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EI Running out for 500,000 Unemployed Canadians

Stretch the program, urges labour, pointing to system's $55 billion surplus.

By Tom Sandborn 12 Feb 2010 | TheTyee.ca

Tyee contributing editor Tom Sandborn writes about labour issues for The Tyee.

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System is failing a 'stress test' says CLC

"It makes you mad," Alf Wilkins said. The long-serving mill worker from Mackenzie, B.C. was talking about the experience of being laid off early in 2008. The traumatic job loss came as his employer of 31 years, the Abitibi-Bowater mill in his home town, encountered financial trouble that put the insolvent firm under creditor protection.

"Nearly everybody in my family lost work then," said Wilkins. "It was hard. My daughter, son and brother all lost mill jobs. My wife was the only one working. I got EI but my claim was exhausted by January 2009. I was lucky because I got some part time work with the union, but a lot of people in this town had it tough. One of my buddies lost his house and all his savings. Another guy I know lost his home and had to move back in with his brother. For him, it was either eat or pay the mortgage."

At the worst point, Wilkins said, every second house in Mackenzie had been foreclosed. The unemployment rate in town is still above 50 per cent, even with a small re-opening at the Abitibi mill that has given new work to him and 59 others -- at a site where 700 worked in boom times.

Wilkins pointed out that even long-term employees like he and his friends had to wait from ten to 12 weeks before their Employment Insurance benefits kicked in, as they were required to spend any accumulated holiday pay before they could collect on the insurance they had been paying into for decades. He was interested to learn that a recently published paper by Andrew Jackson, national director of economic and social policy for the Canadian Labour Congress, says that the nightmare he and his co-workers experienced in Mackenzie is a preview of what is in store for hundreds of thousands of other Canadian workers this year.

Writing for the Canadian Centre for Policy Alternatives this January, Jackson described the current financial crisis as a "stress test" for the current Employment Insurance program, a stress test that the program is failing. With the number of unemployed Canadian workers not receiving EI up to 777,400 by October 2009, Jackson predicts that up to a half million workers will exhaust their claims during 2010. (Approximately two million new claims were made for EI in 2009.)

Jackson and other EI critics are worried that many of those 500,000 who exhaust their claims will be forced to lose their homes and savings, and some will be driven onto income assistance, in an economy where finding full time work is still very difficult.

According to the most recent figures available from Stats Canada, the nation's economy added 43,000 new jobs in January of this year, bringing the national unemployment rate down to 8.3 per cent. However, almost all of the new jobs were part time, with only 1,400 new full time jobs created across the country that month.

Reforms proposed by CLC

Jackson's paper echoes the policy change suggestions that have been heard before from his employer, the Canadian Labour Congress, and the union-friendly Canadian Centre for Policy Alternatives. The paper says the government should focus on job creation, but while the crisis continues, it should reform the EI system to make it a more effective safety net for workers who lose their jobs.

The program should, Jackson and his co-author Sylvain Schetagne argue, create a single national criteria for admission to the program of 360 hours of employment. That would be in contrast to the current, variable levels set across the country according to local unemployment levels, with the hours-worked eligibility test ranging from 420 to 700 hours.

Further, the EI "replacement rate" should be paid at 60 per cent of the best wages in 12 weeks of the qualifying period, not the current 55 per cent.

Finally, the authors call for a special 26-week emergency extension of benefits for all claims filed October 2008 through October 2010, with workers who have exhausted a claim eligible to resume the claim if they remain unemployed. The 26 week extension, they say, should incorporate the five-week extension already brought in this year by the government, as well as the already implemented extensions for "long term" workers.

This is not the first time that government critics have slammed the current incarnation of Employment Insurance. Last year in February, in the run up to that year's federal budget, CCPA economist Marc Lee told The Tyee:

"The bottom line is that our new EI system has not been tested by a recession since its inception. And there is good reason to believe that it is a shadow of its former self as an automatic stabilizer in a recession."

Critics point out that since the EI system was revamped in the 1990s, it has accumulated a national surplus of over $55 billion. Although the difference between what workers and employers pay into the system and what is paid out in benefits has skyrocketed, the surplus funds flow into general revenues and do not remain in the EI system.

Conservative measures so far

Over the past year, the Harper Conservatives have brought in some EI measures that worker advocates and government critics applaud. Jackson said that the government had made the right decision when it added five weeks of eligibility across the board and even longer extensions for workers with long histories of employment before their lay offs. He also praised an EI subsidized job sharing program that has kept 160,000 workers employed. Beyond those measures already taken, however, Jackson is pessimistic about the Conservatives enacting the rest of the reforms he believes are needed.

Certainly the Conservative base in big business and on the right of the political spectrum is not enthusiastic about strengthening the EI safety net. Niels Veldhuis, who writes on economic topics for the pro-business Fraser Institute mounts a vigorous argument against enriching or extending EI benefits in his July 2009 op-ed piece "A More Generous EI Program Will Increase Unemployment Permanently," which was published in the Halifax Chronicle Herald, the Penticton Herald, Calgary Herald, Winnipeg Free Press, the Montreal Gazette and Business in Vancouver.

Veldhuis contends that the figures cited by Jackson and other EI critics are inaccurate. Once workers who have left their jobs voluntarily, were self employed or who haven't worked in the previous year are subtracted from the numbers counted as unemployed, the percentage of eligible unemployed workers covered by EI payments go up to over 80 per cent, he says, citing a recent Toronto Dominion study.

More EI a 'moral hazard': Board of Trade's Rezak

But, setting aside for a moment squabbles about how many are unemployed, and about whether the rules of eligibility are wise or fair, surely there is a case to be made for richer benefits and longer entitlement during an economic downturn, many would say. Veldhuis disagrees. The Fraser Institute scholar opposes both longer entitlement periods and more robust payments for those unemployed workers who do qualify for EI.

"Andrew Jackson's proposals, while well intentioned, are not a good idea," Veldhuis told The Tyee. "We have good evidence that such changes lead to increased unemployment. Government studies show that people only start to look for work near the end of their EI entitlement."

Darcy Rezak, of the Vancouver Board of Trade, expressed similar concerns to The Tyee last year.

"Improved insurance always carries with it a moral hazard," he said. "We could see more unemployment because the richer benefits would make some people choose to stay on EI instead of moving to where work is available or taking lower paying jobs."

And the federal minister responsible for EI, Diane Finley, was widely quoted last year to the effect that better EI payments were undesirable because they encouraged dependency.

"We do not want to make it lucrative for them to stay home and get paid for it,” she said in January 2009, according to media reports.

'I came to work'

Alf Wilkins, the veteran mill worker who lost his job in Mackenzie after 31 years, is unimpressed with the minister's statement.

"That really made me mad," he told The Tyee. "We came up here 150 miles north of Prince George to work, not to draw EI. The minister and all the rest of the politicians will keep drawing their wages during prorogation. Why is it okay for them and not for me? I worked for 31 years and paid my taxes and premiums."

Wilkins said he expected that Stand Up for the North, a campaign he was working on, would be sponsoring rallies soon to press for EI reforms that would look a lot like the changes proposed in Jackson's paper.

"At the worst up here, we had nearly 95 per cent unemployment in the woods industry. Easy access to EI is very important. We shouldn't have to eat up our holiday pay while EI is delayed. It's just unfair. Other countries treat the unemployed better than Canada does."

Research published last June by Dalhousie economics professor Lars Osberg substantiates Wilkins' complaint about how Canada's EI system compares with those in other developed countries.

According to Osberg, Canadian income replacement for EI recipients compares unfavourably with most other member nations of the OECD. And changes in the Canadian system since the mid-'90s have serious consequences. The pro-business reforms to EI mean that in 2009, when unemployment levels in Canada were at the same level they were in 1990, the B/U ratio (the percentage of those unemployed who qualify for EI) had been cut in half. So even if convinced by the Fraser Institute and TD in the papers cited above that the B/U can present an inflated sense of EI coverage shortfalls, a careful reader would have to think that the changes of the last two decades have left EI less able to support workers during a downturn than in 1990.

Even the Toronto Dominion Economics research cited above agrees that some of the changes made in the 1990s need to be revisited in the name of fairness. They argue that the wide regional variability of time-worked criteria for receiving EI should be flattened, and suggest that reducing the minimum number of hours worked required to qualify for benefits to 420 hours or even to the CLC/CCPA-favored 360 hours might be desirable.

The Tyee asked for comment on Jackson's criticism of the current EI regime from the offices of federal Minister of Finance Jim Flaherty and Minister of Human Resources and Skills Development Diane Finley, who administers the EI system. Flaherty's office declined to comment and passed our questions on to Minister Finley's office. A media spokesperson at HRSDC replied by email on Minister Finley's behalf.

In response to questions about the estimate that a half million workers could exhaust EI in 2010, the minister's media office wrote:

"Over the past ten years, between 28 and 32 per cent of EI regular claimants exhausted their benefit entitlements. While we do not have definitive data on the current proportion of EI regular claimants who are exhaustees, we do know that the number of exhaustees has been increasing in line with the volume of claimants. We are working with Statistics Canada on an approach to making reliable data publicly available."

While citing some steps taken in 2009 to address increased unemployment, including the modest extension of EI benefits for workers who qualify and the job sharing program that Andrew Jackson praised in his interview with The Tyee, the HRSDC media spokesperson did not answer questions about what steps, if any, the government would take to address the ongoing crisis in its next budget.

The Tyee asked Minister Finley about the more than $55 billion dollars in surplus accumulated by the EI fund since changes made in the mid-'90s restricted access to the program and reduced replacement rates. Many observers, including at least one Parliamentary committee, have argued that the notional surplus (EI premiums currently flow into general revenue) should, as a moral obligation, be used to extend benefits. The minister's office responded:

"The EI Account is not an account containing cash. It is an accounting method that keeps track of premiums and benefits. Since 1986, the EI Account has been consolidated in the Summary Financial Statements of Canada, on the recommendation of the then Auditor General of Canada. Revenues under the EI Act are credited to the Account and deposited in the government's Consolidated Revenue Fund (CRF). Similarly, program costs are charged to the Account and paid out of the CRF. The Government of Canada is delivering on its commitment to improve the governance and management of EI financing by establishing the independent Canada Employment Insurance Financing Board (CEIFB). The CEIFB will be responsible for managing a new bank account separate from the Government's general revenues, where any excess EI revenues from a given year will be held and invested until they are used to reduce premium rates in subsequent years. The CEIFB will also be responsible for implementing a new EI premium rate-setting mechanism and setting the EI premium rate for 2011 and beyond."  [Tyee]

Read more: Labour + Industry

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