Precarious work: EI and the self-employed

There are two competing views offered on Employment Insurance and the self-employed today by the Ottawa Citizen and the National Post.

In the Citizen, CD Howe Institute policy analyst Colin Busby uses the argument of moral hazard to suggest that extending EI to the self-employed will cause them to take advantage of the system. “So were the self-employed covered by EI, they would engage in excessively riskier behaviour and be less likely to pursue self-sufficiency.”

Juliet O’Neill offers a different take in the National Post, focusing on one particular story of a self-employed family that struggled financially after their biggest client declared bankruptcy. O’Neill notes that the Employment Insurance Working Group established by the Conservatives and the Liberals this summer is open to studying the issue of self-employed participation in EI, largely because 2.6 million Canadians fall into that category and are completely excluded from the program.

I’m not a big fan of the moral hazard argument, partly because we apply it really inconsistently (nobody said we shouldn't provide corporate bailouts because it encourages risky behaviour) and partly because it is really bizarre to assume anyone would voluntarily choose to stop working for the sake of $22,500 or less for a year.

However, I do recognize that there are challenges in figuring out how to administer such a program. I don’t think they’re insurmountable, but a debate about how to best accomplish that is totally valid.

What strikes me, however, is that in the existing debates self-employment is always portrayed as a choice. It is assumed that these Canadians choose to be self-employed, choose when to work and with whom, and set their own rules and standards for that work. While this may have been the case in the past, it is increasingly less so today.

Because of precarious work, there are an increasing number of workers who are forced to take work as “consultants” rather than as employees. For instance, I have a friend who has worked at the same place for the last five years, and in all that time, has been considered a self-employed consultant. It’s just the nature of her industry.

Since the recession hit, there have also been a lot of unemployed Canadians who have turned to self-employment. As Erin Weir of the Progressive Economics blog wrote back in May, “One must ask whether more Canadians are becoming self-employed voluntarily or because they cannot find jobs paid by an employer. The fact that self-employment is surging amid a severe economic downturn suggests that workers are turning to this option by necessity rather than by choice.”

Colin Busby points out in his column that self-employment in Canada has grown four percentage points over the last thirty years, from 12% of employment in 1980 to 16%. I don’t think it’s a coincidence that this growth has occurred at the same time as the increase in precarious and non-standard work.

This needs to be kept in mind when we talk about extending EI to the self-employed: we’re not talking exclusively about people who have the freedom to make their own economic choices. We’re also talking about a very vulnerable population of Canadians.