Ottawa misses chance to fix EI scheme

Posted on February 6, 2009 in Debates, Social Security Debates – ANALYSIS – Ottawa misses chance to fix EI scheme
Published: Thursday, February 05, 2009.   Paul Vieira

OTTAWA — As Canada braces for news Friday that thousands of more Canadians lost their jobs in January, analysts say the very program that is supposed to cushion the blow — and for which workers and employees diligently pay — is rife with flaws, in that it treats workers in certain regions unfairly, dampens labour productivity and remains too generous in good times but too stingy in a downturn.

Instead of getting the ball rolling on change in its budget last week, the government opted to keep its Employment Insurance scheme intact while extending existing benefits by another five weeks. In doing so, Ottawa put off the inevitable: a more thorough revamp made necessary by the coming demographic shift that will see Baby Boomers retire and labour shortages arise. In addition, analysts say, the EI model no longer reflects the changing economic landscape, with Ontario’s descent into have-not status and Newfoundland’s ascent up the economic ladder.

“The frustration that analysts have in swallowing the 2009 budget is that the opportunity to do something on this front was staring the government in the face — and it completely ignored it,” said Finn Poschmann, vice-president of research at the C.D. Howe Institute, a Toronto-based think-tank.

Thousands of Canadians are expected to tap EI in 2009 for the first time, as some forecasts indicate the unemployment rate will climb above 8% from its current mid-6% level. Statistics Canada will release labour data for January Friday morning, and the consensus among economists is for job losses of 40,000.

Workers and employers pay premiums, based on each $100 earned, to fund the EI scheme, which is administered by Human Resources and Skills Development. The budget said the premium, at $1.73, would be frozen for the next two years.

In 1997, changes were introduced in which eligibility and weeks of entitlement would be based on the local unemployment rate. As a result, people out of work in Atlantic Canada and regions of Quebec, where unemployment is generally higher, have an easier time qualifying for EI and receive benefits for longer periods, compared with the unemployed in other parts of the country. Qualifying periods range from 420 to 700 hours of insured work, with benefits lasting from from as little to 14 weeks to up to 45.

“EI is not neutral across Canada,” the C.D. Howe wrote in a pre-budget report. “Where benefits are less accessible, Canadians who lose their jobs are unfairly treated. Where they are more accessible, they discourage movement to more promising careers” or areas where labour shortages exist.

Derek Burleton, a senior economist at Toronto-Dominion Bank, said EI has become a form of “embedded equalization,” a reference to the complicated federal scheme in which money from the richer provinces is distributed to poorer provinces.

Among the biggest critics is Ontario, which is in the midst of a brutal downturn that’s expected to transform the province’s economy. According to Ontario government data, average benefits per unemployed Ontarian in 2007 were $5,120, compared with an average $9,750 in other provinces — a difference of roughly $2.1-billion in total. In addition, for that same year, the data indicate Ontario workers and employers contributed nearly 40% of EI premiums, but received only 27% of the benefits.

“The sad reality is that unemployment is going to go up in Ontario and people won’t qualify for more weeks,” Mr. Poschmann said. “That doesn’t take away from the longer-term problem — that we built a regional entitlement model into EI, which in retrospect was a mistake.”

In a pre-budget brief delivered to Jim Flaherty, the Finance Minister, Ian Lee, director of the MBA program at Carleton University’s Sprott School of Business, argued EI benefits are too generous in good economic times — pumping stimuli into a growing economy and allowing job seekers to be picky as to what their next job is — too stingy in tough times.

Mr. Lee argues EI benefits are among the best form of fiscal stimuli given their multiplier effect. In the future, the Finance Minister should have greater control over the scheme as a tool to influence fiscal policy, much like how the Bank of Canada uses the overnight rate target to dictate monetary policy.

This entry was posted on Friday, February 6th, 2009 at 9:07 am and is filed under Debates, Social Security Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Leave a Reply