Back in the mid-1970s, a good friend went backpacking in Europe after completing university and made a stop in Communist-ruled Hungary to visit members of his extended family.
While extolling the virtues of Canada, capitalism and democracy, he boasted that, upon returning home, the federal government would be sending him an unemployment insurance cheque every two weeks for up to a year, or till he decided to find a job.
The Hungarians, struggling to make ends meet in a workers' paradise known as a Soviet socialist republic, at first refused to believe that an able-bodied young person, who lived with his parents, who had money in the bank and owned a car, could take an extended holiday abroad and afterward get free money from the government.
But back in the heyday of Trudeau Liberalism, collecting pogey was that easy and almost everyone of my acquaintance in the central Ontario city of Peterborough spent a summer, and sometimes longer, on the dole. For most of these people, government-financed unemployment enjoyment was mere youthful folly and short-lived.
In other parts of the country, though, drawing pogey has become a way of life for an entire generation of workers and the consequences have been dreadful, according to a new study prepared for the Vancouver-based Fraser Institute.
Queen's University economist Christopher Riddell examined the impact of Canada's generous unemployment insurance between 1950 and 1990. Twice during those years, first in the early '50s and again in 1971, the federal government introduced reforms that made it easier to collect, improved the benefits and extended the payment period.
Riddell has conducted a comparative study in which he examined usage of unemployment insurance and jobless rates in New Brunswick and Maine. These two jurisdictions are next-door neighbours and have similar, resource-based economies.
Yet, since 1982, the unemployment rate in New Brunswick has remained above 12 per cent while in Maine it has been below eight per cent, and Riddell concludes that government insurance plans are at least partly, if not entirely responsible for the difference.
Canada's program is federally funded and operated whereas in the U.S. unemployment insurance is a state responsibility. As well, eligibility in Canada is based on the number of weeks worked in a year, independent of earnings. In Maine, total earnings in the year before a person becomes unemployed are used to determine entitlements.
Given those differences, residents of New Brunswick have access to more generous benefits than their counterparts in Maine. Not surprisingly, they rely on the program to a far greater degree. Nearly 30 per cent of men and women aged 25 to 59 in the Atlantic province have collected unemployment insurance at one time or another, whereas in Maine, only 5.7 per cent of men in that age group and 3.3 per cent of women have collected pogey. As well, unemployment insurnce expenditures represented roughly six per cent of the New Brunswick economy, but barely one per cent of the economy in Maine.
The problem with the Canadian program is that it undermines initiative and distorts labour markets. According to Jason Clemons, director of fiscal studies at the Fraser Institute, Ottawa is in effect paying people to sit on the sidelines, especially in places of traditionally high unemployment such as Quebec and Atlantic Canada. At the same time, booming provincial economies in Alberta and B.C, have zero unemployment. Employers are desperate for workers and the resulting competition for labour is driving up wages and creating inflation.
Clemons points to another problem. Canada is an aging society. A growing segment of the population will soon be retired or semi-retired. Older people will be collecting social benefits or drawing on the health-care system. The country will be hard-pressed to support its elderly while allowing younger people to work 14 weeks and collect pogey for 30 to 40.
"It will be critical that people of working age are fully productive," he says.
But don't bet on reform. The Liberals introduced some modest changes in 1996 and nearly got wiped off the map in Atlantic Canada in the election of 1997. They rolled back the amendments prior to the 2000 election and won seats in the region.
The Liberal debacle illustrates the fundamental challenge of trying to reform the welfare state. Benefits are concentrated while costs are dispersed. Recipients who see their entitlements reduced can quickly mobilize and become a ferocious special-interest group capable of spooking even the most determined politician.
"If we wanted employment insurance as a stabilization program to be used periodically by the unemployed, then it has fundamentally broken down," says Clemons.
In fact, this program has been horribly flawed since the mid-1970s, when able-bodied young Canadians could spend months at a time loafing at the taxpayer's expense, thanks to unemployment insurance.
(D'Arcy Jenish can be reached at jenish@businessedge.ca)
