Unemployment insurance: The rorts to come

Dr Eric Crampton
The Dominion Post
7 February, 2022

A dark part of me hopes the government’s employment insurance scheme is enacted exactly as proposed.

It will be terrible.

But the rorts it will spawn will be the stuff of which economics columnists’ dreams are made.

The scheme really is not insurance. Insurance charges premiums that vary with risk. The government’s employment insurance scheme simply charges a proportion of a worker’s salary.

And that will bring no end of fun.

Consider seasonal employment which is only covered if a worker is made redundant before the end of the contracted picking season.

But employers making workers redundant every year will not pay a higher insurance premium.

Clever employers will put seasonal workers onto permanent contracts before making them redundant toward the end of the picking season. Workers in on the bargain will work through the initial four weeks of redundancy covered by the employer if they want to play the game again next season.

And a lengthy period on 80% of their prior salary awaits.

You might even consider it a subsidy scheme for seasonal work. Attracting workers out to the regions is easier if those workers can enjoy six months of government-provided redundancy pay as part of the bargain.

Canadians, through the 1980s and 1990s, would regularly hear stories of provincial make-work schemes in the Atlantic provinces. The fisheries did not always provide enough weeks of work to trigger unemployment insurance payments from central government. Ten weeks of work meant forty-two weeks of unemployment benefits. Short provincial make-work schemes could make local workers eligible for central government payments for the rest of the year.

We would also hear stories of local pressure to avoid hoarding jobs. If a worker did not arrange to become redundant after the minimum number of weeks necessary for unemployment insurance, that worker’s cousin would have a harder time getting his ten weeks of qualifying work.

Are Kiwis that different from Canadians?

It could be solved by charging employers a much higher employment insurance premium if they regularly made workers redundant, but that would add complexity beyond the wit of our current public service.

Or consider maternity benefits.

Parental leave provides payments of up to $621.76 per week.

But if a parent-to-be were to be made redundant, just consider the benefits for those on higher incomes! Rather than see their pay drop to a meagre $621.76 per week, they could receive up to about $2000 per week – if they earned $130,000 or more before taking parental redundancy.

It really is brilliant. Labour has come up with a mechanism ensuring higher-earning women face fewer costs when having children, while doing fairly little for women on lower wages. If a right-wing government had come up with the scheme, it would be accused of doing it deliberately, and possibly with eugenic intentions.

What employer would be so mean as to decline their employee’s request to be made redundant before the birth of their child? And while parental leave is only available to one parent at a time, both parents in a two-income family could take redundancy. They could enjoy a full year with one parent at home with the new baby, or six months of family togetherness. On an “insurance” payment.

The only tragedy in the scheme is that it was not available when we had our children. Alas.

Employment lawyers will also benefit. If a worker took redundancy on an understanding that she would be hired back after parental redundancy, and the employer’s circumstances changed over the period, determining the legal standing of that verbal agreement would busy the lawyers.

Make-work schemes for employment lawyers could be needed. Under current employment law, it is impossibly difficult to fire underperforming workers in some circumstances. It is too easy for employers to find themselves tied up in personal grievance claims for months – to the benefit of the lawyers.

But if both sides in a fractured employment relationship can agree that the worker will be made redundant, with an ‘insurance’ scheme picking up months and months of redundancy payments at 80% of the worker’s salary, everything becomes easier. The employer neither needs to come up with a very expensive golden handshake, nor deal with months of workplace toxicity as a personal grievance case works its way through.

The worker can simply be made redundant.

You might even view it as a tidy second-best workaround to dysfunctional employment legislation. It will be far easier for employers to fire problem workers, with their agreement, when the scheme is in place.

It is far too easy to imagine the rorts that will come of the proposed employment insurance scheme. Fixing it with patches will not solve the problems baked into the design of the system. Abandoning it entirely would be best. But next year’s columns will be more fun if it is not. I say go for it.


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