Editorial: Canada's take on dole is worth a look

New Zealand is somewhat unusual among OECD nations in having a non-contributory scheme that pays unemployment benefits directly from general taxation. But it shares a common need to seek ways of reducing unsustainable welfare spending, and to encouraging the jobless to return quickly to the workforce.

For those reasons, it is more than appropriate that the recently established Welfare Working Group will look at alternative means of financing unemployment compensation, including those based on pre-funding some benefits through insurance. Most notably, this will involve the examination of Canada's employment insurance scheme.

The group's chairwoman, Paula Rebstock, has already pointed out one obvious benefit of such insurance. "Right now, if you are in a relationship with someone and you become unemployed, the chances are you would not be entitled to a social welfare benefit," she noted. "But if you are involved in an insurance scheme and you have contributed then you would also be in receipt of an unemployment benefit for a period."

In Canada, workers pay premiums of 1.73 per cent of insured earnings for benefits if they lose their jobs, and employers contribute 1.4 times the value of employee premiums. The amount received by an unemployed worker and how long they can stay on the insurance depends on their previous salary, how long they were working and the local unemployment rate. The scheme is operated by Service Canada, a government agency, and sits alongside the welfare system, as would be the case if it were adopted in this country.

It has been controversial. Federal government contributions stopped in 1990, and successive governments have reined in some of its more generous provisions by reducing the level of payments, making it harder to qualify and increasing the time needed to be in work. It has also become ensnared in ideological conflict, making a mockery of employment insurance's genesis in European trade unions.

Critics claim it is inequitable, expensive and administratively complex. On the first point, they say it creates a bridge between those in the workforce and the long-term unemployed, the sick and the disabled.

Similar criticism that welfare programmes are being tied to paid work has been made about KiwiSaver and Working for Families in this country. They surely overstate the issue.

Additionally, they slide over the intent of unemployment insurance and its increasing relevance. It is designed to compensate for unemployment that is involuntary and short term. That is, more and more, a fact of life in a world of rapid technological change.

The Canadian experience has included some unfortunate unintended consequences. Seasonal work has tended to become entrenched, and there is a reduced incentive to move from places where work is seasonal or unstable to places which have labour shortages.

The Canadians have tried to adjust the scheme to counter these. They have also placed a greater emphasis on using it to more actively bolster the labour market, through the likes of training, rather than simply allocating income support.

New Zealand has responded to unemployment in its own way. The working group has the task of deciding if different means better.

It is a moot point whether unemployment insurance along Canadian lines would make any impact on the problem of long-term welfare dependence. But it has some appeal as a means of cutting government spending while providing support for those seeking a quick return to the workforce. It warrants consideration.