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It’s time to put Canada’s employment insurance program on solid footing
But the economy rebounded when the pandemic ended, the unemployment rate dropped and EI reform took a back seat to other priorities. (Pexels Photo)
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When many Canadians were temporarily thrown out of work in the midst of COVID-19, the federal government pledged to reform its employment insurance (EI) program – one of the main pillars of the country’s social safety net.
But the economy rebounded when the pandemic ended, the unemployment rate dropped and EI reform took a back seat to other priorities. Now, as the tariff dispute with the U.S. casts a dark shadow over Canada’s economy, it is back in the spotlight.
Not much has changed in the intervening years. But it’s not too late to put it on a more solid footing.
Rather than introducing another flurry of stop-gap measures as it did during COVID, the federal government should make meaningful, long-lasting changes to the EI system.
In the wake of the pandemic, the government undertook a two-year review of EI to consider, among other things, how it could better support the increasing number of workers who don’t qualify for EI benefits under current rules. But it has yet to announce any meaningful reforms.
To support and inform the government’s efforts, the Institute for Research on Public Policy convened a working group of experts in 2021and 2022 to propose options for modernizing the program. We published two research reports. One, in May 2022, highlighted ways to modernize the EI program while a second later in the same year discussed how to finance the proposed changes.
We also published a commentary with recommendations about how to improve the way the program functions and how it is funded.
These solutions remain relevant today as Canada faces another economic shock brought on by a trade war that few could have anticipated when we undertook our work.
Prolonged tariffs could result in structural changes to the economy
With the timing and conditions of the U.S. tariffs changing by the day, economic forecasters caution that making predictions about their potential impact is difficult. The effects will largely depend on how widespread the tariffs are and how long they remain in place.
In a speech in late February, Bank of Canada Governor Tiff Macklem said the economic consequences of a protracted trade conflict would be much different than the shock that followed the pandemic. A quick bounceback would be unlikely this time and the effects on the Canadian economy would likely be structural, he said.
Exports could decline by more than eight per cent in one central bank scenario. Exporters would likely respond by cutting production and laying off workers. The effects would quickly spread, Macklem warned.
According to CIBC projections, the effects of the trade war would be felt most acutely by workers in the export sector. Its estimate of job losses ranges from 150,000 to 350,000 depending on the severity and coverage of the tariffs. Quebec and Ontario would be likely to bear the brunt of the shock, it says.
IRPP research on community susceptibility to U.S. tariffs identifies several jurisdictions that could face a significant impact.
The lumber and furniture manufacturing industries of the Islet region in eastern Quebec could see most of its workers affected. In Ontario, Ingersoll and Windsor, with high concentrations of employment in auto manufacturing, and Sault Ste. Marie, with a high proportion of jobs in steel production, could be hit hard. Communities with high levels of employment in oil and gas production, including Fort McMurray and Cold Lake in Alberta, as well as Fort Nelson in B.C., would also be exposed.
EI program requires meaningful, long-lasting changes
Former prime minister Justin Trudeau said in early March that the government will use “every tool at its disposal” to help Canadians weather the storm, including expanding EI benefits and making them more flexible.
The federal government then announced temporary changes to the EI work-sharing program, which allows eligible workers to receive partial benefits while working reduced hours. This helps employers retain experienced workers and avoid layoffs during slow periods.
The changes expand the types of businesses that can access the program, including non-profits and those that employ seasonal workers. The changes also extend the time that employees can take part in the program to 76 weeks from 38.
While this helps, there is still more to do.
During the IRPP’s first roundtable on EI reform in December 2021, we heard from our working group of 12 researchers that the program is overly complex and has too many coverage gaps that make it increasingly ineffective. The number of unemployed Canadians who receive EI benefits now is less than 40 per cent, down from more than 80 per cent in the 1990s.
One reason for the decline is the substantial number of self-employed workers, especially gig workers and others with precarious work arrangements, who are not eligible to receive EI benefits because they don’t pay into the fund. Compounding the issue, eligibility rules have been tightened and the program made less generous.
After the outbreak of COVID-19, the federal government introduced various contingency measures to accelerate claims and benefit delivery, to fill the gaps in support and to create new programs for unemployed Canadians who didn’t qualify for EI. But as the pandemic receded, the measures were eliminated.
In its assessment of the EI program, our working group largely agreed it should be simplified and the eligibility rules eased. Many also called on the federal government to make the program more generous by extending the duration of benefits, increasing the earnings replacement rate, raising the maximum yearly insurable earnings or some combination of the three.
Several experts also said it was time to address the exclusion of the self-employed, especially those in precarious jobs.
Of course, these changes would mean higher program costs and accompanying higher premiums for both workers and employers who contribute to the fund. The commissioner for employers at the Canadian Employment Insurance Commission and the Canadian Federation for Independent Business have pushed back on the idea of premium increases.
There is no quick fix to address these challenges that will satisfy everyone. At the conclusion of our work in late 2022, we proposed a set of compromise solutions that would bolster the EI program, better protect Canadian workers and minimize the burden on the small- and medium-sized companies that contribute to the fund.
In the short term, we proposed that the federal government adopt a uniform eligibility requirement of 420 hours worked over the previous 52 weeks as it did during the pandemic, instead of the nine requirements currently in place that vary depending on regional unemployment rates.
This might not increase uptake in regions where unemployment rates are already high but it would address the program’s slow response time in determining eligibility requirements. It would also address some of the issues created by the boundaries of EI regions.
We also proposed that the earnings replacement rate be increased to 60 from 55 per cent.
These changes, though modest, would still increase program costs. To limit increases in premium rates, we recommended that the government do three things:
- extend the timeframe for the break-even rate of the EI fund to 10 years from seven;
- limit reductions in premium rates when the EI account is in deficit;
- contribute federal funding to the EI account to cover deficits incurred during recessions, particularly when the response includes increased benefits.
As we cautioned at the time, the shortcomings of the EI system were unlikely to recede when the pandemic ended – and they didn’t.
They are still with us today as Canada faces another shock to our economy – this one potentially more damaging than the last. It’s time to act.
This article first appeared on Policy Options and is republished here under a Creative Commons license.
