Flaherty faces five choices on EI

TheStar.com – Opinion – Flaherty faces five choices on EI
January 12, 2009. Carol Goar

Canada’s employment insurance system is outdated, inequitable, stingy and at serious risk of insolvency in a protracted economic downturn.

The dilemma facing Finance Minister Jim Flaherty, should he decide to fix it, is figuring out which problem to tackle first.

He is not short of advice. Business lobbyists, union officials, municipal leaders, economists and social activists have all put forward their prescriptions in the run-up to this month’s budget.

But Flaherty can’t say yes to everybody. Even if he were to make significant investment in jobless benefits – say $3 billion – he’d have to set priorities. The damage done by 30 years of cutting and dismantling can’t be undone in one budget.

The finance minister has five basic options:

Extend coverage to the millions of workers who don’t qualify for employment insurance (EI) benefits.

Under the current rules, only 54 per cent of Canadians who lose their jobs can tap into the $17 billion fund. The rest either haven’t worked enough hours in the previous year to qualify for benefits or don’t have enough insurable earnings (anyone who is self-employed would fall into this category).

Loosening the eligibility criteria would have three principal benefits: It would provide immediate relief to the most vulnerable members of the workforce, it would head off a massive increase in municipal welfare applications, and it would put money in the hands of those most likely to spend it.

There are two main drawbacks: It would be expensive and it wouldn’t create jobs.

• Raise EI benefits.

Recipients are now entitled to 55 per cent of their insurable earnings. The replacement rate has been ratcheted back repeatedly. In the 1970s, it was 66 per cent; in the 1980s, it fell to 60 per cent; in the early 1990s it was reduced to 57 per cent; in 1994, it was chopped by two more percentage points.

Reversing this slide would help the unemployed, while bolstering consumer spending. But it would provoke resistance from hard-line Conservatives, who believe poverty provides a strong incentive to find work.

• Cut EI premiums.

Employees pay $1.73 for every $100 they earn to a maximum of $731.79. Employers pay $2.42 per $100 to a maximum of $1,024.51 per worker.

Allowing those with jobs to keep more of their paycheque could boost consumer spending (but only if their employment was secure). Giving employers a payroll tax break might encourage hiring (but only if business conditions were right). Given the room for leakage, the impact would probably be modest.

• Rectify the regional disparities in EI.

The average EI payment in Ontario last year was $5,120. The average in Saskatchewan, despite its resource boom, was $8,000. The average in Newfoundland, which rode a wave of oil wealth, was $18,490.

The reason for these discrepancies is that Ottawa bases a person’s entitlement on the regional job market. If an area’s employment rate has traditionally been low, a person has to work longer to qualify for benefits and find a job faster.

Adopting a uniform rate structure would alleviate the distress in the industrial heartland and get rid of an inequitable allocation formula. But it would hurt seasonal workers and chronically depressed parts of the country.

• Improve accessibility to retraining

Under the Employment Insurance Act, anyone who opts for retraining after losing his or her job must continue to search for work in order to receive benefits, even if it means dropping out. The only way around this rule is to be referred to a training course by the federal government or one of its designated agents. Even then, the individual has to pay for the program.

Equipping laid-off workers with the skills to find work would make both economic and social sense. But Flaherty would have to create space within Canada’s crowded post-secondary institutions.

The best choice, if the government’s chief objective is to keep cash circulating in the short-term, is to make EI benefits available to anyone who pays into the fund.

The best choice, if its primary goal is to build for the future, is to invest in retraining.

After years of deterioration, employment is finally getting the attention it deserves.

What is still needed is an informed debate about how to do the greatest good for the most Canadians.

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