The decline of unemployment insurance

May 16, 2006

This morning`s Globe and Mail has an important article by Jennifer Lewington, p.A4, More than an issue of `social justice`, covering the release yesterday of the report of the task force on modernizing income security made up of business leaders, the working poor, welfare receipients and the unemployed and social activists.

The task force has recommended among other things: overhauling the employment insurance program which incredibly now only provides benefits to 43% of Canadians who become unemployed; new federal tax credits for poor working adults to help working age adults move from welfare to work; a new program for the disabled; major reforms to Ontario`s welfare system including improved disability support&child benefits and ending the practice of forcing welfare applicants to liquidate all their assets; an integrated system of child benefits so income is not clawed back from parents on welfare.

All of these suggestions are worthy of debate and if possible implementation so that Canada no longer has to hang its head in shame at the appalling circumstances of our poorest citizens, some of whom live in dire conditions on the streets of our great metropolises or hidden away in inner city or suburban ghettoes.

One of the major recommendations focuses on our outrageously restrictive employment insurance program which under the influence of neo-con economists in the department of Finance has been converted from a decent income support system for times of personal crisis like involuntary unemployment to a highly restrictive ``gotcha`` mean spirited minimalist sytem designed to deny benefits to the majority of people suffering through no fault of their own from unemployment.The article includes a chart which shows that, for example , in the city of Montreal where unemployment is quite high only 35 % of the unemployed receive benefits. In fact, in only one city in the country St. John`s Newfoundland where unemployment approaches   20 % do more than 50 % (52 %)receive benefits.In all the other major centres except the Saguenay, Quebec,Saint John, Sherbrooke and Trois Rivieres the figure is less than 40 % despite quite elevated unemployment in many of these cities.


The original Keynesian role of unemployment insurance as a counter cyclical tool designed to provide alternative income for aggregate demand in the case of a major business cycle downturn has been destroyed and the current unfair and anemic system put in its place all to further the goals of debt reduction and Dickensian puritanical nineteenth century hell fire and brimstone ethics.

Of course, the economists who designed the new system foolishly believe that they are contributing to eliminating frictions and artifical income floors that prevent the god they worship, the laissez-faire labour market clearing model complete with the invisible Walrasian auctioneer from working effectively.

They are quite simply wrong. The next business cycle downturn and there will be one sooner or later will demonstrate how wrong they are.