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A letter to the Canadian Prime Minister, with two suggestions for next steps in dealing with #COVID19

March 22, 2020

Prime Minister,

I certainly hope you and yours are well.

I was in New York City up until last weekend. Earlier in the previous week the university where I work announced that it was moving all courses online, and closing the campus. There was really no further need for me to stay in the City, but my initial thought was to wait it out, and decide later on when to return to Canada.

I started to have second thoughts when a student emailed me for advice just after President Trump announced that travel from Europe to the United States would be banned. He’s from Mexico, and said that he trusted the Mexican health care system more than the American, and wanted my advice on whether he should return home.

If that wasn’t enough to give me pause, when I saw the twitter feed of the Minister of Foreign Affairs  on Saturday evening recommending “that Canadian travellers return to Canada via commercial means while they remain availableI immediately bought myself a ticket for a next day flight to Canada. I arrived last Sunday evening, and have been in self-isolation since. I’m glad to be home given the events of the last week.

It is certainly time for government to step up, and history will judge the fall out of this pandemic in terms of how well societies govern themselves: professionally and efficiently, scientifically and socially, and with a sense of reciprocity and trust that strengthens community. I hope you and your cabinet take to heart a message that one of my colleagues has written in an article called “The Real Pandemic Danger Is Social Collapse.”

… the main (perhaps even the sole) objective of economic policy today should be to prevent social breakdown. Advanced societies must not allow economics, particularly the fortunes of financial markets, to blind them to the fact that the most important role economic policy can play now is to keep social bonds strong under this extraordinary pressure.

Good governance, not just a good health care system, is one of the reasons I’m glad to be home. I have been watching your daily press briefings with a good deal of admiration. And I am also impressed with both the design and speed with which the government has been able to roll out the package of reforms earlier this week, an effort that has no doubt been supported by legions of professional public servants working around the clock.

You promised that these reforms are just the first step in a fast moving and dynamic situation. I can’t pretend to understand the complete situation, hardly have full information, and can’t offer wide-ranging suggestions on what the next steps might be. But here are two suggestions that come from my limited areas of expertise.

 

First, about information and testing. I appreciate that a good deal of testing has to do with the medical priorities of diagnosis and appropriate triage, only testing those with risk factors, like international travel and showing symptoms. That may be appropriate from a medical stand point in the context of possibility limited test kits and personnel.

But testing only those most likely to be ill is not appropriate as a source of information for broader decision making engaging the Prime Minister’s Office. The Economist magazine had a nice article in its February 29th edition describing the challenges of getting information on the incidence of infection and mortality rates from test samples that are selected in this way. Knowing where you are in flattening the curve is going to much more challenging with selected rather than random samples.

You might consider a way to randomly test samples of individuals in the provinces and health areas to get data representative of the population, information from a continually rolling daily sample of thousands of Canadians. This will become all the more important in understanding the degree to which there is community spreading, and give your office more accurate estimates of incidence and how it is changing. As you well know, good information is the first ingredient in a professional scientific approach to taking the next steps.

Second, let me restrict particular policy suggestions to Employment Insurance, because that is what I know about. In a sense the need for these reforms shows us where our social safety net is knitted most thinly, and next steps should be conducted not just for short term patch-ups, but with an eye toward making the system more effective in the longer term.

As I mentioned, I was impressed with the package that came out, particularly the attempt to cover people who will not be EI eligible through the new Emergency Support Benefit. A sad failing of the EI program has long been the relatively small fraction of unemployed population who are actually covered. In 2018 only about 64% of the unemployed had contributed to the program, and were potentially eligible to receive benefits. There used to be provisions in the program for labour market re-entrants and job quitters, and you might rethink their eligibility.

A lack of coverage hurts, and will continue to hurt into the future when you are likely to unroll the Emergency Support Benefit.

Unemployment Insurance was always meant to be an insurance program for big social risks, exactly of the kind we are now facing. In the early 1970s Canadians had a much more generous program, broader coverage, more generous and longer benefits, but it was progressively chipped away at in the name of deficit fighting and work incentives.

In normal times, when jobs are to be had, the program’s design certainly does need to keep work incentive effects in mind. That is why we have a waiting period. That is why there is a maximum insurable earnings set modestly at around the overall average earnings. That is why benefits are only paid to 55% of insurable earnings. That is why the duration of benefits is limited.

But all of these design features intended to keep work disincentives in check, now hamper the program’s effectiveness in being an income replacement tool when there is no work to be had, or in fact to be discouraged.

These are not normal times, and in some sense we want Canadians to work less while giving them timely and generous income support. The government has recognized this by eliminating the waiting period. So what is the logic of holding on to the other co-insurance features of the program?

You should significantly increase the maximum insurable earnings—which is currently just above $54,000–by at least half to $75,000 so that more Canadians will see all or a larger fraction of their earnings covered.

You should increase the benefit rate from 55% to at least 75% or even higher. In fact, there is a precedent to be found in the unemployment insurance in the 1970s, which had a replacement rate as high as 75% for certain lower income populations.

You should move the eligibility rule for all regions to the least stringent requirement that now exists for any region. This is important because the eligibility rule adjusts relatively slowly to fast changing conditions, as it is determined by an average of the past three months of unemployment rates in the region. So it is inherently backward looking, and won’t pick up the dramatic changes that are occurring now for at least a couple of months.

For now you should continue to maintain the maximum duration of benefits, and adopt a wait-and-see approach. When people come close to exhausting benefits you will know about it, and can increase the duration at that time if necessary.

Finally, in the last recession during 2008 the work-sharing part of EI worked well to help reduce layoffs. This could be leaned on more aggressively, and relaxed to recognize that we want workers to be attached to their employers, but don’t necessarily want as much work sharing as we normally would.

I hope in some small way this is of help. You, yourself, said in one of your first press briefings this past week that these new reforms should be particularly addressed to the least advantaged. To be without work raises insecurity, and even questions dignity, and good governance is, in the first instance, about reinforcing a grand insurance scheme, that shares risks, binds us together, and gives us all the assurance that together we are taking the right steps in the right direction.

3 Comments
  1. Valerie Clements permalink

    Excellent piece, Miles, and I hope policy makers adopt all of your ideas. Happy to know you are back in Ottawa.

    Valerie

  2. Heartwarming to imagine, professor, that a country leader might actually read and heed some of these ideas. Democracy & open government in full effect no doubt.

    While I have much more to learn before fully appreciating the proposals, it did occur to me to wonder if your second suggestion – the policy proposal on expanding the coverage and monetary value of employment insurance – connects with B. Milanovic’s assertion that “the most important role economic policy can play now is to keep social bonds strong”. Perhaps it is indeed the case that a job security safety net at a time like this is the most immediate and effective way to mitigate against social unrest and thereby keep social bonds strong (?).

    Vikram.

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