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Winnipeg Free Press - PRINT EDITION

EI issue turns on principle of 'moral hazard'

By: Frances Russell

Posted: 05/27/2009 1:00 AM | Comments: 0 (including replies)

The BNET Business Dictionary defines moral hazard as "a risk that somebody will behave immorally because insurance, the law, or some other agency protects them against loss that immoral behaviour might otherwise cause."

Like beauty, moral hazard is in the eye of the beholder. The Wall Street meltdown proves that corporate CEOs can place bad bets, indulge in immoral behaviour or both and still get government bailouts and fat bonuses.

Unemployed workers aren't so lucky. Trent University's James Struthers says that Canada's unemployment insurance (now with the Orwellian name of "employment" insurance) has had a "key tension" from its 1940 inception -- weighing income protection and dignity for workers against the moral hazard of encouraging laziness.

Initially, social protection dominated. Ninety-six per cent of the labour force was covered, 320 hours of work a year were required to qualify and benefits replaced 66 per cent of earnings.

Today, moral hazard rules. The Liberal government's 1996 "reforms" created 58 employment regions. Your location decides whether you need 420 or up to 910 hours of work to qualify for between 19 and 50 weeks of benefits. Just 55 per cent of insurable earnings are covered. Today, less than 44 per cent of unemployed Canadians are eligible for EI. In Ontario, B.C. and Alberta, only one-third are.

U.S. economist Robert Reich says class determines moral hazard. The contrast between government responses to the plight of citizens and corporations is "another example of how conservatives use moral hazard to push their social-Darwinist morality," the former U.S. secretary of labour writes. "The little guys get tough love. The big guys get forgiveness."

Employment insurance is shaping up as the probable trigger of an early federal election.

Liberal Leader Michael Ignatieff wants one national standard of 360 hours of paid work to receive the current 19 to 50 weeks of benefits. The NDP also proposes 360 hours but raises the minimum benefit period to 37 weeks.The Liberals' change would extend EI to 150,000 additional unemployed Canadians. It would cease with the recession and be paid from general revenue, not higher premiums. The NDP's would be permanent.

The Conservatives made three significant changes in the last budget, adding an additional five weeks of benefits for qualified recipients, an extra $200 million for work-sharing projects and $500 million for retraining.

Ignatieff and Prime Minister Stephen Harper are ramping up the rhetoric. The Liberal leader points out that unemployment is up 83 per cent in Alberta and 68 per cent in British Columbia. Yet it is still twice as hard to qualify for EI in Western Canada as it is in the rest of the country.

"Our Employment Insurance system just wasn't built for a national crisis of this scope," he wrote in the National Post Saturday. "More than 40 per cent of the unemployed in this country aren't eligible for EI, even though they have paid into the system."

He also argued that EI is the fastest and most effective stimulus there is. "It means money flowing into communities that have been hit the hardest by the recession." Economists estimate very $1 spent by laid-off workers creates $1.60 in spinoffs for local economies.

But the Conservatives cling to moral hazard. "We do not want to make it lucrative for (the unemployed) to stay home and get paid for it," Human Resources Minister Diane Finley said last winter.

Harper is deliberately falsifying Liberal EI policy and claiming, again falsely, that it is a resurrection of December's ill-fated centre-left coalition. "They are suggesting that what we should do is bring in an EI system where any Canadian, anywhere in the country, in perpetuity, could work 45 days and collect EI benefits for a period of up to a year," he said Friday. "This is an absurdity. I don't think that's something the people of Canada are going to accept."

On Monday, Transport Minister John Baird went further. Pushing right past moral hazard, he dismissed opposition EI proposals as "a socialist scheme."

NDP Leader Jack Layton says the Conservatives are "slipping back to that old Reform party view of the unemployed, that people would rather sit at home receiving a cheque, paltry as it is, rather than work... I am certainly not meeting people like that."

Frances Russell is a Winnipeg author and political commentator.

Republished from the Winnipeg Free Press print edition May 27, 2009 A14

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