Think tank argues that benefits are restraining N.B. jobs growth

By Rob Linke

Generous unemployment benefits are to blame for chronically high jobless rates that persist in parts of New Brunswick and Atlantic Canada, the Atlantic Institute for Market Studies argues.

Brian Lee Crowley, head of the Halifax-based think tank, has long advocated that Canada adopt a policy that instead deters employers from repeatedly hiring then laying off large groups of workers.

Maine does exactly that, by charging those employers higher unemployment insurance premiums. While the effect has been to make employers think hard before hiring, it also deters them from laying people off. In effect, it encourages them to create more year-round work, Mr. Crowley said in an interview Friday.

He believes a new study showing unemployment insurance deterred many New Brunswickers from working for over a half-century shatters the position of proponents of more generous benefits.

The study, by economists from Queen’s University and the University of California at Santa Barbara, compared employment data in Maine and New Brunswick from 1940 to 1991.

It found New Brunswick workers were many times more likely to work less than half a year, despite the similarities in the two jurisdictions’ economies and workforces. New Brunswick’s unemployment rate was also consistently higher than Maine’s once UI became more generous. It concluded that Canada’s looser eligibility rules and more generous benefits were the overwhelming reason for the differences.

“When people say that because there’s so much seasonal work in New Brunswick, and without unemployment insurance we wouldn’t get the seasonal work done, and it’s a traditional way of life – well, this study shows that’s all nonsense.

“You get lots of seasonal work done in Maine but you don’t need unemployment insurance to make it happen.”

The most recent data in the study is 1991, and Canada’s unemployment insurance system was reformed in 1996, becoming Employment Insurance. EI is a generally more restrictive system that saved taxpayers billions of dollars in payouts.

But while the study doesn’t draw conclusions about the current system, Mr. Crowley is convinced EI still has many of the effects the study found about UI.

“Look at the difference in unemployment rates in Maine and in New Brunswick today,” he said.

“I’m not saying EI is the only explanation, but it’s the view of most economists that at least two per cent of the difference between the rates in Canada and the U.S. is due to our system of unemployment insurance.”

Maine’s unemployment rate has been under five per cent for well over a year. New Brunswick’s has been at its lowest levels, but it is still eight per cent. Being under 10 per cent for two years has been cause for political crowing – yet it’s also been around twice as high as Maine’s during that time.

“I don’t actually buy the notion that New Brunswickers don’t want to work,” Mr. Crowley said. “I think it shows that if you create conditions in which you’re not better off by working, most people say ‘remind me again why I’m doing this extra work for the same money.’

“It creates perverse incentives for people.”

Just last week, Mr. Crowley was at the annual conference of deputy ministers in Ottawa, where he joined a panel discussion on looming economic trends. His entire presentation was on the challenges posed by the shortages of labour in many parts of the country, including Atlantic Canada.

There are lots of jobs right now, he argued, pointing to Moncton’s and Halifax’s booming economies and to quite low unemployment rates in Saint John and Fredericton, as well as a PEI fish plant hiring dozens of imported Russian migrant workers.

“There are islands of prosperity emerging in the region that are being held back by labour shortages,” he said. “My view is that if we change the incentives so that working always makes people better off than collecting unemployment insurance, we’ll be startled at how fast we can get people into work- all kinds of work.”

While labour shortages will provide an economic rationale for tightening the EI system, Mr. Crowley is less confident there will be the political appetite for it.

He said the Harper Conservatives may well be philosophically predisposed to reforming the system, they may not risk it.

Not only are many Atlantic Canadian voters dependent on EI and proven by electoral history to punish politicians who reduce it, but voters in rural Quebec and the Gaspe feel the same way, he said. That’s precisely the areas the Conservatives are targeting for growth in their support.

“There is still tremendous political pressure to enrich the EI system, especially for seasonal workers, rather than ratchet it back,” he said.