Madam Speaker, I have a long attachment to questions of the economics of unemployment insurance.
I was one of the first scholars in Canada to produce evidence that the imposition of generous unemployment insurance benefits raises the rate of unemployment.
All through the post-war years until the early 1970s, American and Canadian unemployment rates moved very much in unison. They never diverged by more than one-half of a percentage point. But in 1972 the system in Canada became much more generous with respect to the amount paid when people became unemployed relative to the wages they were earning, the number of weeks necessary in order to become eligible, the number of weeks paid after one became unemployed. Our system was one of the most generous in the world.
Studies have been done to explain why these differences between the Canadian and U.S. unemployment rate developed in the early 1970s and have since widened and now have settled at approximately 3 to 4 percentage points. It is not possible to explain these differences by differences in monetary policy, fiscal policy, exchange rate policy, any of the traditional measures.
The one that dominates the results of attempts to explain these differences is the generosity of our unemployment insurance system. This generosity has reduced an enormous amount of lost output. The idea of having a generous system is very laudable. There is no denying all of the arguments made by the speakers from
the Bloc Quebecois. The more generous the system is the better off are the people who are receiving the money.
As people who are concerned with the welfare of all Canadians, what are the consequences of these generous benefits and the resultant increase in the unemployment rate? I have estimated that as a result of this increased generosity, a 3.5 per cent higher rate of unemployment existed than would have been if we had stayed at the levels at which we were in 1972. Then our national output would be over $11 billion higher.
The tax take alone on that $11 billion higher income would be $3.5 billion. The deficit would be cut substantially and a lot of workers who are now unemployed would be employed.
When looking at reform of the unemployment insurance system it is necessary to do something in addition to what the Bloc members have been saying in all of their speeches. If unemployment insurance benefits are cut, if the cost of being unemployed is raised, certain people will be hurt. That is true. However, if that is done benefits are provided to all Canadians. The most obvious one is that the unemployment rate would be lower. Another is that output would increase and taxation revenues would go up.
What has to be done is consider adjustments to the present system which would bring about these gains in output and reductions in unemployment at a cost which would not be too high. I have four measures which I believe would be widely and readily acceptable to Canadians in order to gain these benefits.
The first and most obvious is that the system can be made less generous. Maximum benefits equal to 53 per cent of previous wages offered by our system now are at or very near the top of benefits paid by all industrial countries. However, generosity over the UI system also depends on the ease with which workers become eligible, how long they can receive benefits, what industries are covered, and so on.
It is interesting to note that in recent years the system's generosity has been reduced substantially. That was one of the conclusions reached at a recent conference held here in Ottawa. Some analysts suggested that it may now be no more generous than it was before the 1972 reform.
The pre-1972 levels are not necessarily ideal and further cuts in generosity should be considered as long, and I emphasize this, they do not impose undue hardship on the neediest.
The second measure I believe that Canadians would accept and which would bring huge benefits involves tougher measures against fraud. I have always treated with some scepticism the results of internal audits made by the system which found fraudulent claims to be about 1 per cent of all benefits paid. How did the investigators discover what are deliberately hidden practices? What incentives do they have to show that their bureaucratic and political bosses are running a system that permits lots of fraud?
There is evidence that my scepticism may be warranted. In the equivalent of a social science experiment, five U.S. states recently introduced systems for the positive identification of people making welfare claims. It is difficult to forge ID cards in numbers tracked by computer. They found that fraudulent claims were between 8 and 15 per cent of welfare payments according to a letter published by the Globe and Mail on April 8, 1996.
I have a question on the Order Paper for the Minister of Human Resources Development. In the spending estimates of the national accounts, I discovered that last year the amount of money recovered from fraud in the insurance system rose by about 3.5 percentage points or several million dollars.
I have asked the minister to explain why, in one year, there was such a dramatic increase. Was it because new measures were undertaken? What was the cause? Certainly it could not be explained by people suddenly becoming 3.5 per cent more fraudulent than they were before.
The third measure I would recommend is the elimination of specific types of abuse. I am very careful not to call them fraud. I talk about abuse.
All of us have heard about entire school boards announcing in April that the teachers and other employees of the school board would be laid off in June after classes stop. As a result of this, eligibility for unemployment insurance is established. In September, these people get rehired. That is an abuse of the system. It was never intended.
We know the story that the former Minister of Human Resources Development was bringing forward all the time. Automobile workers were constantly negotiating contracts that involved unemployment insurance benefits in their pay package. Those kinds of things can be made illegal completely and directly.
Finally, for those people who see this program and would like to have a more elaborate explanation of what is going on, there are measures available for reducing gradually the abuse that is taking place by permanent transfers to seasonal industries.
It makes no sense that the rest of Canadian workers, some of them poor, in areas other than those benefiting, that seasonal workers should be receiving, consistently year after year, six times the amount of money that they pay in premiums.
I have some ideas on how to do this. The paper is available. Please write to me at the House of Commons.