The EI conundrum

Chantal Hebert has a dy-no-mite column today explaining why Harper was so happy to punt the question of EI reform to the blue-ribbon panel. I thought the intervention by the western premiers was interesting, and halfway welcome. On the one hand, I agree entirely with Gordon Campbell’s assessment: we already have an equalization program, and EI should not be used to prop up economically stagnant parts of the country. But then he turned around and proposed a dual national standard for EI qualification: One for urban areas, another for rural areas that are dependent on declining resource industries.

Well hang on. What’s the difference between using EI to support, say, the maritimes and not Ontario, and using it to prop up forestry but not finance? Even when they don’t overlap (the regions tend to be poor because they have sagging rural economies) the error is the same in both cases: an insurance program is being used for a perverse form of economic engineering that gives people an incentive to stay in dying industries.

At the core of this is a category mistake: EI is supposed to insure individuals, but the federal government, and now, Gordon Campbell, want to use it to support collectives, in the form of either regions or industrial sectors. But how does it help an individual who loses his or her job what sector they happen to be in?  Having a lower qualifying period for people who choose to work in crappy industries would be like the government charging a health-care deductible for people who exercise and don’t smoke, but waiving it for dopefiends and boozehounds.

Meanwhile, the other issue on the table is even thornier: How to insure the self-employed. On this case, Harper was being entirely genuous — this is not the sort of thing you can just hammer out in a few meetings, or even during an extended summer sitting of parliament. There’s a reason why the system doesn’t already insure the self-employed, and it isn’t simply because of a lack of money or political will. Stephen Gordon has a good post listing the various objections to the proposal, including the obvious problem of moral hazard to the more academic (but no less important) problem of how to distinguish labour income from capital income.

Like prof Gordon, I don’t think there is a non-lousy way of using EI to insure the self-employed. A better idea, in my opinion, which would have the advantage of being a decent social policy regardless, would be to implement a proper guaranteed basic income (or “negative income tax”, or whatever you want to call it). It would provide all the benefits of public insurance, without the hassles of having to root out moral hazard.