A Little Foresight

 

Armine Yalnizyan writes that we're headed for a global recession:

After the foreseen economic rebound from pandemic, business pages are newly flooded with warnings of looming slowdown and even economic contraction around the world.

But it’s not a complete surprise, because it’s being driven by the same things that caused inflation in the first place; widespread supply and labour shortages caused by COVID-19, which has triggered China’s latest lockdowns of whole cities and North America’s latest wave of illness due to premature lifting of masking and slowed vaccination efforts.

Russia’s invasion of Ukraine has caused global oil prices to spike, impacting energy costs and production throughout Europe.

Now central banks are tackling inflation by raising rates, which will not address the root causes of inflation but are necessary for the credibility and legitimacy of these institutions.

Still, we’re on a tightrope, swinging from a strong but temporary rebound from the pandemic to a softening, perhaps faltering, economy.

So what should we do to prepare for what's ahead? Reform the Employment Insurance system. That system was gutted in the 1990's:

In the 1990s, EI was deliberately gutted by four rounds of “reform.” We went from 80 per cent of the unemployed receiving jobless benefits to less than 40 per cent in the decade before the pandemic hit.

The people hardest hit by the reforms were more likely to be women, low-paid, and in large urban centres — exactly the people most impacted by the pandemic.

That lack of access to EI guaranteed the Canadian economy would be clobbered during the pandemic without the invention of CERB.

But CERB is gone. So the burden falls on EI:

Change is urgently needed, because 57 per cent of GDP is propelled by household spending and the major source of that income comes from workers. The working-aged population is shrinking as a share of all Canadians, but their incomes also help those too old, too young and too sick to work.

More workers need to be able to access jobless benefits when they need them. That means reducing the hours required to trigger eligibility.

Before the 1990s “reforms,” it took just 165 hours of insurable earnings — hours on official record with an employer, meaning you’re not self-employed — to be eligible for employment insurance in regions with more than eight per cent unemployment.

That ballooned to 595 hours after the cuts.

During the pandemic a universal requirement was set at 420 hours, but on Sept. 25 that will jump to between 420 and 700 hours, cutting off many.

Make it 360 hours — for everyone.

A 360-hours threshold won’t reach everyone, and isn’t as generous as pre-1996 cuts, but it will provide shelter from the storm for most workers. Reforms also require tackling widespread misclassification that leaves too many workers without EI and other protections.

Improved coverage needs to extend to higher earners too, largely shielded from the pandemic’s economic impact. Technology means people working from home can be replaced by workers from lower-wage countries.

Maximum insurable earnings — the upper limit of earnings that will be replaced, though not fully — need to be raised.

A little foresight can save a lot of pain.

Image: livescience.com