O Canada!

This week politicians in Canada proposed tying support for unemployed workers in crises to economic conditions. It's a great approach, and one that the United States should embrace too.

On Monday, the Conservative Party of Canada released its election platform, “Canada’s Recovery Plan.” Within the 160-page document, is a proposal to reform Employment Insurance (EI), which is Canada’s program for the unemployed.

"Protecting Canadian Workers During Recessions Canada’s Conservatives understand how a recession can be devastating for Canadian workers and their families. When people are laid off and can’t find jobs, the government has to be there with the support that families need. The challenge is to provide generous benefits without breaking the bank and hitting workers with soaring EI premiums. We recognize that Canadians want to work hard in a good job, but they want to know that the government has their back in a crisis.

We will launch a Super EI that temporarily provides more generous benefits (75% of salary instead of 55%) when a province goes into recession (a 0.5% increase in the unemployment rate, as defined by the “Sahm Rule”). EI will return to normal levels once the recession is over, as evidenced by three months of job gains.

I jumped for joy when Matthew Gerrits shared the news. Yes, of course, it’s cool to see my Sahm Rule in a platform. What really makes me happy is that the unemployment rate not politics would decide when the unemployed get extra financial support. The approach is often referred to as an “automatic stabilizer.”

In 2019, I proposed putting stimulus checks on autopilot was in Recession Ready, a volume full of proposals to create more automatic stabilizers in the United States. Since then I have worked with several members of Congress and their staff on how to put relief, especially unemployment insurance, on autopilot.

Here’s me on BNN Bloomberg yesterday talking about the Canadian proposal:

And here’s the Sahm Rule for Canada, which I dropped everything to make after the platform was announced. It’s the star of the show. I’m just its spokesperson.

The Canadian Sahm Rule follows the same principle as the Sahm Rule for the United States: First, I calculate a three-month average of the Canadian, monthly unemployment rate — to smooth out any bumps and wiggles. Then I compare the latest value with its low over the prior 12 months. (In the United States, when that number is 0.5 percentage point or higher then the we are in a recession.) A slightly higher trigger of over 0.6 percentage point works better in Canada.

In the United States, the Sahm Rule turns on in every recession and never triggers outside a recession since the 1970s. In Canada, there’s only one “false positive” outside of a Canadian (red shaded areas in chart) or U.S. (blue shaded) recession in the mid 1990s. (Overlapping recession dates are in purple.) Not perfect but pretty damn good!

Recessions in the United States are determined by a recession dating committee of elite economists at the National Bureau of Economic Research. The closest group Canada is the Business Cycle Council. I would like to understand their methods more, because I am puzzled that the United States can go into recession without Canada.

The important part of the Conservatives Policy proposal is how it would use the unemployment rate to ‘trigger on’ the enhancements of jobless benefits and then to trigger off’ when the rate returns it is pre-recession level. I don’t care if they use the Sahm Rule or find a better trigger on. Automatic stabilizers are great policy. Up until now policymakers have passed enhancements during the crisis and set time limits with a guess of when people will be back to work. It would be much better to put it the program autopilot. Get politics and forecasting out of it.

I wrote a piece earlier this year on automatic stabilizers:

Rather than setting an arbitrary expiration date and banking on yet another 11th-hour scramble for more relief, Congress could base its policy on how people and businesses are doing, not on the passage of time. In policy circles, such tools are known as “automatic stabilizers.” They’re quite simple: If the economy comes roaring back, then the stabilizers put in place turn off; if it takes longer to recover, they stay on.

Here’s how it rolled out in the United States in the Covid-19 crisis. Congress with the CARES Act in spring 2020 created a new program for the self-employment and gig workers, extended the weeks of jobless benefits for everyone, and sent an extra $600 per week in jobless benefits. Unfortunately, they set an arbitrary dealing of July 31 for the extra $600 to expire. Sadly it did.

Late in 2020 as Covid surged again and the rest of the benefits were set to expire at year end, Congress passed an extension to remaining jobless benefits and added on $300 per week. Then-President Trump finally signed legislation basically as benefits were expiring. What a rollercoaster for families depending on that money.

The American Rescue Plan in spring 2021 extended the benefits but again set an arbitrary deadline of early September. Oh, then 26 Republican States ended those programs this summer. The White House basically said go for it, the benefits were always meant to be “temporary.” Ugh. The unemployment rate remains higher than before Covid-19 and the pandemic continues. And it’s almost September. The rest of the unemployed lose their benefits very soon.

IT”S PEOPLE WHO MATTER. IT’S PEOPLE WHO SUFFER WHEN POLITICS TAKES PRECEDENT OVER PEOPLE. IT’S UNACCEPTABLE.

As I argued before the Rescue Plan passed:

If another relief package fails to provide households and businesses consistent, predictable support soon, we’ll be doomed to repeat the inefficient, cruel and unorganized cycle of last-minute partisan fights over aid.

It’s almost certain that the benefits will end. Congress will extend them. It’s heartbreaking and infuriating.

We must not throw in the towel. Unemployment insurance is the bedrock of our support to workers who are laid off. It’s in desperate need of reform. I share several ideas from policy experts in my piece. Automatic stabilizers are in the mix too. Representatives Don Beyer and Derek Kilmer and Senators Jack Reed and Michael Bennet, have proposed legislation — much like the new Canadian one — that would help us avoid the train wreck next time. We must do better. We know how to do better.

Note well, I am fiercely non-partisan and am not endorsing the Conservative Party. As a U.S. citizen, my opinion about Canadian politics is irrelevant. That said, I am an expert on automatic stabilizers and know its a good approach, one that should appeal to policymakers regardless of their political party. O Canada! This policy would rock!