Economics for Public Policy post from Miles Croak(Thanks Brent)
3. Policies to turn to: How to make work pay
There is no one answer, and not all options involve governments tinkering with tax rates. But some do. One important step is to make work pay.
There is a grain of truth to the traditional storyline: a new economy requires a new way of supporting incomes. It is not simply unemployment insurance that Canadians need, but wage insurance; it is not simply a guaranteed income that Canadians need, but a participation income.
And we have precedents for delivering income support in these ways. The Working Income Tax Benefit is a good example. It can be thought of as a “social wage” that encourages a participation society by topping up wage rates, and offering a guaranteed income conditional on working. But in its current configuration is much too small to have significant bite for anything other than a small part of the population.
Benefits from the program begin to kick in once someone makes more than $3,000, then amount to 25 cents for every extra dollar earned, then top out at just under $1,000 for singles and about $1,800 for families. Benefits fall by 15 cents for every dollar a family earns beyond about $15,650, disappearing altogether at earnings of about $28,700.
Some parts of our Employment Insurance program also have a design of this sort, allowing Canadians to work while still collecting a fraction of their benefits.
This is smart income transfer policy for a jobs market that is more and more polarized, and it is not hard to imagine that an expansion of the Working Income Tax Benefit that folds into a restructured Employment Insurance program could become a social wage, offering Canadians both the kind of income support and wage insurance they need to stay engaged with a more polarized jobs market.
In other words with a more nuanced interpretation of the facts it is not hard to give credence to another storyline about income inequality that goes something like this. Inequality has increased; there is something that can be done about it; and if public policy has punch, the effort directed to fighting inequality contributes to solving other pressing problems, like poverty.
3. Policies to turn to: How to make work pay
There is no one answer, and not all options involve governments tinkering with tax rates. But some do. One important step is to make work pay.
There is a grain of truth to the traditional storyline: a new economy requires a new way of supporting incomes. It is not simply unemployment insurance that Canadians need, but wage insurance; it is not simply a guaranteed income that Canadians need, but a participation income.
And we have precedents for delivering income support in these ways. The Working Income Tax Benefit is a good example. It can be thought of as a “social wage” that encourages a participation society by topping up wage rates, and offering a guaranteed income conditional on working. But in its current configuration is much too small to have significant bite for anything other than a small part of the population.
Benefits from the program begin to kick in once someone makes more than $3,000, then amount to 25 cents for every extra dollar earned, then top out at just under $1,000 for singles and about $1,800 for families. Benefits fall by 15 cents for every dollar a family earns beyond about $15,650, disappearing altogether at earnings of about $28,700.
Some parts of our Employment Insurance program also have a design of this sort, allowing Canadians to work while still collecting a fraction of their benefits.
This is smart income transfer policy for a jobs market that is more and more polarized, and it is not hard to imagine that an expansion of the Working Income Tax Benefit that folds into a restructured Employment Insurance program could become a social wage, offering Canadians both the kind of income support and wage insurance they need to stay engaged with a more polarized jobs market.
In other words with a more nuanced interpretation of the facts it is not hard to give credence to another storyline about income inequality that goes something like this. Inequality has increased; there is something that can be done about it; and if public policy has punch, the effort directed to fighting inequality contributes to solving other pressing problems, like poverty.
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