Welfare state economies: The 1 percent (and the 20 percent)

I have following the Occupy movement with interest – I wrote a couple of columns looking at its various contours – with a focus on New Brunswick but it is interesting to get the British view on this.  I have read a number of articles lately (most recently in the Economist) about the middle class frustration with the one percent and with the bottom 20 percent.  The exact theme of the narrative is that the only ones getting ahead in Britain are the one percent at the top and those in the social welfare system – and there were statistics galore about the the top and the bottom outpacing the middle for income growth.

That dynamic in the U.S. has bifurcated with the Tea Party taking it out on the bottom 20 and the Occupy movement taking it out on the top 1 percent.  The British thing about the middle being frustrated up and down the income scale is a new line of discourse – at least for me.

I’ve never been a big fan of this kind of sniping at those earning well below average incomes – even if much of their income comes from the state.  It’s always been distasteful for me but I do think societies need to craft labour market policies and income support programs in intelligent ways.

Unlike much of the research coming out of the think tanks, my view of the EI program is that we need changes because it seems to be the program has become a barrier to economic development.   However, I am very reluctant to recommend some kind of swift change that will move the whole country to some kind of standard.

There have been stories in the media about people that are waiting more than 10 weeks to get their EI cheques and not being able to provide Christmas presents for their kids.  One guy on PEI was carrying around a loaded shotgun out of frustration.

For many people – a higher concentration down here – EI is a relied about part of their annual income stream.  This isn’t a theoretical discussion about the impacts of a 2 percent rise in the HST.  If the government adopted the recommendations that came out a few months ago there would be tens of thousands of people in mostly rural Atlantic Canada that would see their incomes drop by 20, 30 and even 40 percent.

What we really need to do is get back to the point.  If we want to get more people working, how can we do that?   How can we evolve the EI program over time to encourage more work?

I guess some folks take a harder line – on the one percent and the 20 percent.  I prefer a nuanced view – at both ends.  We want people earning piles of cash to pay a reasonable portion of that income in taxes.  We want people to work if they can and contribute to society.  Having 100,000 New Brunswickers collecting EI at some point during the year – to me points to a labour market efficiency problem.   Having an 83 percent employment rate among 40 year olds drop to 40 percent among those aged 60 to 65 – is a problem.  In the modern world why are only two out of five people aged 60 in New Brunswick working?

I guess the conversation rolls on but if we could get our EI usage down – and employment income up – if we could see a gradual rise in employment rates among those 50 and older.  I think these would be a couple of good moves ahead.

Economists are having a good debate about how much of the national tax take should be used as direct transfers to individuals.  This has been rising steadily for 50 years.   In New Brunswick, there is something like 19 cents of government transfer income to individuals (all sources) for every dollar of employment income.  That will have to reach some kind of tipping point.  It’s not about kindness, fairness or justice.



2 thoughts on “Welfare state economies: The 1 percent (and the 20 percent)

  1. It amazes me how people can get so upset about a few peaceful protestors at city hall in Fredericton or saint John. Issues that are going to affect us all in a negative way are totally ignored. I think that there are very many people who are content with the situation and are afraid to rock the boat less they get wet. This attitude even infests our civil institions. Organizations such as the conservation council, the woodlot owners, the salmon federation and many others have a vested interest in how crown lands are managed. Not only do these bodies not cooperate they do not even comment publically.Eventually the government will not be able to buy the public off and civil servants and others will feel the pain

  2. ” In the modern world why are only two out of five people aged 60 in New Brunswick working?”

    Perhaps, in NB, we don’t have a ‘modern world’.

    Is part of the equation here that, in NB, a larger proportion of the over 60 group was engaged in manual labour, or work more physically demanding, than similar groups in other parts of the country? If that is the case, it might explain why those NBers are less likely to be working now. They are no longer able to do the work, and are not trained to do much else.

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