Why not let Quebec manage its own EI?

Commentary, Equalization, Frontier Centre

PQ Leader Pauline Marois says that if she becomes the next premier of Quebec she will demand that Ottawa transfer jurisdictions to Quebec, starting with employment insurance. In her mind, she wins either way. Ottawa’s agreement makes the “Quebec state” more powerful and readier for independence; Ottawa’s refusal proves that Quebec can never fulfill its legitimate aspirations within Canada.

According to John Ibbitson, writing in these pages, the Harper government is preparing to ignore all these PQ demands. This is understandable but unfortunate, at least with respect to EI. This is one program that really should be provincial rather than national because labour markets are so different around Canada. In opposing separatism, the Conservatives don’t have to become last-ditch defenders of the centralized welfare state built up by the Liberals.

Through a constitutional amendment, unemployment insurance, as it was then called, was transferred from provincial to exclusive federal jurisdiction in 1940. It seemed like a good idea at the time, as the Depression had nearly bankrupted the provinces. However, subsequent history has shown the problems caused by relying on the greater fiscal and borrowing capacity of the federation; politicians cannot resist exploiting it for political purposes.

First they extended coverage to fishermen and other seasonal workers, whose unemployment is predictable and at least partially self-induced. Then they introduced regionally differentiated benefits, making the payout greater and easier to obtain in areas with higher rates of unemployment – a thinly disguised manoeuvre to gain political support in poorer provinces by transferring income from better-off provinces.

Provincial governments joined in with gusto, creating make-work programs so their citizens could qualify for federal EI payments and thus move off welfare, which is a provincial responsibility. More recently, EI has been used to subsidize parents who have babies, or adults who take time off to care for sick relatives – worthy objectives, to be sure, but not logically part of a program to insure against the effects of involuntary unemployment.

After 70 years of politicized federal mismanagement, EI is a crazy quilt of cross-subsidies the net effect of which is to increase unemployment, particularly in less prosperous parts of the country, by making unemployment more attractive than it would otherwise be. It’s hard to believe this would have happened if the provinces had had to manage their own programs within their own more limited resources, as contemplated in the original design of the Constitution.

Several failed attempts have shown that the federal government will never be able to make major reforms to EI on its own; so in this context, the PQ’s desire to take back jurisdiction is like manna from heaven. It could open the door to turning EI into genuine insurance, with experience rating for both employers and employees to minimize the moral hazard of treating EI as a hammock rather than a safety net.

The constitutional barriers are forbidding but perhaps not insuperable. EI is now an exclusive federal responsibility, so a complete transfer to the provinces would require a constitutional amendment approved by seven provinces with more than half the population of the provinces – an obvious non-starter. However, it might be possible to use the bilateral procedure (approval by the Senate, House of Commons, and Quebec legislature) for a one-off transfer to Quebec. A hue and cry will go up against asymmetrical federalism, but the Quebec Pension Plan is a strong precedent. When was the last time anyone outside Quebec lost any sleep over the existence of a separate Quebec pension plan?

Let’s not refuse to deal with Quebec separatists tout court. We can oppose separatism while remaining open to good ideas separatists may have. If they think they can manage EI more efficiently, why not let them try?