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What was otherwise a very good posting is heavily damaged by the use of the word DOLE. EI is an insurance scheme in that workers pay into. ALL INSURANCE SCHEMES pay out more than you put in, IF YOU CLAIM. The word DOLE is traditionally used for unearned payments from a general societal income to the "POOR". You are insulting the workers that are forced by economic circumstances to be unemployed. Policies to promote adequately paying jobs should the target of your discussion not insulting workers who cannot find such jobs.
P.S. I paid into EI for 20 years before going into self-employment and have never collected.

Jciconsult - I consulted urbandictionary.com, which is a pretty good barometer of how words are actually being used. The #1 meaning of the dole is unemployment insurance benefits. However I've changed "dole" to "pogey". Like the dole, pogey can also mean either unemployment insurance benefits or income support more generally, but is distinctly Canadian, and you can't argue with that on this blog!

"not insulting workers who cannot find such jobs."

I don't buy into a pure language of victimhood. There are industries like construction where seasonal lay-offs are inevitable, where some employers structure jobs so as to maximize their workers' entitlement to benefits, and workers regard EI as part of their compensation package. In parts of Canada there is little or no stigma associated with pogey (or being on the dole). Rather, it is a legitimate reward for time spent working. (There's an interesting way to work out how much stigma is associated with being on EI, by the way: calculate the difference between the amount of EI income reported in statistical surveys that ask people to report their incomes, like the census, and the amount of EI income that administrators know was actually paid out. Newfoundland has historically been the province with the least stigma, presumably because of widespread use of fishing benefits).

If I had some sure-fire recipe for generating adequately paying work, I'd be richer and more famous than I am now. It's not easy. Moreover, that misses the point: the rules matter. They are being changed, and for a reason. The question is: why? I think that part of the change is to encourage people to take up low wage jobs. The next (and more interesting) question is: who benefits from that increased willingness?

"The new pilot project has been costed at $74 million over two years."

Does that mean it will cost the government $74 million if people's hours of work doesn't change as a result of the new budget constraint?

Nick, I don't know, but these numbers are made up by intelligent people at the Department of Finance and Human Resources and Skills Development Canada. They have to be assuming that people's hours of work will change - but like us, they can't know before hand exactly how much. I'm also not sure if the costing is relative to the original, pre-2009 rules, or relative to the 2009-2012 rules, shown as the green line above. I suspect it might be relative to the pre-2009 rules, since basically one "pilot project" is being replaced with another. I can see the green line costing more than the blue line, because the optimal choice is more likely to be on the part-time or no work side, as opposed to the full-time work side. The red line might, however, be cheaper than the green line, because of the money saved from part-timers.

"How much of an increase in people's incomes, and people's well-being will be generated by this additional spending?'

Great question.

I think one important issue is to separate the insurance issue from the income support issue. In some parts of the country, EI has become seasonal income support. That may be needed but, if so, it should be structured as a separate program with obvious funding and an deliberate mandate.

Jciconsult: "I think one important issue is to separate the insurance issue from the income support issue."

Right now about 30% of EI spending goes to training and similar kinds of programs. So that's neither insurance nor income support. A good chunk of the money goes towards maternity, parental and other special benefits. On the one hand, that's not the traditional purpose of employment insurance - but it does give people like you an opportunity to benefit from the program sometimes, hence is vital to building the program's political base.

On the extent of transfers within EI - I've been thinking about doing a blog post on that for the G&M, and obviously should.

Bob: yup, wish I knew the answer!

first JCiconsult has a point, that collecting from (unemployment) insurance, you have previously paid in, should not carry any stigma. And quite frankly, I did collect, after my last "regular employer" went bankrupt.
You have a little weird rules how to calculate contributions (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/ei/cnt-chrt-pf-eng.html), but I take it as roughly 1.8% *(1 employee + 1.4 employer ) = p= 4.3 % pretax. You get out return r= 55% for, here it gets a little murky, let’s start for simplicity with t1= 1 years. Prior income I, tax rate tr =30%. That means, the unemployment insurance “breaks even”, when you have worked before that for t2 > r *t1 / p =13 years (T2 *p * I > I * r *t1). If you go through all the details (tax, health) my thumb says 9 years.

For my generation here in Germany it was more like getting only half back, after paying in for something like 10 years (higher payments (6.6%) before and a lot more details I don’t think readers here are really interested in).

Jciconsult, your claim “ALL INSURANCE SCHEMES" describes only “as it should be”, but at least in this case, not “as it is”. Anyways I have no bad feeling at all, to have collected this.

With the wording, I would have preferred the familiar “dole” vs the unknown “pogey”.

Why did they change here and there in similar ways?
First, having people on file, always creates maintenance costs. Getting them out of the statistics also looks better. But, most important, getting people off this thought, how much do they owe me, can I cheat on income, and make them (with a full time job) focus only on improving income / revenue has a very healthy effect.

In Germany all these “training programs” were cut down a lot, because the impact on employability was horrible.

These folks in construction and similar, structuring their yearly incomes with “Schlechtwettergeld” and routine disability judgements after 55, also had to learn to not longer shift out 25% of their lifetime income to the rest of the population.
Separating things into different agencies also sounds good in the first moment. But then you deal with inflexible gov employees, and additional efforts for taking up the data, coordination, and, a lot of abuse by folks who are good at telling each government agency different things.

Bottomline, Germany actually combined with Hartz IV formerly independent agencies. And the present mantra is more “one stop shop”, making it easier for the good honest deserving girls, and more difficult for the not so honest boys.

Seems like the goal, in line with the conservatives stated "any work is good work" philosophy, is to get people to accept more full time work even if it's at a lower wage.

It's a difficult balance to achieve. On the one hand, if someone had managed to get into a position with their last employer where their wage was above what they'd likely get on the open market, then being encouraged to accept lower wage full-time work is good. Also good for people who've left high wage jobs in Alberta to move "back home" in the Maritimes, and should expect to receive lower wages in their new locale.

On the other hand, it's the wrong incentive for people who have more specialized skills that take a longer time to find employment that demands those skills (and pays a premium for them). These people would probably be best served working part time and having the free time to locate work in their area.

Since a one-size-fits-all solution doesn't appear to exist, is there a way to handle both potential types of people? An election made with the initial claim filing, maybe? How much more would a "the greater of a or b" cost?

"EI provides very few incentives for the typical unemployed person to accept a job that pays less than their old one"

That can be a feature, not a bug. Unfortunately I cannot find the paper where the following idea was presented (it could be Raj Chetty), but the point is that eliminating UI benefits an creating incentives for highly-skilled workers to accept low paying jobs may have damaging effect on economy in two ways:

1. They may stick with that work for far longer than we think. First, search costs for a new job are not exactly zero plus them working in low paying job can have negative signaling effects for the next potential employer.

2. If they will remain in this new position for which they are overqualified, then they will push less skilled workers out of workforce. It is easier to train former nuclear physicist from now closed nuclear power plant to prepare hamburgers than to train your average unemployed to become nuclear physicist.

There were similar surprising effects of so called "activation works" program of long-term unemployed I think in Hungary. The result was that simple community work had large negative impact on effort people made to find actual work. Since it also did not exactly helped to evolve the required skillset for modern workplace it was quite a mixed bag. Maybe it was just badly implemented, this is not really my field. Nevertheless I would be much more careful applying standard neclassical micro models on the job markets.

"everybody has to take every work" is also a social democratic HARTZ IV rule.
Typically people with special skills should also have some savings, so when unemployment is cut off after one year, they will not fall down to just social minimum. They had plenty of time to look up theire lookedin profile relative to others (In Germany there were official services supposed to do something similar, at some point I had to say that I looked at them : - )

The solution is that you continously decrease the benefits, and up the pressure, and let the individuals make the decisions for themselves.

In my place, Qimonda went bankrupt 3 years ago, and took about 5000 highly specialized jobs with it. Infineon close to it, and AMD, nowadays GlobalFoundries were also pretty close to the brink. A lot of people sent out their resumes globally, like Singapore, Taiwan, Idaho, New York, and mainland China.

It was interesting what kind of conditions the other companies and others further away offered.
And had to learn, if you offer shitty conditions, like 2 year contracts to senior people, who had made decisions over hundreds of millions, and were stiffed out of their severance packages,
then you have to fill a position 3 times a year, because people do NOT have the slightest hesitance to choose better offers, while working 50 hours a week.

In specialized areas, like semiconductors, people talk with each other, globally, and the collective memory is very long.

There were these "one Euro Jobs" in the German Hartz IV laws, basically required people on social minimum to show up for work for one euro EXTRA per hour. Despite the official claims, this was first to prohibit them from "informal sector" work at the same time, and harass them a little bit a.k.a. "activate" them for real work.

Those programs were also mostly scrapped, after it turned out, that most participants were quite content with that, and stopped searching. They do as told, the money is enough, definitely with a then morally justified side income and tending to their Schrebergarten, there is some additional social contact to come with it. I meet these people on Sunday biking trips. It is interesting and they are not unpleasant like some corporate bitches. "Developing skillsets" while just showing up approximately 9 am for work like cleaning the streets or the Elbe ufer, forget it.

We should keep this tool available for hardened parasites (those exist, and some are actually pretty clever, many have some side business going), but we should not expect any broad impact from them.

On your "nuclear physicist in a nuclear power plant" argument. From those theoretical physicists involved in "elementary particles" physics, intellectually 3 levels above the “power plants” actually most of the clever ones have long left the field, either for Wall street, like Emanuel Derman, or other private sector stuff. And this was a very good thing, not wasting excellent brain power on riding a dead horse.
And finally, why use “neoclassical micro models” if you can describe things in plain real world words?

from OED.com
pogey (n.)
2. Relief given to the needy from national or local funds; unemployment benefit. on (the) pogey : on the dole.
1954 Stevens Point (Wisconsin) Jrnl. 6 Jan. 4 The lass was entitled to go on the pogey so work shouldn't interfere with her necking.
1960 Maclean's Mag. 2 Apr. 54/2 Today unemployment-insurance payments are often referred to as pogey.
1964 H. T. Barker Ice Road 49 During the winter we lived on turnips, potatoes, canned clams and the pogy, and Mother and I would hook rugs for the tourist trade.
1976 Whig-Standard (Kingston, Ont.) 6 Jan. 1/6 The Kingston area's fourth largest and fastest growing industry is unemployment insurance—pogey or, if you wish, the dole.
1992 C. Wilkins Wolf's Eye 37 God, you must have spent a fortune. Prawns. Artichokes. Lobster tails... You want me to end up on pogey?

whereas dole is shown as a verb by the Oxford English Dictionary in your context.
1. trans. To give as a dole; to distribute by way of alms, or in charity.
1465 in Manners & Househ. Expenses Eng. (1841) 317 The same day my mastyr toke to mastyr Perse Baxter, to dole for my lady in almesse, x. s.
1599 J. Marston Scourge of Villanie i. iv. 188 If to the Parish pouerty, At his wisht death, be dol'd a half-penny.
a1641 J. Smyth Berkeley MSS (1883) I. 40 That daye shall bee doled to fifty poore men fifty loafes.
1762 O. Goldsmith Citizen of World II. 187 The officers appointed to dole out public charity.
1868 A. P. Stanley Hist. Mem. Westm. Abbey iii. 170 The bread and meat doled out to the poor of Westminster.

The OED thesaurus
society » occupation » trade and commerce » miscellaneous charges and payments » grants and allowances » [noun] » state allowance
relief (c1400)
benefit (1911)
social security (1943)
welfare cheque (1947)
pogey (1954)
SS (1963)
social (1966)

And I still call EI, the UI (yoo eye) from the olden dayes of Unemployment Insurance.
Dole is more a britishism and often included social welfare payments (that were given out by cities and provinces) Anyone remember the Mackenzie King "nickel" speech? "I would not give them a five cent piece" in reference to the Dole in Conservative provinces.

and a quick extract of the "5 cent" speech.

"One question worth asking about this new pilot project - but which we can't answer right now - is how the costs of the program compare to the benefits."

A transfer isn´t a cost - or are you thinking about potential dead weight losses connected to tax collection?


Microeconomists have trouble with insurance because they prefer to look at it from a purely individual POV, whereas insurance makes no sense unless you consider both the individual and the group. For many individuals insurance looks like a voluntary tax, but the key is the risk transfer: an individual wants to pay a guaranteed and known cost (the premium) in return for a much higher but risk-contingent cost (the potential benefit).

For the group it makes sense because of the aggregation. EI is particularly uncertain because both the frequency of claim, the timing of claim (early or late in life) and the length of claim are uncertain.

Determinant - I don't think the issue is a problem that economists have with insurance (actually, they understand it quite well), it's a problem with characterizing EI as an "insurance" policy. It has some of the features of an insurance policy, true, but a particularly badly designed one (even ignoring all the special programs that have been bolted on to it).

If it were a true insurance program, rates would be linked to claims (possibly on an individual, employer and/or industry level). Entitlements and eligibility for benefits wouldn't be linked to regional unemployment levels (think about it, imagine a car insurance policy that pays out only if you're driving on particularly dangerous roads - that make sense to anyone?), nor would there be special entitlement related to particularly vulnerable industries (think of the special programs for fishers, that's like providing a lower deductible for car insurance for people who drive in demolition derbies).

More to the point, part of the problem with EI, is that to the extent it's being claimed by seasonal workers (which is what, I think, really drives people nuts), it isn't insuring against risk. Risk implies uncertainty, with seasonal work, unemployment isn't a risk, it's a certainty. No one sells insurance that'll insure you against the risk that your car will need an oil change.

Unemployment insurance as a concept makes perfect sense. Employment Insurance as a policy, makes far less sense. And to the extent there's a stigma about collecting EI, it's likely a function of the fact that the EI program doesn't have the attributes of a proper insurance policy. A properly designed unemployment insurance policy, would be less likely to result in a stigma attaching to claimants.

"The result was that simple community work had large negative impact on effort people made to find actual work"

I wonder if that's a function of a loss of skills, or a function, as Geneur suggests, of being being content with the simple community work and a reduced stigma associated with being on the "dole".

I'm also reminded of some research a few years ago relating to daycares in Israel, who attempted to discourage late pick-up by parents by charging a per-minute fee. Counter-intuitively, the number of late pick-ups rose, as parents who previously felt bad about picking up their kids late (and making the daycare workers wait) could now assuage their consciences by paying a few extra bucks. You might feel bad about being unemployed and collecting social assistance, but maybe if you're doing something in exchange of collecting social assistance, you feel less bad about doing it (even though the value of what you're doing isn't much).

In any event, it's a fair point that people might lose valuable skills by re-entering the work-force in a lower wage job. On the other hand, the same could be said of people who wait to long to re-enter the work force, who might lose equally valuable skills. How you weight that is a an empirical question.

nemi: "A transfer isn´t a cost - or are you thinking about potential dead weight losses connected to tax collection?"

The calculation I had in mind was:

change in net income of recipients v. additional program spending

So if spending goes up by $74 million and net income of recipients goes up by $74 million the pilot project does no better than writing cheques, and there's no additional bang for the buck generated by the changed incentives. But if net income of recipients goes up by more than the additional program spending, then, yes, people might well be better off - because, as you say, the deadweight loss created by that flat portion of the budget constraint has been mitigated.

J.V. Dubois: "That can be a feature, not a bug." That's certainly a point that's been acknowledged by people working in EI - maybe Lars Osberg might have said it? It's the kind of thing he would say, anyways. In a world of imperfect information and labour market frictions, time spent searching can lead to improved job matches, and this can have long-run social benefits. This relates to the whole issue of people being "scarred" by unemployment, i.e. experiencing permanently lower wages, again a big subject of debate.

The point of this post was to help my students work out how to draw budget constraints - they have an exam tomorrow - but, yes, there is definitely more to EI reform than budget constraints.

Bill Lee, I enjoyed that history lesson!

Great discussion, but I have to prepare to discuss a paper tomorrow morning, so unfortunately don't have time to reply to everyone.

Err, scrap EI. When we give our country to ABs who want to slowly reply all the mistakes of Liberals/Native-Chiefs...and get to where efficient Chretein was maybe by 2050...even when Harper does something right it is very miniscule. EI should be scrapped; is Comunist in that is an incentive not to work. Looking for work and not finding any should be on your chart: the corporate tax cuts aren't working. Had commie recruiters not hire me last year. In Edm, one employer called me in for a shift they gave away (and gave me lots of grief for looking like a pothead) and another kept me hanging during an agreed upon term while not fixing machines other temps destroyed...in both cases they needed to be taxed to pay for a fed FDR make work programme or paying people to look for work...paying for dangerous conditions...paying for oily market failure. We will never invent anything in this country again because it turned into banks and petro and neither does R+D. I just turned down a day of work I thought was relatively dangerous: I've had 1.5 days of income all month but have spent a couple of full time shifts going to and looking for work. Labor Ready does an Orwellian Tesco test now where they play amateur psychologistand get really personal....
I want the rich in Canada to get pandemic but I want to save the Liberals....

@Bob Smith: The daycare "late pickup fee" was written about in "Freakonomics".

Fascinating stuff here.

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