Social Policy in Ontario

Frayed safety net for unemployed

Posted on April 21, 2009 in Debates, Governance Debates, Social Security Debates

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TheStar.com – Opinion – Frayed safety net for unemployed: Unequal access to jobless benefits worsens impact of `Great Recession’
April 21, 2009.   Michael Mendelson, Ken Battle, Sherri Torjman, CALEDON INSTITUTE OF SOCIAL POLICY

An additional 41,000 Canadians were out of work this March, bringing unemployment close to one and a half million. This frightening number will almost certainly keep climbing in the next several months.

Bailouts and building projects will help, but the essential program for most jobless Canadians remains the Employment Insurance system. The program was introduced in the wake of the Great Depression and got us through many difficult times since, most recently the recessions of 1982 and 1990. Is the program up to the challenge of the Great Recession of 2009?

In the 1982 recession, jobless benefits helped 76 per cent of the unemployed. During the 1990 recession, fully 83 per cent received benefits. Today coverage is down to 43 per cent – half of what it was in 1990.

Only one in three of the unemployed in Ontario and the West receive Employment Insurance, compared to eight in 10 in Quebec and the Atlantic provinces. The East-West gap in coverage is just as great if we compare cities; for example, just 24 per cent of the unemployed in Toronto got benefits in 2008 compared to 50 per cent in St. John’s.

The decimation of Employment Insurance has its roots in Ottawa’s belt-tightening in the 1990s: Employees had to work longer to qualify for benefits; payments were lowered; and the maximum duration of benefits was reduced. Many more of the unemployed could not work enough hours to qualify.

Especially hard hit was the growing population with non-standard jobs – self-employment, multiple jobholders, contract workers and part-time workers – that now make up about one-third of the labour force.

The division of Canada into 58 “unemployment regions” also shares the blame for the spotty coverage across the country. Entrance requirements range from 420 hours for regions with unemployment rates over 13 per cent to 700 hours for regions with less than 6 per cent unemployment. The maximum duration of benefits ranges from 50 weeks to only 19 weeks.

Regional differences in work requirements and length of benefits pack a double punch. In a high-unemployment region, a worker laid off with 420 hours of employment can end up with the maximum 50 weeks of benefits. A jobless worker with the same work record in a low-unemployment area does not qualify for any benefits. But even if the employee in the low-unemployment region worked 700 hours, she would be entitled to only 19 weeks of benefits. Despite having worked longer and paid more premiums, she ends up with only 38 per cent of the benefits paid in the high-unemployment region.

This is unfair. The local unemployment rate is not the most important factor affecting how hard it is to find a new job. Job prospects are determined by skills, flexibility in relocating, education and work experience, and how these and other characteristics fit with the local, regional and national labour market. Employment Insurance rules based on regional unemployment rates do not reflect the real-life circumstances confronting the unemployed.

The 2009 budget extended the maximum duration of payments by five weeks, up to a maximum 50 weeks. This change is positive but temporary, lasting only two years, and does nothing about the program’s Achilles heel – its inadequate coverage of the unemployed in much of Canada.

Liberal Leader Michael Ignatieff advocates uniform work requirements for all workers. We would increase the maximum duration of benefits to 50 weeks, with 360 hours required to qualify anywhere in Canada. But additional immediate changes are needed to get unemployed Canadians through the Great Recession.

The maximum weekly Employment Insurance benefit is now $447. In 1990, it was $570 in inflation-adjusted 2009 dollars, so the real value of weekly benefits has fallen by $123 since the last recession. Many beneficiaries of Employment Insurance get much less. In 2006-07, the average weekly benefit was $360 for men and only $298 for women, substantially below the then $423 maximum. Earnings-replacement should be increased from the current 55 per cent of insurable earnings to 70 per cent, restoring maximum weekly benefits to $570 – their level in the previous recession.

The calculation of weekly benefits includes weeks not worked or only worked part-time before a claim, so a few weeks with low earnings can dramatically reduce average earnings over the 26-week period. This formula discriminates against workers – typically women – with unstable earnings patterns because they work on call, in casual or temporary work. The amount of benefit should be calculated on the best 12 weeks of earnings of the previous 26, so as to allow flexibility to take part-time jobs.

Such measures would strengthen Employment Insurance, but would still leave many unemployed without coverage. Canada’s entire support system for the unemployed – welfare as well as Employment Insurance – needs to be re-examined through a joint review by the federal, provincial and territorial governments.

Here is a bold new idea: Ottawa should create a new program to complement a stronger Employment Insurance system. The new scheme would pay temporary and time-limited benefits to unemployed workers with low or modest incomes who cannot qualify for Employment Insurance. The new program would prevent tens of thousands of the unemployed from falling onto job-destroying provincial welfare rolls.

Employment Insurance’s financing also needs reform. There is no viable premium-setting policy today: Ottawa makes ad hoc decisions every year, inevitably politicizing the rate decision. The plan should be drawing down accumulated savings from premiums collected during flush years to pump money into the economy during the lean years, thereby helping thousands of businesses to stay afloat and their workers to remain employed. Premiums should be set higher in good economic times and lower when the going gets rough.

Just as we did during the 1930s, the Great Recession of 2009 can be an opportunity to reconstruct our social programs so that we come out of this crisis with a stronger social safety net, better adapted to the realities of a twenty-first century economy.

Michael Mendelson is senior scholar at the Caledon Institute of Social Policy, where Ken Battle and Sherri Torjman are president and vice-president.

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