI was the most studied programme going. None of the many government studies ever found evidence of fraud. The auditor general routinely points to tax evasion practices of corporations and wealthy individuals using off-shore havens. Why don’t economists get mad about that? Is it is easier to go after the unemployed than the wealthy?
    7. Rather than discuss the fine points about social insurance programmes and human dignity, repeating urban myths about Loto 10/42 is now accepted expert media commentary from a distinguished economist being interviewed by Don Newman.

  • http://www.statcan.gc.ca/pub/75-001-x/00401/5725-eng.html
    This is a little dated now, but provides some statistical analysis on EI users, repeat users, social stigma and dependancy issues within the program.

  • Thanks for the reference Darcy.
    The point about unemployment is that it rises and falls independently of the willingness of people to work for the going wage. A good graph of job distress for the U.S. is here:
    http://economix.blogs.nytimes.com/2009/06/05/not-yet-worse-than-1982/
    What I find exasperating is when economists decide that unemployment is a micro problem, and blame unions for high wages, governments for providing high social wages, and the unemployed for not accepting lower wages.
    But in a recession, cutting wages, including the social wage makes things worse.
    When the Liberals got around to making their timid, temporary proposal on 360 hours an effort to intimidate them immediately gets underway. Unhappily some economists are willing to attack the proposal on air.
    In my view the economics are clear: in recessions unemployment rises independently of the UI regime in place. What to do about UI in a recession is a macro-economic question. Do you think we should re-distribute from high to low income to fight the recession? Most economists would have said yes until the anti-Keynesians got the high ground in the academy.
    Of course there is a general question: Who gets what? Some believe in social insurance. Others think you get what you deserve, with no need for help from others. Obviously what underlies UI depends on ideas of the common good.
    I have written about that here:
    http://www.rabble.ca/columnists/2009/06/revitalizing-common-good

  • Duncan, you really should do some reading, and some thinking. It may not be as emotionally satisfying as making up shit about what I think, but it might remove you from my list of “People who are too stupid to be taken seriously, but insist on making their views made know to the general public”.

    Your decision.

  • This last “rejoinder” by Gordon is kind of amusing. He’s been on my list of people not to be taken seriously for some time, but not because he’s too stupid. No, … with him it’s, shall we say, a different issue. Can I suggest that he should stick to Buzz Hargrove’s rabble.ca/babble site?

    During the 1990s econometric studies were done on the impact of the unemployment insurance entrance threshold on seasonal workers. They found that there were indeed spikes in claims commencement at the number of weeks indicated in the entrance requirement. But while the spikes were statistically significant they were not economically significant. That finding comes from one of Gordon’s fellow Liberals and carbon-tax-shifting proponents, David Green of UBC.

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