Towards a Better Income Security System for Canadians

(Notes for my presentation to a recent workshop on the concept of a basic income.)

Over the years, we have put in place an effective income security system for older Canadians – CPP plus OAS/GIS have come close to providing an adequate basic income for the elderly.

And we have the instrument we need to address child poverty – namely income tested child benefits which could and should be raised to match the cost of raising children.

The big gap in our system is income security for working age adults.

In my view, the key issue is the lack of sufficient high quality jobs.

We have high unemployment in bad times but, even in so called good times, very high levels of employment in insecure, precarious and low paid jobs. One in five people work in temporary jobs or in solo self self employment. One in four adult women and one in ten adult men are low paid – earning less than two thirds of the median or less than $12 per hour – this is the second highest rate of low paid work in the OECD, and much higher than in most European countries.

Canada needs a higher wage floor – which should be set by higher minimum wages and by easier access to collective bargaining , especially for workers in low paid private service industries.

It is not global competition which holds down wages at the bottom, but a lack of government support for labour market institutions which can and do make a huge difference.

A high wage floor not only raises wages at the bottom, it also narrows wage differences between the bottom and the middle, and the bottom and the top. In Canada, wages at the middle and the bottom have been stagnant or falling for many years, while rising national income has gone to the top, especially the top 1%.

It is striking that it is countries with the most equal wages which are also most committed to providing public services to citizens and income transfers to individuals and families. Highly unequal countries like Canada have a combination of highly unequal wages, and low rates of spending on transfers.

In an abstract way we might say that we shouldn’t worry about low wages and should devote all of our attention to improving income transfers – but the reality is that we have to do both.

We also have to take account of the fact that income security programs are difficult to pay for if they are not built on a foundation of decent jobs. Indeed such programs risk being turned into subsidies for low wage employers if the wage floor is set too low. Higher wages are also important in terms of pushing low wage employers to invest in skills and to raise productivity.

When it comes to income support programs, we in the labour movement continue to argue in favour of major improvements to EI.

The defects of the current system are well known.

Many unemployed workers are excluded because they can’t get enough hours of paid work – the hurdle is as high as six months of full time work.

And when they get in, the maximum benefit is just 55% of the average industrial wage, or just over $400 per week – and the average is more like $330.

And very few workers qualify for the theoretical maximum of 50 weeks of benefits – which applies only to those with long work histories in very high unemployment regions.

We are fighting a major campaign to fix EI.

In debates over income security reform in the past, there were some well-meaning people who wanted a very narrow EI system – perhaps no EI system at all – so that resources could be redirected to other income security programs.

We think that would be a mistake for two key reasons.

First, EI is not just about basic income security. It is also about stabilizing the incomes of individuals, many of whom make only occasional use of the system.

Second, EI is not family income tested, whereas most income supplementation programs are tested in that way. Individual entitlements are important from the perspective of gender equality.

That said, even if we fix EI, big holes will remain given the nature of our job market.

Even if we lower the hours needed to get into EI, many will get in with only very low benefits.

And EI does not and probably cannot respond to the reality that many low wage workers are self-employed (or are miscategorized as self employed .)

Those who fall through the EI safety net face acute poverty because social assistance benefits are far too low. And the welfare system is dysfunctional and punitive in a number of ways – creating a wall between those who get on and jobs.

So, there is indeed a need for something like a basic income program to complement policies to improve jobs and a better EI system.

We need a program to supplement low incomes for the working poor and near poor to create a decent income floor.

My view is that priority should be given to those who are working but cannot work full time, full year – such as single parents of young children (mainly women) and persons with disabilities.

We have the beginnings of an instrument to hand in the Working Income Tax Benefit – which could and should be paying out higher benefits to many more people. Expansion could and should be financed by raising top tax rates, especially on those making more than $250,000 per year.

Many would argue that a low wage income supplement program is not the same as a basic income paid to all citizens. That is true, and the latter would be more desirable in many ways. But I suspect it will be easier to convince people and politicians of the need for the former.

7 comments

  • In an abstract way we might say that we shouldn’t worry about low wages and should devote all of our attention to improving income transfers – but the reality is that we have to do both.

    Why? If we have a system of income transfers, what’s the point of increasing the minimum wage?

  • @SG: …To help with the disparity between the upper and the lower income bounds. I believe the unwritten assumption is that somebody working full time for minimum wage shouldn’t be better off than somebody on income supplements or programs – at least, that’s always been the argument for keeping welfare so abysmally low, so you have to address both issues simultaneously.

    (Which will not happen, because the income support system is still operating under the often-discredited-but-still-widely-held idea that there are “deserving” and “undeserving” poor.)

    And we’re currently moving in exactly the wrong direction: programs that provided more than subsistence-level income supports for EI recipients, like “Second Career,” have now been frozen in Ontario because demand was so overwhelming. Which is ironic, given the problem they were supposed to address.

  • Remember when the left used to favour universality (of child benefits etc.)? And the right used to argue against, on the grounds that tax dollars were scarce, and needed to be targeted to the most needy? And now the left has come around to accepting the right’s argument against universality.

    Which is sad, because the right’s argument against universality is based on a total economic fallacy, and the left was right all along (for once 😉 ).

    http://www.irpp.org/po/archive/jun99/rowe.pdf

  • Rentier Fungicide

    As usual, excellent post. As social assistance benefits are much too low, should we not be saying out loud that we need to resurrect the Canada Assistance Plan as well? I support what Mr. Jackson is saying, and we should stay committed to the re-establishment of such shared-cost programs.

  • Hi Nick,

    I read the article (or summary of the forthcoming article) and I could not help but think it was a second line defence type argument. Presumably for you it is a front line defence because it comes straight from the holy behavioural writ (HBW). Problem is there is quite a bit of experimental and empirical evidence that the behaviour of neither individuals (in general) or economies in the aggregate seem to be affected much by EMTRs. Over at angry bear they just had a post on EMTRs and the macro-economic performance of the US. And elsewhere at the micro level it seems the HBW is in trouble too.

    What seems key, for example, with professionals is that they are capable of defending their lifestyle premium **relative** to the medium income. To the extent that means tested policies raise the implied EMTRs of professionals they are likely to respond by working more not less in order to preserve their relative life style premium. My response to a raised EMTR is likely to be to search for more work not less even if each dollar is taxed at the highest EMR.

    But believing your own argument you ought to be picking one with your blogging comrade as he has a one man crusade going on against universal in favour of targeted child care. And given I am sure he shares your subscription to the HBW he will no doubt have to re-think his position (just for consistency sake) or adopt some version of the heresy I have outlined above.

    For the record I never gave up on universality. As for the putative “left” you give them too much credit by describing them as such. But then I suppose “left” like “high” METRs is relative… to a point (> 0, < 1).

  • Nick
    I shall read your article with interest. Just for the record, I am totally an advocate of universal access at no or very modest cost to services programs such as child care, health care, elder care etc. I do think there is a case and has to be a case for income testing eligibility for income support programs. When it comes to child benefits, I would argue for a universal base and income tested supplements ie I would phase out child benefits but not reduce them to zero. I think it is appropriate to have the GIS add on to OAS (and CPP) as well.

  • This is my response to Andrew Jackson’s essay on the need for a better income security system for Canadians. I was there when he delivered this at the “Basic Income” forum. It was not really well received; people agreed more with a couple of other speakers who thought we had to get away from this “labor market” mentality in thinking about income security.

    Jackson is a “labor economist” as he likes to tell us. We need some more social economists in this forum. I am not an economist. I did not even graduate high school. But I will take a crack at Jackson’s misconceptions and especially this “more good jobs” thing.

    As the Beatles sang; “working class hero ain’t nothing to be”. There is no such thing as a good job or “quality employment”. There is only less bad employment.

    It is jobs themselves which create poverty. They do this by creating dependancy on working for someone else in order to live. This stifles individuality and initiative; the things required of good citizens. It creates a servile attitude in society, in which only a kind of false initiative is exerted by “bargaining” the terms of ones enservilation.

    People need autonomy and self sufficiency. Since we now live in an urbanized society, this will not be achieved by dividing the farmland among the peons. It will be achieved by giving everyone an adequate basic income.

    The aim is not so that people no longer have to work at all. It is so that people work on their own terms, not on the employers terms. It is so that work hours can be reduced in parallel with increasing productivity, so the increase is captured by the worker in increased leisure and freedom, rather than the employer in increased profits.

    This makes it possible for civilization to get out of the deadly trap of endless expansion, and to wind down to a point of ecological balance without great social turmoil.

    Jackson says that an abundance of high wage jobs will be needed in order to finance income transfers including a basic income. He is assuming what he is trying to prove. First of all, the idea of an abundance of highly paid jobs is a delusion. In a global frame, it has never happened and never will happen. As automation progresses and and the need for ecologically based limits increases, this will become ever more unrealistic.

    Second, there has never been a real place or time when social programs were funded mainly by taxes on those with higher wage jobs. This is making the somewhat better off pay to maintain the worse off, which sets them against each other. Meanwhile, those who keep them in their conditions profit. Adequate social provision has always come by taxing profits, and always will, or there will not be adequate social provision.
    If you get the income distribution system right, the labor market can take care of itself. But Jackson does not leave it there. He gets into this “Earned Income Tax Credit,” as though it were some sort of compromise on a basic income which might be acceptable to those who hold our ticket to work and live.

    This is not compromise, it is going in exactly the wrong direction. It is cementing dependancy on the sanction of an employer in order to live, even if the employer is not even paying you anything herself. A true intermediate stage toward a Basic Income would be what one other commentator on this post suggested; reinstating the Canada Assistance Plan.

    Further evidence of the labor economist living in a world that never truly existed and is becoming more improbable every day, is the support for a minimum wage increase. This is the same mind set as the super conservative who wants to eliminate social provisions altogether, as unnecessary. Everybody is working a standard forty hour work week and every worker is male, with a wife and kids at home.

    Hugely diverse social circumstances make the concept of a minimum wage absurd. Somebody may be making $30 an hour and only getting ten hours of work a month. A single person may be able to get by on the minimum wage while it is impossible to support a family on it. A minimum wage high enough to support a family will price many people out of the labor market. Distributing incomes through wages does not add up.

    Employment insurance is another concept from an idealized past era which fits reality less as time goes on. A different form of EI might be useful as a protection for those with incomes much higher than the basic income. They would likely want some protection against a sudden, massive reduction of their income. But it would only serve a minority of the population.

    Other programs Jackson mentions are actually good ones; they are going the right way, toward a guaranteed income. That is, child benefits, and old age pension and supplements. Also, though he does not mention it, housing and medical needs supplements.

    The labor movement, except in the public sector, is not doing very well these days. It accepts employers controlling who gets to work and have an income, even though that gives them the biggest possible stick against unions. A Basic Income would revive the power of unions; people’s incomes would not stop when they went on strike.

    But labor these days seems to have a compulsion to argue against its own interests. It also accepts the basic world view of the owners and employers, its supposed opponents. I wonder why that is?

    tr

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