In the long term, expanding Employment Insurance and improving policy coordination will prove more useful than the emergency response benefit.
The ongoing COVID-19 crisis is a formidable test for welfare states all over the world, including here in Canada. In this context, unemployment benefits are crucial because of the unprecedented rise in joblessness created by the partial yet sudden shutting down of economic activity. Since March, Canada has lost over 3 million jobs.
Unfortunately, Canada’s social programs for the unemployed, primarily employment insurance (EI) but also provincial social assistance (SA), have proven unable to provide a quick economic stimulus to alleviate this widespread crisis. The federal government opted to bring in some temporary standalone policies, such as the Canada Emergency Response Benefit (CERB), without linking these policies to existing provincial initiatives. A more effective solution for the longer term would be to widen eligibility for EI while strengthening policy coordination with the provinces and territories, which are responsible for SA.
Along with universal health care, EI (the name was changed from unemployment insurance in a round of reforms in 1996) is a cornerstone of Canada’s welfare state. Canada’s current system is contribution-based and favours traditional forms of employment. Between its creation in 1941 and the early 1970s, it expanded gradually. Since the 1970s, eligibility for EI and the generosity of benefits have declined, and the program has not kept pace with the changing labour market. In 2018, only 41.2 percent of EI contributors were eligible to receive regular EI benefits.
There is no shortage of critics of EI. It has been disparaged for being ill-suited to new forms of employment such as part-time work in the gig economy. EI’s slow application process is also well documented. Canadians looking for answers from Service Canada have come to expect long waits and dropped phone calls.
The current crisis is not the first time EI’s critics have been proven right. In the aftermath of the 2008 financial crisis, the Conservative minority government survived a motion of confidence on EI only by temporarily increasing benefits. What is different now is the scale of the sudden surge in unemployment and the government’s openness to trying new policies.
The federal government officially adopted the Canada Emergency Response Benefit on April 11. Costing an estimated $44.64 billion as of early June, the CERB is a taxable benefit of $2,000 a month for up to four months, for those who have lost their jobs because of the pandemic — including many who would not have been eligible for EI. A quick and simple online application is all that is necessary to receive the payment.
Despite its flaws, the CERB is seen by some as a way to fix all of EI’s faults.
But this expensive policy also creates disincentives to work and leaves many Canadians behind. According to one estimate, 1.4 million jobless Canadians, or 16 percent of the total, did not qualify for either EI or the CERB by the third week in April. Those who have received their cheques must also expect clawbacks. In addition to the federal clawbacks designed in the policy, many provinces have already clawed back CERB payments for social assistance recipients because they are considered taxable income.
Despite its flaws, the CERB is seen by some as a way to fix all of EI’s faults. High levels of cross-party consensus and growing public support for the Prime Minister across Canada may, according to some, translate into public support for structural changes to EI. But the CERB is a temporary social policy adopted at a time of persistent economic uncertainty and record levels of unemployment not witnessed since the Great Depression. It provides a sense of momentum without actually changing the system, and expectations for structural reforms such as converting EI and SA programs into a universal basic income seem overblown. The CERB does not replace these existing federal and provincial social policies for the unemployed. Nor has it fundamentally altered the operations of Service Canada or the administration of benefits to the extent that is needed to resolve identified problems with EI delivery. In fact, Service Canada is still overwhelmed and cannot keep up with demand, despite the CERB’s streamlined application process.
A universal basic income is not the best policy solution: it would not necessarily reduce poverty because spending on the social and labour market programs that would be turned into a UBI is too low, at least at current levels, to make a significant impact. This is why many academics and policy wonks argue instead in favour of better targeting social benefits to low-income citizens. However, better targeting should also be accompanied by a more inclusive EI system and a comprehensive review of SA policies across the country.
The first thing we should recognize is that EI does not cover enough of the working population. The current insurance-based logic of EI is problematic now that workers are increasingly self-employed or on short-term contracts. This is because workers face what welfare state scholars call “new social risks.” Compared with classic social risks such as old age, disability and illness associated with a largely male workforce in an industrialized economy, new social risks are more fragmented. They include difficulties in finding stable employment and finding childcare in order to maintain work-life balance. As more and more workers face these vulnerabilities, Canada’s EI eligibility should be revised to include new types of workers and labour market situations. Other countries have begun to overcome the challenges posed by new social risks by changing employment insurance eligibility requirements and improving their social assistance programs.
Denmark, for example, has a flexible labour market and a generous social security system. Policies regulating the labour market provide flexibility for employers to react quickly to changes in their business by dismissing employees. In exchange, a well-funded and comprehensive social security regime ensures laid-off workers are well protected. While unions are important to this system (contrary to international trends, workers in Denmark maintain high unionization levels), the state plays a significant role by funding and regulating them, in large part. Social assistance levels are also generous. Overall, Denmark’s system has the added benefit of reducing uncertainty. Workers can rest assured that, even if the labour market can be unforgiving, they will be able to make ends meet.
Canadian policy-makers must understand that EI is only one part of a broader regime. Canada’s federal government, which funds SA programs through the Canada Social Transfer, must also better communicate and cooperate with the provinces, which manage the programs, to avoid some of the flaws of the CERB such as disincentives to work and clawbacks. In the future, more federal fiscal support and greater coordination between the provinces should be provided to ensure better SA coverage across Canada.
It is not fair to expect any public policy to be able to cope immediately with an unprecedented and, hopefully, once-in-a-lifetime crisis such as a global pandemic. Even Danish officials have had to bolster their system by approving vast pandemic-related subsidies to workers and employers. We should, however, expect our social policies for the unemployed to be able to cover the vast majority of Canadians and to evolve with the labour market. The road to economic recovery will be long, and the incremental changes we propose to EI and SA are less dazzling than large-scale structural reforms, but they are likely to lead to more positive outcomes for vulnerable populations. Hopefully, the crisis will push Canada to start moving in the right direction.
This article is part of the The Coronavirus Pandemic: Canada’s Response special feature.