Worsening Unemployment Calls for Better Employment Insurance

Here is my take on today’s Labour Force Survey:

National Unemployment

Much attention will undoubtedly focus on the unemployment rate hitting 8% in March, which Statistics Canada notes is “the highest rate in seven years.” While technically correct, this presentation understates the situation’s severity.

The unemployment rate briefly reached 8% seven years ago, in December 2001 and January 2002. However, with the exception of those two months following the September 11 terrorist attack, Canada’s unemployment rate has not been at 8% since the spring of 1999. In other words, the current economic crisis has turned the clock back a full decade.

The fact that tens of thousands of Canadians are losing their job every month should prompt improvements to the Employment Insurance (EI) system. The number of officially unemployed Canadians rose to almost 1.5 million, the most since December 1996. The well-being of this significant segment of Canada’s population – and its capacity to support the wider economy through consumer spending – depends on the accessibility, level and duration of EI benefits.

Provincial Variation

The only provinces experiencing higher employment and lower unemployment in March were Newfoundland and Labrador, and Prince Edward Island.

In Ontario and Saskatchewan, the unemployment rate remained unchanged despite significant losses of full-time jobs. In both provinces, these losses were offset by increases in part-time employment and people leaving the labour force altogether, rather than officially joining the ranks of the unemployed.

The number of insurable hours needed to qualify for EI benefits, and the duration of these benefits, depends on the official unemployment rate in the region where the unemployed worker resides. Because the official unemployment rate did not rise in Ontario or Saskatchewan, the accessibility and duration of EI benefits may not improve in these provinces, even though both are experiencing mass layoffs.

Nova Scotia may suffer from a similar dynamic. Its unemployment rate rose by only 0.1% because the number of discouraged workers abandoning the labour market nearly equalled the combined loss of full and part-time positions.

An appropriate solution, as outlined in my recent testimony to the Senate Finance Committee below, is to enhance the accessibility, level and duration of EI benefits on a uniform basis across Canada. (Because I delivered this testimony last week, the figures are from the previous Labour Force Survey.)

Manufacturing

More than half of the total employment loss in March occurred in manufacturing. Since manufacturing employment peaked in November 2002, 490,000 Canadian manufacturing jobs have disappeared.

UPDATE (April 10): Quoted by The Toronto Star and Canadian Press

Testimony to the Senate Standing Committee on National Finance, April 1, 2009:

Thank you for having me back to this committee. I appeared before it in May of last year regarding the 2008 Budget Implementation Act. At that time, I raised concerns about the new financing regime for Employment Insurance (EI). Specifically, I suggested that the reserve fund of $2 billion was inadequate and that, if unemployment increased in Canada, either the financing board would have to hike premiums or the government would have to provide a larger reserve. Budget 2009 reveals that those concerns were valid. It allocates a further $4.5 billion to EI in order to freeze premiums at current levels.

Serious questions concerning EI financing remain. For example, what is the purpose of an independent board to set premiums when the government has frozen those premiums for two years?

However, questions of financing have been overtaken by a more pressing matter: the inadequacy of current EI benefits for the tens of thousands of Canadians who are losing their jobs every month. Statistics Canada’s most recent Labour Force Survey indicates that more than 100,000 Canadians joined the ranks of the officially unemployed in the month of February alone. That means that more than 1.4 million Canadians are now unemployed, the largest number since February 1997.

It is critically important for EI to provide adequate benefits to workers who are losing jobs through no fault of their own. It is also important to provide a source of income to this large and growing segment of the Canadian population so that it can continue to spend and thereby support the wider economy. In particular, a number of needed improvements to EI were absent from Budget 2009. The accessibility, level and duration of benefits should have been improved.

In terms of accessibility, the key flaw is that EI fails to provide benefits to most unemployed workers. Only about 40 per cent of unemployed Canadians receive benefits. There are a few reasons for this limited accessibility. One is that the number of hours of work required to qualify for benefits varies depending on the region in which a worker resides. In areas with relatively low unemployment, 700 hours are needed to qualify for any benefits. This regional variation does not make sense because workers who lose their jobs need income support, even if they happen to live somewhere that has had a lower rate of unemployment.

A further barrier to accessibility is that, even if workers do qualify on the basis of hours, they have to wait for two weeks and exhaust all of their severance pay before receiving any benefits. The Canadian labour movement proposes that anyone who has worked for at least 360 hours anywhere in Canada should qualify for EI benefits without having to wait for two weeks or exhaust severance pay.

The level of EI benefits is currently 55 per cent of a worker’s previous earnings, to a maximum of $447 per week. This level of benefit is not particularly generous by international standards. For example, French President Nicholas Sarkozy, who had planned to cut back French unemployment benefits, has recently decided to increase the replacement rate from 60 per cent to 75 per cent. I will not be quite that ambitious, but I think that it would certainly be realistic to increase Canadian EI benefits to 65 per cent of a worker’s previous earnings.

The duration of benefits is critically important during a recession where very few jobs are available and it could take a long time for unemployed workers to find new positions. Budget 2009 took some action on this front by temporarily adding an extra five weeks of benefits, extending the maximum to 50 weeks. However, this maximum applies only in a few regions with the highest unemployment rates. Benefits should be available for up to 50 weeks across Canada.