Employment Insurance and Recession

Here’s a piece from the CLC election web site:

http://canadianlabour.ca/en/employment-insurance-and-election-what-will-happen-if-there-a-recession

EI is a critically important program for Canadian workers, especially in tough times like we face today. Laid-off workers obviously need adequate benefits to support themselves and their families while they search for a new job.

Recessions mean that more workers lose their jobs, and that they find it much harder to find a new one. In the last two recessions, those of the early 1980s and early 1990s, Canada’s national unemployment rate rose sharply, from about 7.5% to over 11%.

Many economists now argue that another recession may be close to hand.

But we are not prepared. Compared to when we hit previous recessions, our EI program will leave many Canadians out in the cold, unable to qualify for benefits. And it stands on much shakier financial ground.

Change is needed on both fronts. This key issue should be addressed by all of the political parties in this campaign.

Benefits

Back in 1996, the maximum weekly benefit (in today’s dollars) was $604. Today, after a decade long freeze on maximum insurable earnings which just expired, it is only $435. The average benefit today is just $335 per week, much lower than the maximum.

In 2006-07, only four in ten unemployed workers qualified for EI. This is because many young people, recent immigrants, part-time, temporary and seasonal workers do not have enough hours of work to qualify, especially those in large cities.

Those who do qualify are, on average, eligible for 32 weeks of benefits, about seven months. This is much less than the theoretical maximum of 50 weeks in a handful of very high unemployment regions. Some unemployed workers qualify for a maximum of just 14 weeks of benefits.

Even in a period of fairly low unemployment which has allowed most claimants to find a new job, more than one in four exhausted their benefits in 2006-07.

Despite deep cuts to the EI program, $8 Billion in regular benefits were paid out to 1.3 million unemployed workers in 2006-07, a year when the unemployment rate averaged just 6.2%. Despite low unemployment in any given month, a lot of Canadian workers are unemployed and have to turn to EI at some time in a year.

Program Finances

Despite the cuts and low benefits, a recession would drive up the costs of the program significantly. It is estimated that 83% of employees now paying into the program would qualify for benefits if they were laid off.  (The proportion of unemployed workers actually collecting benefits today is lower than this figure because many of the unemployed were previously self-employed or have just joined or rejoined the work force.)

The Chief Actuary for the program calculates that a one percentage point in the unemployment rate would raise total EI benefits paid out by $1.4 Billion per year. An increase in the unemployment rate comparable to the last two recessions would, then, increase the cost of benefits by as much as $5 Billion per year.

The EI program has accumulated a huge surplus of $54 Billion since the mid 1990s, the result of deep cuts in benefits paid to unemployed workers. That surplus could and should be available to backstop and improve benefits if we hit a recession. Rainy day funds are, after all, supposed to be there for rainy days.

The Canadian Labour Congress has called for a lower entrance requirement of 360 hours of work across the country so that more workers would qualify if they are laid off; longer benefits so fewer unemployed workers exhaust a claim; and higher weekly benefits based on the best 12 weeks of earnings before a layoff and replacement of 60% of insured earnings. We would also like to see part of the accumulated EI surplus spent on more training and better labour adjustment programs for unemployed workers.

However, under both recent Liberal and Conservative governments, the EI surplus has been placed off limits for the purpose of either improving EI benefits, or stopping EI premium increases, if we go into a recession.

Under the current system, EI premiums are supposed to be set to exactly balance revenues and expenditures as forecast for the year ahead. The Conservatives have set up a reserve fund of $2 Billion, but it has to be repaid from premium revenues in the following year if it is drawn upon.

The current system limits increases in premiums in any one year to just 15 cents per $100 of insured earnings, or about 9% of the current premium. However, the government can set the premium rate itself if it chooses to do so.

So what would happen if there was a recession?

At a minimum, premiums would rise, even in a serious downturn. That would make unemployment even worse. We could expect there to be strong pressures to cut rather than to improve benefits and to trim back on badly needed training programs to keep the federal government budget from going into deficit.

In short, the policy of ignoring the huge EI surplus for purposes of premium setting sets the stage for the worst of all worlds – EI cuts when EI is most needed.

What are the Parties Saying?

For all of the talk of a pending recession and the need to fight poverty and growing inequality, little has been said about EI in this campaign. This is a surprising oversight since EI – which now includes maternity/parental, sickness and compassionate leave benefits as well as regular unemployment benefits – is one of the largest federal programs and directly affects the well-being of millions of Canadian working families.

The Conservatives and Liberals have agreed that the accumulated EI surplus should be ignored for purposes of financing benefits and setting premiums, a position which has been strongly opposed by the New Democrats.

The Conservatives did extend some modest improvements to EI benefits in high unemployment regions which had been introduced by the Liberals to reverse some of their most draconian cuts.

They have not been clear about how to finance their promise to extend maternity and parental benefits to self-employed workers who pay into the program for just six months before a claim. Unlike Quebec, they do not plan to require all self employed workers to contribute on an ongoing basis to pay the cost of maternity and parental benefits for the self-employed.

The Liberals supported some improvements to EI benefits reflecting CLC priorities in Bill C-269 and other Private Members Bills in the last Parliament. However, the Liberal Platform promises only to improve benefits through pilot projects which are confined to a few regions of very high unemployment.

The New Democrats consistently supported the CLC priorities in Bill C-269 and other Bills in the last Parliament, including through legislation initiated by NDP MP Yvon Godin. The New Democrat platform calls for 100% of EI premium revenues to be used for EI purposes, broadening access to the program so that 80% of unemployed workers are covered, and benefits based on the best 12 weeks of earnings. They also call for improving the caregiver benefit under EI to cover leaves of up to six months.