Jobless with no safety net falling through cracks in EI

Posted on September 18, 2009 in Debates, Governance Debates, Social Security Debates – Opinion – Jobless with no safety net falling through cracks in EI: Now is the time to bring EI back to its core mission of insuring against income loss during unexpected periods of unemployment
September 18, 2009.   Jeremy Leonard, Senior Fellow at the Institute for Research on Public Policy

When the ranks of Canada’s unemployed swelled in the midst of the recession earlier this year, the adequacy of employment insurance was called into question from many quarters. Disagreement about just what is right or wrong with the program nearly precipitated a summer election and could very well contribute to the fall of the government this autumn.

Much of the debate thus far has focused on whether to reduce the number of hours required to qualify. The opposition parties are in favour of reducing the work requirement to 360 hours (the equivalent of about 11 35-hour weeks) in all regions of Canada. Under the current scheme, minimum hours required to qualify range from 420 to 700, depending on regional economic conditions.

The Conservatives contend that the status quo in this regard is appropriate, preferring instead, as announced earlier this week, to extend benefits for long-tenured workers with minimal past use of the system.

The narrow focus on minimum work requirements and length of benefits is unfortunate, because any changes in this regard will have fairly small effects on unemployment trends and EI coverage.

The more serious issues – in particular, how to adjust EI funding to encourage firms to use layoffs as a last rather than first resort for dealing with economic recessions – have been largely absent in public debate. It would be unfortunate if politicians and policy-makers do not reflect on these challenges and offer some pragmatic solutions.

The basic concern voiced in a number of quarters is that EI has not been responsive enough to rising unemployment, meaning that many newly laid-off workers are suddenly finding themselves without a safety net.

The reason seems obvious: Prior to the recession, it was widely pointed out, only about 40 per cent of unemployed Canadians received EI benefits, and this ratio increased only marginally as the recession took hold.

But at the national level, this assertion is plain wrong. A better way to judge the responsiveness of EI to deteriorating economic conditions is to look at changes in unemployment and EI beneficiaries during the recession, and this picture tells quite a different story.

From the beginning of the recession last October through April – the worst of the economic crisis – the number of unemployed Canadians increased by 567,000, and 462,000 Canadians were added to the EI rolls over the same period.

While not a strict apples-to-apples comparison (the data reflect net rather than gross labour force changes), this implies that slightly more than 80 per cent of the net increase in unemployment was “covered” by a corresponding increase in EI beneficiaries. This improves to nearly 90 per cent if we focus our attention on the 25-and-over demographic group, which comprises the vast bulk of families.

The 2008-09 recession has underscored some regional inequities under current eligibility rules, which tie hours required to qualify to the regional unemployment rate. Because they had relatively low unemployment rates coming into the recession, the areas of the country hardest hit – the Alberta oil patch and southern Ontario – had the stiffest eligibility requirements until recently.

Increases in EI beneficiaries have amounted to less than 70 per cent of the increase in unemployment in Alberta and Ontario since the beginning of the recession, compared to nearly 85 per cent in Canada as a whole. Moving to a uniform national eligibility requirement during recessions would alleviate this problem.

It is too late for EI reform to help combat the 2008-09 recession, which may already be in the past. But the heightened attention to the program provides a golden opportunity to bring EI back to its core mission of insuring against income loss during unanticipated periods of unemployment.

To function effectively and provide the right incentives, EI premiums paid must to some extent reflect the probability of needing benefits. Such “experience rating,” used throughout the United States, is completely absent from Canada’s EI system. Firms pay the same premiums irrespective of their history of layoffs, and workers receive the same benefits irrespective of the frequency with which they make claims. Thus, firms have no incentive to minimize layoffs in economic hard times because they pay no penalty for not doing so.

Politicians and policy-makers should not allow this window of opportunity for more fundamental change to close. EI reform has always been a political hot potato, but the stars may be as well aligned as they can be.

Jeremy Leonard is the author of “Time to get real on EI reform,” published in the September issue of Policy Options.


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