September 29, 2011 | By William Scarth
William Scarth analyzes three broad approaches to the provision of income support from a macro-economic perspective.
This paper uses a simplified open-economy macroeconomic model to assess several income-support policies.Employment insurance is compared to a guaranteed annual income, a working income tax benefit, and an employer-based subsidy for hiring low-skilled individuals. The mobility of capital (the globalization constraint) is stressed since it limits government financing options. This constraint does not preclude the government helping unskilled labour as a group, but it does lead to a trade-off between the welfare of the working poor and that of the non-working poor. It is concluded that EI should not be replaced by other low-income support programs. The analysis suggests that such a replacement would bring a desirable but fairly small increase in efficiency (a reduction in the unemployment rate), but at the expense of a rather large loss in equity.View PDF
September 29, 2011