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The Progressive Economics Forum

The Mowat Centre and Employment Insurance

The Mowat Centre final report on Employment Insurance (EI) released today has won a fair bit of media attention, and will serve to deepen the national debate over Canada’s most important income security program for working age adults and families.

The Task Force has commissioned and published a number of important research studies which improve our understanding of the way in which the current EI system works, and does not work. (I would particularly recommend Leah Vosko’s study which analyzes how and why many precariously employed workers are excluded from the current EI system, and and the study by Day and Winer which thoroughly debunks the old canard that EI significantly impedes inter-regional labour mobility.)

The final report has been written from a generally progressive and well-intentioned perspective, based on concern about the many unemployed Canadians who fall through the cracks of the current EI system. That said, it is (intentionally) very vague, and could well be used by the federal Conservative government to justify some perverse changes.

The key recommendation is for a nationally standardized EI system, with a single national entrance requirement; a single national range of benefits in terms of duration; and a single national benefit level relative to prior earnings. It also calls for a new “Temporary Unemployment Benefit” outside of EI.

The CLC has long called for a single national entrance requirement of 360 hours , a bit below the 420 hour standard now in place in the very high unemployment regions and well below the 7oo hours required in very low unemployment regions.

The key rationale for a single entrance requirement is that an unemployed worker has lost a prior job through no fault of her/his own and needs and deserves income support while searching for a new job. One can debate 360 hours, but it is effectively the level in place prior to the deep cuts to EI in the early to mid 1990s.  While often seen as too low, it must be recalled that getting into the system with the minimum number of numbers qualifies a worker for as few as 14 weeks of benefits, and that benefits themselves are quite limited.

It is critically important whether we get a uniform national entrance requirement by leveling up or down compared to the current grid. The report entertains three possible levels of qualifying hours, but clearly tilts towards raising the requirement in the high unemployment regions.

Constant references are made to the unfairness of net EI transfers to Quebec and Atlantic Canada at the alleged expense of the other provinces in general and Ontario in particular. (It is not irrelevant that the Mowat Centre is based in Toronto and that its work is funded in significant part by the Government of Ontario.)

Unfortunately the report does not provide any new analytical understanding of why Ontario is relatively penalized by the current EI system. In point of fact, there are no “provinces” in the EI system, only regions within provinces. The proportion of unemployed workers collecting EI benefits in Ontario is indeed much lower than the already low national average, and this indeed makes the system very unfair. But the low Ontario average is due mainly to the very low proportion of unemployed workers collecting benefits in the Greater Toronto Area (about one in three last time I looked.) . This is probably caused by the combination of a high proportion of recent immigrants in the work force, and an especially high proportion of very precarious jobs.

The report does not demonstrate that low unemployment rate cities in Atlantic Canada (eg Halifax or St. John’s ) are relatively advantaged compared to cities with the same unemployment rate in Ontario or any other province, or that high unemployment cities in Ontario like Windsor are worse off than cities with the same unemployment rate in other regions.

The clear danger here is that the report will be used to roll back alleged EI “generosity” in high unemployment regions in the name of fairness, at the expense of workers in high unemployment regions across the country.

The report rightly calls for getting rid of the especially high entrance requirement of 910 hours for new entrants and re-entrants which excludes many recent immigrants, young workers and women returning to the work force after a parental leave.

The report calls for an unspecified national duration range which would reduce the current range of 14 weeks (the bottom of the range in low unemployment regions) to 50 weeks (in the very high unemployment regiona pilot projects.) The range would still be determined by hours worked. It further suggests, positively, that the duration range and thus maximum benefit periods, might be increased in times of recession (as with unemployment benefit extensions in the US.

Again, the key problem is the issue of whether a national standard means we are leveling up, or leveling down. The danger is that duration might be severely reduced in high unemployment regions, while perhaps being only slightly increased or not at all in low unemployment regions.

The report argues, quite rightly, that the unemployment rate at any point in time tells us very little about the job prospects of unemployed workers in a region, and that duration should be conditioned more by changes in the unemployment rate or other labour market indicators such as the number of job vacancies, as opposed to the level of the unemployment rate. In the recent recession, many workers in regions of low unemployment before the downturn were laid off and received only a few months of benefits due to the prior low unemployment rate, even though very few if any new jobs were available. However, no clear recommendations are made on how to deal with this important issue.

The report also argues with respect to the duration issues that there has been only limited correlation in the recession between the unemployment rate and the duration of unemployment. While true, it is probably the case that in “normal” times, the high unemployment regions experience both high levels of unemployment AND above average spells of unemployment. If true, they would be doubly hit by the proposed national standardized system

After noting that the current 55% replacement rate of insured earnings is very low compared to other countries, the report recommends no improvements and suggests again a single national standard. This could jeopardize rules which try to take into account specific patterns of seasonal work, especially in the higher unemployment regions.

A key recommendation of the report is for a new Temporary Unemployment Assistance program outside EI, loosely based on proposals from the Caledon Institute.

The argument – which has merit – is that reducing the entrance requirement alone will not benefit many precariously employed workers – especially women, temporary workers and the self-employed – now excluded from the EI system. Even those who would get in from a reduction of the entrance requirement would typically get very limited benefits for short periods.

They propose that unemployed workers not eligible for EI be able to draw upon an income support benefit as and when needed – something amounting to less than $300 per week which could be collected for a short period with a limit on aggregate use (eg a maximum of 6 months every 5 years.) The benefit would be paid back from future earnings though the income tax system, and work income would be needed to requalify for future benefits.

Unlike EI, this new benefit would not be based on social insurance principles in which premiums paid convey a right to benefits.

The danger is that this benefit – which would be low in dollar terms and with a very low cap on use -  might replace EI for many workers excluded from a “reformed” system by an upward harmonization of entrance and duration levels in a single national system.

The report did not examine ways of bringing precarious workers into the EI system, and indeed proposes phasing out the fishers benefit which represents one novel expansion of the system. Leah Vosko’s study proposed to explore ways to cover the many workers who combine paid employment with periods of solo self-employment.

The report proposes an experiment with wage insurance for older displaced workers (ie a wage top up to encourage such unemployed workers to take a lower paid job rather than collect benefits). The danger here is that this would further reduce wages in the low wage job market, and that young workers might be pushed out of jobs.

The report proposes expanding the role of the Canada – EI Financing Board so that they would be responsible for approval of pilot projects and program evaluation as well as service standards. They do call for labour and employer representation on the CEIFB, but there is a danger that the design and actual administration of the EI program could be devolved from a democratically accountable government department.

The report proposes taking active labour market programs including training out of EI, and replacing them with a single transfer payment to the provinces for such programs paid for from general government revenues.

While there are merits in reducing barriers to access to training on the part of non EI-eligible workers, this approach is light on details concerning accountability and standards; would reduce federal transfers to provinces with relatively high EI caseloads; and would undercut the use of EI revenues to fund programs which reduce EI expenditures.

So, a report to be carefully considered before it is embraced.

 

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Comments

Comment from Paul Tulloch
Time: November 16, 2011, 10:33 am

Great post Andrew despite my comments, I do find your analysis bang on.

I have worked on the EI data for several years, but I am quite disappointed by the outputs in this “non-partisan” review. I wonder if one person who had imput or worked on this report actually has ever been on the EI in its current incarnation. That truly is my first observation froim reading a majority of the report.

I am very sad to read some of the new experimental aspects with older displaced workers, i.e. subsidized minimum wage workers- a gift to the 1%. That is such a slap in the face of older workers.

Overall, I do think the national standards promoted throughout the report are very far from what I would say pushing national standards for a progressive ends. So in fact I would argue that indeed progressives should be arguing for a continuance of a regionally focused EI system. The death of income protection sadly continues and now it will be nationalized. (it was actually working at some level for for particular regions)

Again we get these halfway responses from a potential source for good, but in the end the solutions posed are to me controversial at best.

Any massive report that does not address the key failing of EI, being too low 55% benefit rate, I am sorry but one must conclude is not something that can be embraced. And to propose add ons that basically admit the systems failings but decide to ignore them and circumvent a real solution by regrouping workers into some new lower cost quasi benefits streams, again is a big huge fail.

There are so many innovative ways to tap into the potential of income replacement for training and other purposes, and again from my reading they fail. Somehow the EI fund now becomes a central plank for all retraining which again is a huge mistake as it now becomes a potential center funding source for a national training strategy. Instead it should be used as a supplement for those deemed unemployed. Other unemployed workers should be funded out of other revenue streams. That to me again is a dangerous step in redefining the usage of the general EI fund. I am sorry, I am in full support of a national training program, buts lets not allow the EI fund to be the main plank of funding all workers in need of training.

There are some positives, like the foriegn worker inclusion. But overall Andrew I do feel you are being too generous.

Comment from Lana Payne
Time: November 16, 2011, 10:58 am

Hi everyone,

This notion that the report should be carefully considered before it is embraced leaves the impression that it should be embraced. There are so many dangerous recommendations in this report that I don’t know where to start. Sure it has a few positive things, but the notion of temporary insurance, the fact that this could easily lead to higher eligibility and shorter duration for many workers (if the report was actually embraced) is not what I would actually call progress. In addition, the reference to temporary insurance and taking Fishing benefits out of the program are extremely dangerous ideas that will hurt a lot of workers in my opinion.

It also contributes to a further balkanization of the Unemployment Insurance system in Canada.

I will provide further commentary in the days ahead, but I think as progressives we need to be very wary of just how much this actually does add to the debate around EI. Not all of it is good.

Lana

Comment from Andrew Jackson
Time: November 16, 2011, 12:45 pm

I should have said ‘”rather than embraced.”

Comment from Lana Payne
Time: November 17, 2011, 6:26 am

Hey everyone,

So the more I read this report, the more offended I am.

Indeed, blood boiling would be an understatement of my reaction as I read it in more detailed last night.

Preparing a detailed response.

Sol
Lana

Comment from Michael Mendelson
Time: January 16, 2012, 5:40 pm

Reply to criticism of Jobseeker Loan

I would urge those interested to read my paper proposing the ‘Jobseeker’s Loan’ rather than relying on second hand reports in the media or the version proposed by the Mowat Centre. The paper can be found at http://www.caledoninst.org/view_pub.php?id=967.pdf

As a life-long supporter of social insurance I have been a little taken aback by criticism from people with whom I normally agree. As you will see if you read the paper, it begins with a vigorous defence of the social insurance model for EI and situates the proposed Job Seeker’s Loan not as an alternative to EI, but an alternative to welfare. The paper argues that EI must be organized as a social insurance, but there are some things a social insurance cannot do well; especially cover the self-employed and the pseudo-self employed, women and others returning to the labour market, recent immigrants and many others.

The proposed new program is meant to fill the gap in income security resulting from non-coverage in the EI program. The gap is currently very poorly ‘filled’ by welfare to the great detriment of many unemployed, especially those with the most precarious employment. If a social insurance program cannot fill this gap, the only kind of program that can do is one with an income-tested benefit. This is a quick summation of a longer argument, which is in the front half of the paper. Those who are criticizing this proposal should consider the issues in that section.

Turning to the proposal itself, I suspect that many people do not recognize that the Jobseekers Loan is in fact thinly veiled refundable tax credit, except that it is a tax credit which is paid in advance of the end of the tax year. What Andrew does not mention is that the Jobseeker’s Loan (or Temporary Income as it is called in the Mowat paper) is not just income contingent, but entirely forgivable at low incomes, with a steeply progressive ‘repayment’ schedule. This is the same as the net value of a refundable tax credit.

Of course, the Jobseeker’s Loan program is just one possible way to deliver an income-tested benefit. An income-tested benefit could be delivered through the more familiar mechanism of a monthly income-test. However, the ‘income contingent’ design of the Jobseekers Loan is an innovative way to sidestep all the expensive, complicated and stigmatizing machinery of monthly income-testing and instead set up a program in which people can make their own decisions with minimum interference by being income tested retrospectively through the tax system.

If the income tax system is used for income-testing for benefits that are needed immediately then the tax system must be applied retrospectively because income tax is not reported until three months after the end of the year. Any retrospective application of an income test must by definition have a mechanism for full or partial repayment. People could not apply for and get their Jobseeker’s Loan through the Internet – and very quickly – like a day or two after application.

Admittedly I purposely did present the tax credit with a bit of a disguise so that not everyone would see immediately that it is really a fully refundable tax credit for working age adults, in an effort to make the proposal more attractive to those who would otherwise reject out of hand such a proposal. That is why I called it the ‘Jobseeker’s Loan.’

This Jobseeker’s Loan is a proposal for a new and highly redistributive program, which would add significant income for many unemployed workers with the lowest incomes. It is a program meant to divert people who are not eligible for unemployment insurance from having to rely on welfare, for at least a period of time – which I hope will in many cases be long enough so that they never need welfare, can keep their houses and cars and so on.

I would be in favour of measures to improve unemployment insurance to cover more workers (so long as those measures preserve EI as a social insurance). Such measures if they exist would make this new program less needed – but the data shows that the usual suggestions such as reducing hours of work will not result in much improvement at all in coverage, especially in Ontario. For example, Leah’s paper does not actually have policy recommendations explored in any depth about what to do regarding the distributional issues she raises in her paper. I would be happy to see a viable set of proposals to cover the uncovered so to speak. But where are they? Is it not the responsibility of those who say that the Jobseeker’s Loan is not an acceptable to provide some specific and realistic detailed proposals for a program that will provide something for these unemployed who are among the poorest and most vulnerable?

I do not find an argument very compelling if it amounts to a claim that the best way to preserve EI is to ensure that there must be no acceptable alternative for those who are excluded except to clamour to get into the EI program, especially given that the 1990s cuts were made in exactly that circumstance showing that it actually does little or nothing to preserve EI.

Doe the criticism really come down to the old ultra-left canard that the deeper the misery the more likely the revolution? Is the argument actually: ‘Any program, such as a Jobseekers Loan, which could make life better for some unemployed workers who are not eligible for EI will inevitably encourage government to make cuts in EI and discourage government from improving EI?’ How successful has this strategy been so far?

Comment from Paul Tulloch
Time: January 16, 2012, 7:04 pm

@Michael

Your point on the deeper the misery the closer the revolution, never entered my mind on my comments and knowing Andrew’s work the way I do, I would say that has got to be considered a cheap shot. I don;t know of any progressive that would even think along those lines. I am sorry but potentially that comment is better focused at the right wingers these days, as they are the ones who keep swinging the misery axe, not the progressives. They are the ones who could very easily make life for the unemployed much easier by bringing back many aspects of EI that basically disemboweled it in the 90’s.

Your proposal is something that should not be dismissed out-rightly, however, innovative in this sense kind of means opening up the door for less, and my point would be lets try and regain some lost ground in the EI program. Once that is established, then we can open up some new avenues n which you mention.

Potentially an emergency measures act when unemployment and EI rates diverge to some onerous level, because of the newer restrictive criteria. However, my feeling at this time, HArper has got to do something in the manufacturing heartland of Ontario and Quebec to help stem the misery, and I think we are close to having a serious talk about reviewing coverage eligibility criteria. Whether it is redrawing some of the economic regions or relaxing requirements.These, from my understanding traditional policy parameters could potentially compliment what you are proposing.

Comment from Michael Mendelson
Time: January 16, 2012, 9:54 pm

Paul, my paper has a long and detailed analysis of the Employment Insurance Coverage Survey. The analysis shows that returning EI to its pre-1990s rules would leave about a third of the unemployed workforce in Ontario with no assistance – these are people who are not contributors to EI and not participants. If the progressive movement is going only to demand changes in EI it will continue to leave some of the most vulnerable and lowest income unemployed in the cold.

As far as cheap shots go, I was not responding as much to Andrew’s criticism as to that of the OFL, which claimed that my proposal was somehow ‘privatization’ of the EI system, and did make the argument that the Jobseeker’s Loan would reduce the incentive to improve EI and facilitate cuts in EI.

Finally while I am at I see I made a typo. The sentence: “People could not apply for and get their Jobseeker’s Loan through the Internet – and very quickly – like a day or two after application.” has an extra ‘not’ and should of course read “People could apply for and get their Jobseeker’s Loan through the Internet – and very quickly – like a day or two after application.”

Comment from Paul Tulloch
Time: January 17, 2012, 1:02 pm

Sorry I thought you were pointing at Andrew on that one. I have not read the OFL response yet.

Given the length of this downturn/recession, there are some definite misery thresholds that are being surpassed, (longer term unemployed, youth unemployment and just the sheer number of unemployed. For those fortunate enough to find work, in many cases it is a transition from good jobs to precarious work, for example the percentage of those working part-time but wanting full-time are at heightened levels.

Given the obvious duality ongoing within the labour market, i.e. west vs east/ resource extraction vs manufacturing, and the continuing decline, we are going to need a serious re-examination at social transfers and it is going to have to be soon and most likely in an emergency type fashion. With the austerity focused Feds, it will most likely have to originate at the provincial level that innovative policy measures be implemented.

We do need to have a very serious debate about this and we need it right now. Contrary to all the seemingly soft landing discourse rising in the US, a lot of that is wishful thinking, and politicking given the election year.

So it is very clear, we are going to need some emergency measures put in place and soon. As you note, many unemployed will not qualify for EI regardless of criteria changes.

I at least support the notion that programs you suggest should be at the center of the debate.

However there is a point to the OFL criticism. There is only so much political capital to be used on changes to EI, and the Jobseeker initiative would take some of the leverage away from pressure for changes to traditional EI. However, given the population of said economic victimized by this economic downturn are mutually exclusive, there must be something for everyone in proposed solutions. So I do think it would be wise to join the job seeker package together with a push for broader unemployment relief. I think we are on the same side of the fence here. Maybe we could use this debate to bring people together for a very serious and high profile gathering on unemployment.

Comment from Pam Frache
Time: January 19, 2012, 2:44 pm

The OFL’s analysis of the Mowat Centre’s EI Task Force Recommendations can be found here: http://ofl.ca/uploads/misc/EI_Mowat_Report-Assessment_2011-Convention.pdf.

Your point Michael, that an income-contingent loan repayment scheme may be used as an alternative to non-repayable social assistance is certainly not lost on those of us in Ontario preparing for the Social Assistance Review Commission and the Drummond Report!

Having read your paper Michael, I am not convinced that the proposals advanced by labour and community organizations to date – especially reducing hourly threshold for eligibility and extending the duration of benefits – won’t have a substantial and meaningful impact on the proportion of people receiving EI. It seems to me that your paper has looked only at the impact of reducing hours, and not adequately examined how a lower hourly threshold combined with increased duration of benefits could impact the proportion of individuals you have categorized at “ineligible” for EI.

Your paper does note that up until 2010, approximately 25 percent of those not receiving EI benefits were “non contributors” – people who had not worked in the previous 12 months. You also note that in 2010, this proportion increased to 32 percent and you acknowledge that this could be explained by the phenomenon of long-term unemployment, suggesting that many in this category are likely EI exhaustees – people who qualified for EI but have used up their benefits without finding work, and therefore not paying EI premiums.

Part of the difficulty in the current EI system is the manner in which the use of regional unemployment rates conspires to affect both the hours required for eligibility and the duration of benefits. A single, lower entrance requirement will have the effect of increasing those eligible and prolonging benefits. Were the duration of benefits extended to at least 50 weeks in all regions, the net effect I suspect would be quite a substantial improvement in the proportion of those you categorize as “non-contributors”. If benefits were extended during periods of high unemployment by an additional year – as labour has long advocated – the category of “non-contributors” would be even further reduced.

Advancing these and other serious proposals are not merely an exercise in “clamouring to get into the EI program” as you suggest. Neither do we fight for these improvements to “deepen the misery”. We have worked hard to implement a progressive vision for improving EI and have received widespread support for our efforts, including in parliament.

However well intentioned, your proposal is naïve at best. A temporary unemployment assistance program funded not by employers and employees, but rather by general revenues and individual debt, will play into the hands of the corporate elite who have been campaigning mightily to reduce their expected contributions to EI – and to general revenues through corporate income tax cuts. The Mowat Centre recommendations clearly envision a reduction in expenditure from the EI account with a substantial increase in expenditures from general revenues. Even your paper, Michael, clearly acknowledges that there will be permanent downward pressure on programs funded through general revenues. This reality can only mean one thing: increased pressure on funding delivered through individual repayment, regardless of the particular model that is set up initially. This in turn means less generous forgiveness for job seekers who are left with no alternative than to turn to debt to fund their unemployment insurance. In the meantime, the employers’ contribution is lost altogether.

With respect to the specific model and income thresholds you have proposed, it seems to me that a mere 26 weeks of assistance based on 90 percent of the minimum wage (which varies across the country, I might add) over a five year period doesn’t to me escape the limitations already embedded in the current EI system with respect to inadequate duration and low benefit rates. And while I appreciate that your intention is to develop a model that compares favourably to social assistance, the fact remains that these reforms are set out among a variety of recommendations for Employment Insurance and many of those recommendations will disentitle people who would otherwise have been able to receive EI. For these people, the TUA would offer less generous benefits, a shorter duration and the spectre of full repayment should they actually land a good job. To my eye, this outcome does not “make the program better” and indeed is much closer to “deepening the misery”. Finally, I would be remiss if I didn’t point out that while repaying only $375 of a $2,000 loan seems reasonable to many of us who are privileged enough to work at above minimum wage jobs, for a person trying to scrape by on an annual income of $15,382 – the example you provided in your paper – that $375 actually represents a significant financial burden for people who are already struggling enough.

It is for these and other reasons that the 2011 OFL Convention unanimously rejected the Mowat Centre’s recommendations. We will certainly look forward to a vigorous and ongoing debate in the weeks and months ahead.

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