EI has drifted far from social protection
TheGlobeandMail.com – Opinions/Special Comment – EI has drifted far from social protection
April 15, 2009. JAMES STRUTHERS
Canada’s unemployment insurance system emerged in 1940 in response to the Great Depression and fears that mass unemployment would return at the end of the Second World War. It is the only time that all provinces agreed to surrender complete jurisdiction to the federal government.
From the start, UI contained a key tension. On the one hand, by pooling risk across Canada it gave social protection to workers who lost their jobs through no fault of their own. It helped to stabilize consumer demand during business downturns. Payroll deductions gave workers a right to collect UI benefits, without stigma, if they lost their jobs.
These three functions – income protection, economic stabilization and preserving dignity – were the core social objectives of UI. On the other hand, unemployment insurance was premised on an “insurance” model, and like all insurance schemes was designed to deter “moral hazard,” in this case, laziness. Complex actuarial language, arcane regulations and an elaborate UI bureaucracy all worked to deter abuses.
Over its 69-year history, UI has oscillated between these two competing poles of social protection and moral hazard. Until 1975 social protection dominated. During years of prosperity, eligibility for UI was gradually broadened and benefits levels were increased, slowly throughout the 1950s when seasonal workers were added to the scheme, and explosively between 1971 and 1975 when UI was liberalized to cover 96 per cent of the labour force, only eight weeks of work in a year were needed to make a claim, and benefits reached 66 per cent of insurable earnings.
After 1975, as Canada’s economy deteriorated, UI faced a growing backlash. Most reforms to UI concentrated on combatting “moral hazard” through tightening eligibility requirements, reducing benefit levels, changing the way unemployment insurance is financed, and ultimately in 1996, changing the name of the program itself to Employment Insurance.
Since the late 1980s, both Conservative and Liberal governments have emphasized job training over income protection.
Today, the equivalent of 12 to 20 weeks of work, depending on where you live, are required to qualify for EI. Maximum benefits are only 55 per cent, not 66 per cent of insurable earnings, and are available for a much shorter period.
Workers leaving their jobs voluntarily are ineligible for support. Severance pay after layoffs must be exhausted before EI is paid.
Since 1990, the federal government no longer contributes to the UI/EI fund which is now financed solely by workers and employers.
The EI fund, since 1995, has also been hugely in surplus, reaching the staggering level of $54-billion in 2006-07. This surplus, fuelled by payroll deductions from an ever-widening pool of workers, many of whom are part-time and discover they can’t get EI benefits when they lose their jobs, is a form of involuntary taxation.
Compared with 83 per cent of the jobless who qualified for unemployment insurance in 1989, today less than 44 per cent of Canada’s unemployed are eligible for EI. In Ontario or Alberta the percentage is about one-third. More workers are now paying into a fund from which they can’t collect.
Unemployment insurance has drifted away from its original mandate. Over the past two decades, the system has tilted dramatically toward reinforcing work incentives rather than insuring incomes against job loss. In the process, it has undermined its ability to stabilize the economy against depression or to protect the dignity of the unemployed who need help in hard times.
EI needs to be restored to the coverage, benefit levels and purpose embedded within it before 1988 if it is to be an effective tool for helping Canadians weather the wrenching changes that lie ahead.
James Struthers is a professor in the Canadian Studies Department at Trent University.