EI in desperate need of repair

TheStar.com – Opinion – EI in desperate need of repair
January 09, 2009. Carol Goar

For the first time since the Great Depression, Canada is heading into a serious recession with one of its economic stabilizers badly broken.

Stabilizers are government programs that work automatically to moderate swings in the economic cycle. The three main ones are employment insurance, which provides a cushion for people who lose their jobs; welfare, which keeps people from hitting rock bottom; and income taxes, which decrease when people’s earnings shrink.

The one that is broken is employment insurance (although welfare is in sorry shape).

If forecasters are right, 200,000 Canadians will lose their jobs this year. If current trends continue, just 108,000 will qualify for employment insurance benefits and 82,000 will actually receive them.

That means the majority of laid-off workers will have to live on their savings (if they have any), resort to welfare or rely on charity.

It wasn’t always like this. For decades, employment insurance was Canada’s sturdiest economic stabilizer.

It covered virtually the entire workforce. It provided an income that people could live on between jobs. It offered a measure of financial security to everyone who paid into the pool. It offset cyclical drops in consumer spending. And it reflected a shared commitment; employers, employees and the federal government all contributed to the fund.

Then two things happened: Ottawa started cutting back and the nature of work changed.

The retrenchment began under prime minister Pierre Trudeau. In response to complaints that unemployment insurance (as it was then known) had become too generous, his government reduced benefits to workers who quit their jobs voluntarily.

The contraction continued under prime minister Brian Mulroney. During his nine-year tenure, Ottawa tightened the eligibility requirements, dipped into the fund to pay for government training programs and withdrew as a financial contributor.

The cuts accelerated under prime minister Jean Chrétien. In 1994, his government restructured the program, renamed it employment insurance (EI), reduced benefits substantially and made them harder to get. Millions of workers found themselves excluded from the program.

Before long, the EI fund was producing large annual surpluses, which Ottawa skimmed off to balance the federal budget.

Prime Minister Stephen Harper made one final change. Last year, his government handed off responsibility for employment insurance to a newly created Crown corporation, with instructions to run it on a break-even basis.

While all this was taking place, hiring practices evolved. Employers, seeking to minimize their exposure to market conditions, replaced their permanent staff with contract workers, whose hours they could control. Many of these new hires couldn’t meet the threshold to qualify for EI.

By 2007, according to a Statistics Canada survey released last summer, just 54 per cent of the jobless were eligible for EI benefits and 41 per cent received them. (In Ontario, only 30 per cent got benefits, according to the provincial government.)

This makes the prospect of a protracted recession deeply worrisome. Not only will tens of thousands of families fall into financial distress, municipal welfare rolls will balloon, charities will be swamped and employers and employees will have to pay higher EI premiums to meet Harper’s break-even dictum.

A broad consensus has emerged that Finance Minister Jim Flaherty must shore up employment insurance in this month’s budget.

Unfortunately, however, there is little agreement about how he should do it. Business wants EI premiums cut. Labour wants benefits increased and coverage expanded. Ontario wants unemployed workers treated equitably in all parts of the country (under current rules, the hours of work needed to qualify for EI benefits range from 420 to 700, depending on the regional unemployment rate, and the maximum benefit period varies from 14 to 37 weeks). Some economists want more money channelled into retraining, while others advocate providing cash directly to laid-off workers.

As long as Ottawa remains a non-contributor to the EI fund, none of this will happen. Step one is for the government to get back in the game. After that, the repairs can begin.

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