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Questions About Harper’s Mat-Leave Proposal


 

***UPDATE: PMO says once you’re in, you’re in. No opting out.

NOTE: This post has been revised, I missed a line in the announcement about post-claim payments

****

Big Tory announcement of the day is the proposal to extend the EI-funded maternity/parental benefits to the self employed, to avoid forcing the self-employed to “choose between starting a family and starting a business”. Setting aside the fact that no one is being forced to choose here, I’m trying to figure this one ou

On the one hand, I like the idea of incentives for people to have kids, and giving new parents a chunk of tax money to take six to twelve months to take care of their newborns seems like a good incentive. At the same time, funding maternity leave out of the EI plan never made any sense.

So, to the Tory plan. My first reaction was, “great idea”. But the more I look at it the weirder it looks. Here are the details:

1. Voluntary opt-in.

2. Same benefits as regular EI participants.

3. opt-in must be done at least six months prior to making a claim.

4. Premium rates will be set to make the system self-financing.

5. There will be a specified amount of post-claim payments, TBD.

6. Details to be set by a review by the newly created Canada Employment Insurance Financing Board.

That is basically the extent of what the Tories are telling us.

But here’s the thing. Insurance is supposed to protect you against unforeseen and accidental misfortunes, and – Bristol Palin aside — not that many people get pregnant accident. In fact, unlike insurance for things like fire and theft, where you are trying to avoid that outcome, the point of this policy is to actually encourage people to get pregnant.

That is just to say that this seems ripe for a massive case of adverse selection, where the only people who opt-in are those who are trying to get pregnant. A lot depends here on how they figure out the post-claim payments system, I think. But I turned it over to a friend who knows a lot more about public insurance and parenting than I do. Here’s his take:

Seems kinda crazy….

Idea obviously is not to avoid adverse selection, but to effect a transfer from workers generally to self-employed individuals who have babies. Raises a question of fairness in that self-employed individuals who do not have babies are not forced to pay (so it is not all workers who compensate new parents, but only salaried workers). If one wants to universalize, one should either take it out of EI (so that all of society transfers money to new parents), or else put all self-employed workers into EI. The proposed program just has salaried workers subsidizing parenthood, while self-employed workers get off scot free. So you have a universal program funded by only a subset of taxpayers (those unlucky enough to be salaried).

Sounds a bit like the Tories’s “universal child benefit” — a wasteful and illogical program, designed only to correct a bias perceived by ideological conservatives — in that case, subsidization of daycare, but not subsidization of of stay-at-home-moms. Here the perceived evil is subsidization of labour, but not entrepreneurship. So you get a weird kluge to an existing program, designed in a way that no one would consider if they were doing it from scratch.

Anyhow, the fact that the old system was in EI was already a bit awkward (e.g. I had a two-week waiting period in which I was ineligible for benefit, just as if I had been laid off, even though it made no sense with a parental benefit program). What they really should be doing it taking the whole program out of EI, and having a stand-alone system. Universal benefit should be funded by universal taxation.

Of course it would be different if the whole thing was revenue-neutral. It all hinges on the “required payments post-claim”. You’re not eligible for EI, so you’d be crazy to sign up until you were 3 months pregnant. So you can assume that every self-employed person with pay exactly 6 months in, then make some mandatory follow-up payments, and will draw the maximum benefit (again, you’d be crazy not to). It would be easier just to do the math on the maximum claim going out, the minimum payment going in, and offer people the balance as free money (like the “baby bonus” payments in Quebec).


 
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Questions About Harper’s Mat-Leave Proposal

  1. Potter, the problem you’re having is thinking that a party that could change a 12 billion dollar surplus to a near deficit in what were good economic times, has any clue how to manage money competently.

    Once you disabuse yourself of that notion, the reasoning behind this plan becomes clear. “Uh. It sounded like a vote-getter idea at the speech.”

  2. “Insurance is supposed to protect you against unforeseen and accidental misfortunes”

    Like the unforeseen and accidental misfortune of not being able to cut wood, run a sumemr tourist chalet or catch fish in the winter?

    “Unforeseen-ness” hasn’t been an element of the EI system for a long, long time.

  3. You want to work in a perfect world. Harper deals with reality. Reality is that maternity/parental is funded out of EI. He makes his announcement and people get it. If he announces some radical change to maternity/parental leave system then people won’t get it (exhibit A: the so-called green shift). Or it makes the whole election about that change.

    Maybe not the best system but there it is. He’s not going to announce some totally radical change.

    It’s the same with the Senate and many other things Harper does and why he’s kicking Dion’s idealistic butt. Incremental change.

    BTW, small businesses are paying 40% of their employees EI premiums. I don’t think your friend should whine about subsidizing small-business owners in the aggregate (some individuals, maybe, but that’s a rub in everything — like some people have kids and others don’t).

  4. I agree that the aim is worthy, and agree also they seem to be going about it a silly way.

    Why not just a lump-sum payment to anyone who has a baby to help cover the ‘start up costs’? If the aim is to encourage people to have children that seems like the easiest way to go about it.

  5. Peter Jay: You’re 100% right of course.

  6. Unless, of course, the aim is to raid the EI surplus (like the budget surplus) and render the fund forever incapable of being any actual benefit to unemployed people.

  7. Harper sure has lots of ideas for changing social programs to benefit the haves while ignoring the urgent needs of the have-nots.

  8. “BTW, small businesses are paying 40% of their employees EI premiums.”

    Try 60% – the employer ‘contribution’ is larger than the employee one.

  9. Quebec has provided parental-leave benefits for self-employed workers for some years (thanks in part to money from the federal EI fund, after considerable fed-prov wrangling which led to the current deal). It might be worthwhile looking at the rules of the Quebec provincial regime. Can’t do that today, for the same reason I’m not blogging: print deadlines…

  10. The self-employed are not necessarily well-off. A big hint comes from the fact that this group grows when unemployment rates go up.

    If the PMO clarification is right, this policy moves the self-employed into the EI system. Which makes me wonder how one goes about laying oneself off…and what effect these new payroll taxes will have on self-hiring. Will people hire fewer selves now?

  11. At any rate, other than moral hazard/adverse selection, I’m not sure why *anyone* would voluntarily sign up for EI if they didn’t have to. The small amount paid out relative to the amount collected is obscene; from an actuarial point of view you’d be better of spending the money on Proline or Lotto 6/49.

  12. Assuming this is a purely political play, it doesn’t really matter if it is crazy, incoherent etc. If I was young and self-employed then I would like the look of this. It will be very hard to argue against this (except on rational grounds) so it looks like a winner to me.

  13. “It will be very hard to argue against this (except on rational grounds) so it looks like a winner to me.”

    I think it’s fairly easy to argue against this – It’s a tax and spend program that is going to require a fair amount of new bureaucracy to administer the opt-ins. – Harper is proposing to raise your taxes and spend money on you. Harper is literally giving people the option of having their taxes raised. Doesn’t sound particularly small-c conservative to me, but it is better than being forced to accept a tax hike.

  14. Harper is literally giving people the option of having their taxes raised.

    Except that he is really giving people who can crunch numbers the option of opting in to a so-called insurance scheme at the moment that risk is as close to a certainty as you can get. Would you want to sign onto a life policy if the company underwrites people only when they know they have cancer / emphysema / fractured hips? Not if you’re healthy, you don’t. Where’s the shared risk in that ridiculous scheme?

    I agree with the sentiment above: if you want to pay people to have kids, pay them to have kids. What’s insurance got to do with it? Maybe we should rename EI (formerly UI) again: PTEIWQ (paying the economically idle who qualify). “Puh-TEH-uk” has a ring to it. OK, not a nice ring, but it does have a ring…

  15. “Would you want to sign onto a life policy if the company underwrites people only when they know they have cancer / emphysema / fractured hips? Not if you’re healthy, you don’t.”

    Which brings up an interesting point.. will this EI plan turn you down if you have a pre-existing condition.. like, say, being pregnant?

    This is such a bizarre plan. I wonder how much the “review by the newly created Canada Employment Insurance Financing Board” is going to cost taxpayers?

  16. This is such a bizarre plan. I wonder how much the “review by the newly created Canada Employment Insurance Financing Board” is going to cost taxpayers?

    Like the CPPIB, it will likely pay for itself, and have a large investment profit to boot..

  17. “Like the CPPIB, it will likely pay for itself, and have a large investment profit to boot..”

    I asked how much the *review* will cost, not the CEIFB itself.

  18. Mike, if the EI scheme is so dreadful that no-one would willingly sign up, and if the PMO is right that once you’re in, you’re in, this suggests that the long-term self-employed would not opt in. It would be more appealing to people outside the workforce who could start up a small home business for six months, pay the premiums, then collect the benefits. Which is weird, but exactly the same as the current system where people outside the workforce can take a job for six months, then collect benefits. Does anyone know how much you have to earn to reach the maximum EI payout?

    The government could, of course, fund all of this from general tax revenue instead (including transferring the current system over), but then they would have a bigger EI surplus and more pressure to cut payroll taxes. Is there some particular reason the Tories want to increase the proportion of tax revenue that comes from income and payroll, relative to the amount that comes from consumption?

    Shifting it over to general revenue might also raise questions about why the payments are so low. Why should a maternity benefits program worry about providing a disincentive to work?

  19. Thanks for the clarification on the EI paid by businesses, Mike Moffatt. I’m horrible at math but 40% didn’t seem right at all.

    I have two questions on this plan. It seems very interesting, but:

    If you are a self-employed person in a business of one person and you take time off (let’s say six months) to have a baby–do you have a business to go back to? Would the new time commitment of, you know, having a baby at home not make the incredible time and effort of getting this business off the ground, again, impossible or at least not worth it?Especially if you were planning more children?

    And if you then decided to go back to work as someone else’s employee would you still be required to pay self-employed EI on top of the employee EI you’d be required to pay?

    Of course, I don’t know what self-employed people in a business of one do now when they have a child–and I assume they do have children. I would guess they either fit the work in while caring for the newborn, or look for a job as soon as they can.

  20. This conversation seems to address all the points except for the fact that the way we address pregnancy and post partum is woefully inadequate. We make it difficult for women to have children and work. It surprises me that this would even be an option, given Harper’s previous $100/month “contribution,” instead of contributing to daycare. As a matter of fact, why doesn’t he skip the EI for small business owners (someone earlier made a point; how many small business owners will actually be able to “take advantage” of this offer…) and dump funds into daycare, which is truly underfunded. This might help the small business owner more, in the long run, funded, affordable, quality day care would fit more into their needs.

  21. This won’t work. It will be much like his promise for a capital gains turnover exemption; a potentially good proposal that turns out to be far more complicated than it is worth. In any case, a self-employed person with a higher income would likely just choose to keep his/her money as opposed to paying both “sides” of the EI premiums. That leaves only lower income self-employed people, and they won’t be able to support such a program on their own. Self-employed people will opt out in droves. At best it will be like the corporate tax credit for creating daycare spaces. It was there for anyone who wanted it, which was no one.

  22. Harper is just trying to appease the moderates and progressives with European style offerings.

    It’s NOT genuine, but merely manipulative.

    Vote ABC …. ANYTHING but Conservative.

  23. “Mike, if the EI scheme is so dreadful that no-one would willingly sign up, and if the PMO is right that once you’re in, you’re in, this suggests that the long-term self-employed would not opt in.”

    I’m sure some would, because of adverse selection and moral hazard. As well, some would just because they’re not all that mathy.

    But if this kind of insurance would be popular with business owners, and they’d be voluntarily willing to pay for it, why aren’t private-sector insurance companies already offering it?

    *That’s* the question that someone really needs to ask the PM. What, exactly, is causing the market not to provide this type of insurance and why do we need the government to step in to correct this ‘market failure’?

    Coyne.. Wells.. Potter.. O’Malley.. anyone?

  24. Though it seems just fair to extend maternity/parental benefits to self-employed workers, as Quebec has done since 2006, the voluntary aspect of the Conservative proposal just doesn’t work. It would take almost 31 years of EI premiums for someone to cover the costs of the benefits they’ll receive.

    Maximum EI benefits for maternity/parental benefits are now $21,750 (50 weeks at $435 per week). Maximum annual EI premiums by an individual are $711.03. The ratio is 30.6 years. Not counting the fact that, for ‘regular’ EI contributors, those premiums are supposed to cover not just maternity/parental benefits but also regular and training benefits plus administration costs.

    To make this system self-financing, you either make it mandatory for all self-employed workers (men young and old, married or single, women yound and old,married or single), and charge them a premium combining both the employer and employee shares, Or you transfer money from the general EI scheme, from other contributors.

  25. If you wanted to implode the EI fund I guess that would be one way to do it… and it probably would be okay until you were out of office…

  26. Mike Moffatt — thanks for the correction. Had it backwards on the 60/40 split.

    My point about why this is good politics remains. And agreed, this proposal is a long way from perfect.

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