When the COVID-19 pandemic escalated last year, the country’s employment insurance program was largely shoved aside, unable to cope with a historic shock.
For years, if not decades, the program’s shortcomings were essentially tolerated by policy makers, despite the very real impact on the unemployed and their finances. Over time, EI became less accessible to the unemployed, eligibility rules had grown more complex, and the program failed to keep up with structural changes to a modern labour market.
That was no longer tenable in a pandemic. The federal government brought in the Canada Emergency Response Benefit to patch things up, and it was remarkably popular: In just less than seven months, it disbursed $74-billion to millions of affected workers.
EI returned last fall to process new jobless claims, but with temporary changes to make it more generous and accessible. Still, it remains clear that a crucial part of Canada’s social safety net failed under the biggest spotlight, prompting calls for a permanent overhaul.
“It would be unfortunate if this moment passes without fundamental changes,” said Miles Corak, an economics professor at City University of New York, whose research often focuses on Canada’s social policies.
The upcoming federal budget may take a step in that direction. In a January mandate letter, Prime Minister Justin Trudeau urged Employment Minister Carla Qualtrough to “modernize” the EI system and include the self-employed, such as gig workers.
Here are the problems to address – and some possible solutions.
Why exactly did EI falter?
Basically, the EI system needed to process a deluge of claims last March – and it couldn’t, at least not in a timely fashion. It would have taken up to 18 months to process millions of claims, Ms. Qualtrough said last May. Beyond that, EI had issues that predated the pandemic but were amplified by it.
What are the long-standing problems with EI?
For one, the program covers fewer of the unemployed than it used to. In the 1980s, about eight in 10 unemployed workers received EI payments. In recent years, that’s dwindled to about four in 10. Some pay EI premiums, but don’t qualify for various reasons, such as not working enough insurable hours. Others don’t pay EI premiums. Notably, the self-employed aren’t eligible for jobless benefits through EI. This group accounted for 15 per cent of workers when COVID-19 hit, and were given access to CERB and later the Canada Recovery Benefit to help with their finances.
EI is also slow to react. The country is carved into 62 regions, wherein the local unemployment rate determines the number of insurable hours needed to qualify for EI, along with the duration of benefits. Because of sample-size issues in Statistics Canada’s Labour Force Survey, a three-month moving average is used in regional unemployment rates. However, that means there’s a lag time to EI coverage, which is unsuitable to a sudden shock in the labour market.
Then there’s the question of regional fairness. As part of the usual rules, claimants need at least 420 to 700 hours of insurable work to qualify, depending on their local unemployment rate. Put another way, the barrier to entry was much lower in St. John’s than in Toronto.
What are some quick fixes to EI?
Prof. Corak suggests that eligibility criteria be simplified – say, by tying them to provincial unemployment rates, which would lessen the impact of statistical lags.
Then, there are benefit amounts. EI premiums are paid up to a worker’s maximum insurable earnings (MIE), which for 2021 is $56,300. For decades, the benefit rate has been 55 per cent – meaning, the highest weekly EI payout is now $595 before tax. That can represent a sizable drop in income for the unemployed. Several economists have suggested hiking the MIE, the benefit rate or both.
“Right now, there are several provinces where median employment earnings for men are well above” the MIE, said Tammy Schirle, a professor at Wilfrid Laurier University. “So when those men have lost their jobs, a much smaller fraction than 55 per cent of their earnings is being covered.”
What about employers?
That’s a key consideration. Employers pay 1.4 times the amount of the employees’ premiums. Permanent changes to EI – especially if they lead to greater costs for employers – need to be weighed against how that influences hiring practices. In a prebudget submission, the Canadian Federation of Independent Business urged Ottawa to avoid making permanent changes “without extensive consultation.”
How well is EI funded?
EI is designed to break even over a seven-year period, with premiums changing as needed. The program often runs a surplus, bringing in more revenue than it pays out. Of course, the pandemic has resulted in significant expenses. The Parliamentary Budget Officer recently estimated the EI operating account will see its deficit peak at a cumulative $36.5-billion in the 2022-23 fiscal year, but return to balance as higher premiums kick in.
Ottawa has frozen premiums in 2021 and 2022, a move aimed at helping employers. In a recent report, the C.D. Howe Institute proposed crediting $6-billion to the EI operating account to freeze premiums beyond 2022, which would “enable employers to retain and hire more workers.”
What about the tougher fixes?
If the goal is to integrate the self-employed, that presents some challenges and tough decisions. For instance, should all of the self-employed be included – and if yes, how is that funded? If only gig workers are wanted, how are they distinguished from more traditional entrepreneurs?
One possible solution, Prof. Schirle said, is to fund some of EI through general government revenue, rather than solely through premiums. (It’s unclear what that would cost, although Ottawa has picked up some of the EI bill in decades past.) That would “open the door to covering people who are in these different types of employment arrangements,” such as gig work, she said. “We can’t currently cover them the way things are funded.”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.