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The Progressive Economics Forum

Fewer Unemployed Eligible for Benefits

The annual Employment Insurance Coverage Survey is out, here.  The rate of eligibility for regular benefits from Employment Insurance is the lowest since 2003, the earliest year that there is comparable data.

To qualify, a person must have worked in the past 12 months and contributed to Employment Insurance, they must have left their job for a valid reason (layoff is valid, quitting usually is not), and they must have worked between 420 & 700 hours depending on the unemployment rate in their region.

The reason for the lower eligibility rate in 2011 was an increase in the number of workers without sufficient qualifying hours.  In 2011, 150,000 otherwise qualified unemployed workers did not work sufficient hours to qualify for E.I. benefits.  The reason for this, Statistics Canada says, is an increase in the proportion of unemployed workers who last worked a temporary, non-seasonal job.

Hardest hit were people aged 25-44, and women of all ages. In 2010 and 2011 54% of new jobs for persons aged 25-44 were temporary, and 57% of new jobs for women were temporary – a whopping 95% of new jobs for women aged 25-44 were temporary.

In 2011 we saw increases in temporary employment in construction, trade, transportation and warehousing. In 2008, before the recession, there were 875,200 temporary jobs. In 2011 there were 1,017,200 temporary jobs, equal to an additional 142,000 temporary workers. This is equivalent to a 1 percentage point increase in temporary employment as a proportion of all jobs.

The increase in temporary work that we saw in 2011 is partly due to a sluggish and uncertain recovery and a winding down of government infrastructure projects that were in place during the recession (i.e. temporary jobs ended).

Government austerity policies were put in place before the economy was able to absorb those cuts.  The PBO estimates that federal cuts will lead to slower GDP growth of 1% per year over 2014 – 2016, and 125,000 fewer jobs created over that period.

Changes made to EI in the federal 2012 budget will make this situation worse.  Some of these changes have been implemented, such as the new “Working While on Claim” pilot, and eliminating the extra 5 weeks in high unemployment areas.

More changes are expected to become effective in early 2013 – such as the changes to suitable work.

These changes will work to lower wages and working conditions for all workers, employed as well as the unemployed. They will require unemployed workers to take jobs at below their skill level far too quickly, resulting in bad matches for both workers and employers. This will actually increase skills shortages.

Beyond requiring workers to take jobs at lower wages, the new rules will require workers to accept jobs which are different from their previous job in terms of working conditions and work schedule. For example, a worker may be obliged to shift from day work to shift work, or from permanent work to temporary contracts.

A Pan-Canadian affordable childcare program is an example of labour-intensive public infrastructure that more than pays for itself in the long run.  With continued low borrowing costs, the federal government should be investing for the future in public infrastructure that improves labour productivity, rather than making cuts that are counter-productive.

Comments

Comment from Paul Tulloch
Time: December 5, 2012, 8:43 am

Brad Delong helped point out this interesting article that looks at an estimate of the US Beveridge curve which is part of the Tory motivation for cutting EI benefits and the unemployed will take any job.

It is interesting to note how the longer term unemployed in the US are failing to fall in line with the Beveridge curve predictions and the shift outwards. I do not agree with the suggestion for the long term unemployed suffering with “too many benefits”. I would lean more towards an exception based upon the gravity of the massive acceleration in the job loss combined with a small time frame for adjustment. I would also put in a few sentences of explanation on the qualitative aspects of lower employment quality being supplied and the demands for higher skilled work. So in fact I would argue it is not a skills shortage, but more or less a skills glut.

If it is merely McJobs being generated and we have industrial workers with specialized skills, they will undoubtedly wait longer in hopes of finding better employment opportunities. this actually may benfit the US in the medium term, as skills mismatch of this sort with more generous benefits will allow the more complicated job search to successfully resolve.

Where as the approach taken in Canada, that Angella makes note of in this post, would put extra pressure on workers with skills to accept lower skilled work because of an inadequate job search process being short circuited by a badly funded and managed “employment insurance” system.

This results in workers with higher skills accepting mismatched jobs with lower skill, the end result is a dead weight loss to society of eroded skillsets lost in the name of survival in the short run. This opens up an institutionally backed process that erodes skills within a society.

Whether it is a temporary effect is hard to say, but once a worker gives up on a career, it is life altering, and could mean a permanent shift. Without a good training strategy in place, that effectively deals with shocks such as the great recession, we can have the state come in and make the situation much worse in the long run by short sighted policies such as what we have here in Canada with the EI system which results in workers making bad decisions because of forces beyond their control.

But of course nobody seems to get that these days sitting on the hill.

The author of this paper also does not get it and I would have thought given the good data they have to work with, (we do not even have remotely close to this data in Canada, and of course the tories do not believe in data anyways)

http://www.bostonfed.org/economic/ppb/2012/ppb123.pdf

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