Employment insurance (EI) has gone off track from its objective of protecting Canadians financially against unpredictable job losses.
Slow to react to recent economic downturns and mostly accommodating seasonal and part-year workers situated in high-unemployment regions, this primary pillar of Canada’s social safety net needs to be modernized to more closely align with its original goal of being responsive to negative economic shocks, according to a new report from the C.D. Howe Institute.
In “Correcting Course: Employment Insurance Needs a Redesign to Counter Recessions and Achieve Equity,” authors David Gray and Colin Busby propose reforms to the regime for Canadians to have broader access to benefits that would last for longer durations when labour market conditions deteriorate, such as during unemployment cycles or unanticipated shocks like a pandemic.
The EI regime’s current design bases benefit entitlement durations on unemployment rate levels with the 62 administrative EI regions. However, as unemployment rate levels tend to be persistent across regions over time, the responsiveness of the program to address economic shocks is inadequate, according to the authors.
Analyzing unemployment rates across Canada’s 10 provinces over 13 years, Gray and Busby find approximately 85 percent of the variation in rates reflects between-province differences (layoffs and separations occurring in regions characterized by persistent high unemployment rates and chronic employment instability), while the remaining 15 percent represents changes in unemployment rates over time (layoffs caused by cyclical shocks).
The problematic features inherent to the system include: i) variable entrance requirements that are slow to adjust to increases in unemployment; ii) benefit durations that are also slow to respond to increases in unemployment; and iii) finely divided administrative regions with boundaries that reinforce inequities in access conditions and potential benefit durations.
Notably, the federal government recently held extensive consultations aimed at modernizing the program post-pandemic. Additionally, on various separate occasions since 2004, federal pilot projects were implemented to extend benefits beyond the EI entitlement matrix’s durations, and during the COVID-19 pandemic, the government ensured all regular beneficiaries would have access to a minimum of 26 weeks of benefits, later extending to 50 weeks for claims.
“An indication of a system that isn’t working is one that has been amended when the program is most in need. When the next recession hits, without reform, we’ll be doing the same thing as now with plugging gaps,” says Gray. “We’ll need to target spending to the newly needy.”
To address these issues, Gray and Busby make three key policy recommendations.
They propose implementing uniform or more universal entrance requirements across Canada – one option is to make the temporary threshold of 420 insurable hours introduced during the pandemic quasi-permanent and subject to subsequent evaluation. This would remove the need to revise access criteria during economic shocks.
Monthly changes in provincial unemployment rates as the indicator for labour market conditions to adjust benefit entitlement durations according to unemployment shocks is also recommended. Under this reform, variations in the length of benefit entitlement periods would be driven by changes in unemployment rates instead of levels in given regions. The latter is currently the case.
Finally, to streamline, reduce administrative burden, achieve greater transparency of boundaries and a higher degree of precision in calculating regional unemployment rates, the authors recommend the number of regions be sharply reduced.
Gray and Busby also acknowledge that these changes may require a small increase to EI premiums. “However, the net cost of what we propose depends on the generosity of the revised program rules and the potential savings from increasing benefit durations in a recession and decreasing them in an economic expansion,” says Gray.
