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Universal Basic Income: a better solution to CERB

Universal Basic Income
Universal Basic Income: a better solution to CERB
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About the Author

Andrei Adam

Andrei Adam

Andrei Adam is a grade 12 student at Abbey Park HS. He has advocated for various causes including taking action on the climate crisis and UBI. He is interested in Economics, Finance and Government and will pursue a Bachelor of Commerce starting in the fall. You can follow his socials @itsandreiadam.

To provide financial support to Canadians during the Covid-19 pandemic, our government has launched the Canadian Emergency Response Benefit (CERB). A better solution is a Universal Basic Income (UBI) benefit.

With CERB, every Canadian who earned more than $5,000 in 2019 and has lost all their income due to a reason related to COVID-19  for at least two consecutive weeks is eligible to receive $2,000 with no-strings-attached. Canadians can re-apply to the program up to three times, so long as they do not earn any income over the entire four-week period they are re-applying for. CERB is extremely popular. In the first week of this program, Canadians made 3.8 million claims.

There is no doubt CERB helps the most vulnerable: those who lost their income due to uncontrollable circumstances are guaranteed a paycheque to continue paying for essential goods and services, no matter if they are self-employed or a part of the gig economy.

However, CERB offers an opportunity for the system to be abused at our country’s expense. It should instead be replaced by a Universal Basic Income.

To understand why, we must look at the unintended consequences of CERB. Notably, how CERB is hurting Canadian productivity by encouraging workers to stay home (even those not at risk to COVID-19).

The logic is simple.

People earning less than $2,000/month would earn more money if they just stopped working and did not have an income for the month. By doing so, they could qualify for the $2,000 provided by CERB.

Think about it: if I offered you more money to stay at home than to go to your minimum wage job for 100 hours this month, would you jump at that opportunity? Most people probably would.

Currently, a condition to qualify for CERB is that you do not “voluntarily” stop working. In theory that will prevent fraud, but realistically, how can you verify that?

For an Uber driver, Foodora courier or any other part-time or gig economy worker, who can tell in retrospect whether they stopped working because they simply wanted to claim the benefit, or they actually had to (ex. they went to take care of a sick family member)?

It’s impossible to tell: on paper, they both result in no income.

Essentially, CERB is encouraging workers who could otherwise be productive and contribute to Canada’s GDP to stay home and receive government handouts, with no real way to prevent it.

But, let’s look at this issue further.

When I think about my friends (who are mostly students), few earn anywhere near $2,000 in a good month. Many of them work in “essential’ services (ie. grocery stores, take-out restaurants). If enough of these part-time, low-income workers decide that it makes more financial sense to claim CERB than go to work, eventually, our “essential” services will be short-staffed. That should scare everyone.

I acknowledge that if everyone had “good intentions”, we would not need to worry about CERB being abused.

But why design a system that can be abused in the first place?

Instead, the government should implement a Universal Basic Income (UBI) to fight the economic effects of the crisis, without discouraging productivity.

Universal Basic Income Explained

Essentially, under a UBI system, every Canadian would receive a certain amount of money every month (say $2,000, just to match CERB).

The main difference between UBI and CERB is that everyone, regardless of employment, would receive the benefit.

People laid off because of a reason related to COVID-19  would continue to receive much-needed money they can use to pay for essential goods and services, just like under CERB.

However, people earning less than that $2,000 would not be encouraged to stop working, because any additional income they make through their jobs is added on top of their UBI.

A UBI means that individuals would not need to skip work just to claim benefits, there would be no more lost productivity and the risk that essential services will be under-staffed would be diminished.

UBI is perfect in this situation.

In addition to preventing the potential systemic abuses that exist with CERB, there are other benefits:

  • It is an equitable solution: everyone gets to keep extra money in their pocket, regardless of their employment status (though the upper-classes would see most of their UBI taxed).
  • This would give people disposable income to spend into the economy once physical distancing rules are relaxed and create a positive feedback loop: more consumer demand forces businesses to produce more and hire more workers, thereby injecting even more money into the economy.
  • Ultimately, this means GDP growth and a stronger economy.

A study done by the Roosevelt Institute predicts that a UBI system could permanently grow a country’s economy by 13% (the equivalent of a $210B GDP boost in Canada), paling the $43B such a system would cost.

This program is not just more efficient than the CERB, it is also more equitable and would effectively pay for itself.

So, it is time for Prime Minister Justin Trudeau to let go of the CERB, and replace it with a UBI. Canada needs it today more than ever.

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