It is the stated goal of the Canadian federal government to foster “a strong and inclusive labour market that provides every Canadian with opportunities for a good quality of life.” The legacy of COVID has, however, led to policy incoherence, with some significant reforms directly putting this goal into question.
Continue reading “What will COVID Mean for the Future of Fiscal and Social Policy?”Category: incomes and wages
The Canada Emergency Wage Subsidy: First steps, missteps, and next steps
The Canada Emergency Wage Subsidy can reasonably thought of as an experiment not to be repeated. This post is an excerpt from the conclusion to my forthcoming paper called “The Canada Emergency Wage Subsidy: First steps, missteps, and next steps.” Download a copy and read the full paper.
The Canada Emergency Wage Subsidy as an employer-based response to the pandemic intended to prevent business closures and prevent layoffs was certainly a program constructed in haste, but perceived to be necessary in the face of limits in the capacity of better designed existing programs, particularly the national unemployment insurance program.
Even so, the program was not informed by fundamental lessons from economic theory. It was not addressed to the fixed costs that actually determine business closures; it did not recognize that a subsidy nominally directed to worker payroll can be shifted to other purposes; and it was not, or in principle could not be, targeted on the margin, on businesses that would indeed have closed in the absence of support. This implies that the job losses actually prevented are much lower than the actual payroll covered, each person-month of employment saved costing $25,000 according to one estimate.
Income support of this magnitude paid directly to affected workers would likely not be considered politically acceptable among informed citizens, and it is therefore hard to imagine that the program would pass any reasonable cost-benefit analysis.
Going forward it will also be important to recognize the practical considerations that shaped, and perhaps even motivated, this program. Their downsides should be recognized. They call for policy makers to be as concerned with program delivery as they are with program design, offering ongoing investments in the modernization of physical and human capacity to deliver benefits.
One positive consequence of the Canadian experience is that these investments have been promised to overcome limitations in the capacity of the country’s unemployment insurance program. The expectation should be that in the future this program will play an even bigger role should it be necessary, particularly provisions within it designed to promote work-sharing which reduces the reliance on layoffs by offering benefits for adjustments to work-hours.
The practical experiences during the pandemic also call for policy makers to recognize that programs may interact and should be designed to complement each other. Other programs, notably the Canada Emergency Response Benefit, making real-time direct payments to individuals suffering income losses, were in some measure a substitute for the Canada Emergency Wage Subsidy, which was slower out of the starting gate and undersubscribed when it mattered most to the most vulnerable businesses during the first weeks and month of the pandemic. Success in making direct transfers to individuals to some degree made the wage subsidy less relevant, delays in getting it off the ground made it less necessary.
Finally, the practical considerations of public policy also call for policy makers to avoid policy drift, the development of vested interests that can prolong the duration of a program after its need has passed, or pervert its intent by informing it design. This calls for increased reliance on programs designed as automatic stabilizers, rather than on discretionary interventions.
[This post was updated on December 9th, 2021 with a link to the final version of the paper, also available here: https://milescorak.files.wordpress.com/2021/12/corak-2021-american-enterprise-institute-canada-emergency-wage-subsidy.pdf ]
An Employment Insurance system for the 21st century: Lesson 2, The future of work calls for better income insurance
The COVID pandemic has fast-forwarded many changes in the way employers manage, monitor, and motivate their employees. The future of work is here and will involve more insecurity for many workers. The Canadian federal government can offer better and more appropriate income insurance by responding with both quick and easy, and with more fundamental changes to the Employment Insurance program.
The 2020 Speech from the Throne boldly claims that “This pandemic has shown that Canada needs an [Employment Insurance] system for the 21st century, including for the self-employed and those in the gig economy.” That is a tall order, a major overhaul of a complicated program in the span of the next couple of months, with little or virtually no consultation of stakeholders or engagement of experts outside of the government.
Will Minister Qualtrough, her cabinet colleagues, and of course the Prime Minister, get it right?
After all the need for EI reform has long been recognized, with lessons learned well before the onset of COVID19, but always politically convenient to put off. What does the 21st century hold for us?
Well, we’ve seen a good deal during its first 20 years, and some big lessons are pretty clear.
I draw three lessons, and these should be used to judge what the government has in store. You can read about the first here: Big shocks matter and need a response in real time. This post discusses the second and the reforms it calls for: Lesson 2 is “The future of work has arrived and needs better income insurance for all.”
Employment Insurance reform that promotes agency
Benefits for employee initiated time away from work should be delivered through individual accounts, and a new program for maternity and parental benefits should be started outside of Employment Insurance.
More than one out of every three dollars distributed through the Employment Insurance program are for so-called Special Benefits, those parts of the program associated with maternity and parental leave, with caregiving, and with sickness.
The fact that the COVID19 pandemic is a health crisis with important job market consequences has sharply exposed and widened gaps not just in EI’s coverage and delivery of job loss benefits, but also with these Special Benefits.
Constructive reform will require rationalization of coverage for demographic and family risks and should proceed in a way that recognizes both their collective and individual nature, with a delivery design that gives citizens agency in an incentive compatible way.
This can be best accomplished by delivering Special Benefits through individual accounts, while at the same time devising a new program for maternity and parental benefits outside Employment Insurance.
Continue reading “Employment Insurance reform that promotes agency”
Social Policy, Now: Next steps for income support and income insurance in Canada
Three next steps for social policy involve: 1. Maximizing auto-enrollment and just-in-time program delivery; 2. Offering full income support with engagement; and 3. Offering broad income and earnings insurance with agency. In this post I introduce the detailed discussion of these proposals that you can also download.
On March 24th, 2020 the Government of Canada Tabled Bill C-13, “An Act respecting certain measures in response to COVID-19,” in the House of Commons, and the next day the Bill received Royal Assent, unleashing the most extensive and quickest change to Canadian social policy in living memory, if not in the history of the country.
The Canada Emergency Response Benefit is the most notable part of the Bill, offering $2,000 of income support every four weeks to all working age Canadians who made at least $5,000 in the previous 12 months and lost their source of income due to the COVID-19 crisis.
Almost immediately the public policy discussion turned to “what’s next?” Certainly this was so in the short-term as the government and the public service became fully engaged in meeting the evolving needs of citizens and businesses in response to the most serious health and economic crises the country has experienced since World War II.
But increasingly, as the weeks and months passed, it was also so in the longer term: What’s next for the design of social policy in light of the needs and the gaps that the COVID-19 crisis has revealed?
This is the question I address in a detailed presentation that you can download.
In this post I introduce the issues and options for discussing the next steps for social policy, the word “Now” in the title having three meanings that guide this approach.
Continue reading “Social Policy, Now: Next steps for income support and income insurance in Canada”
A letter to the Canadian Prime Minister, with two suggestions for next steps in dealing with #COVID19
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 available” I 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. Continue reading “A letter to the Canadian Prime Minister, with two suggestions for next steps in dealing with #COVID19”
Economics for public policy 