Proposed changes will help to restore the social security role that used to be an intrinsic part of EI but has been sidelined over the last 30 years.
The 1971 Unemployment Insurance Act positioned unemployment insurance as both an insurance program and a social security program, and by doing so, it created an income floor accessible to most working-age adults. Later changes to the program sidelined the social security role, making the program ill-equipped to support all Canadians in times of economic hardship, like the one brought about by the COVID-19 pandemic. Recently proposed changes to EI are an important step toward recoupling EI and social security, and they should to be made permanent now.
The political and policy debates surrounding the 1971 Act – carefully documented in Georges Campeau’s De l’assurance-chômage à l’assurance-emploi – resemble our present-day context in three important ways.
First, technological advances and new managerial styles in the post-Second World War period shook up Canada’s labour market, reducing demand for manual labour while creating skilled work jobs for which there weren’t enough trained workers. This skill mismatch increased the incidence of precarious employment. On this matter, the Act took the view that workers shouldn’t bear the burden of macroeconomic changes; the role of unemployment insurance was to support all workers, especially the ones the market had failed.
Second, there was a debate about the role of unemployment insurance vis-à-vis social assistance.
Two federal white papers that helped to shape the Act – Income Security for Canadians (1970) and Unemployed Insurance in the 70s (1970) – argued in favour of extending unemployment insurance benefits to new workers, workers with fewer insurable hours, and workers in unstable jobs. The overall argument was that benefits would strengthen labour force attachment, helping to integrate workers into the labour force in the long term, which was preferable to having workers apply for social assistance.
Third, poverty reduction was a key policy focus in North America in the 1960s. In the United States, President Lyndon Johnson launched a war on poverty, which in Canadian English translated to Pierre Trudeau’s promise to create a just society. The Special Senate Committee on Poverty, established in 1968, fueled national debates about poverty reduction, much like today’s Canada Poverty Reduction Strategy. In this context, the authors of Unemployed Insurance in the ’70s didn’t shy away from referring to unemployment insurance as a “social program” with a role included wealth distribution and poverty alleviation.
In response to these concerns, the Act relaxed eligibility criteria, increased benefit amounts, and created “special benefits” (sickness, maternity). The cost of the expansion would be covered by new government funding and a larger contributory base (with the inclusion of public sector workers). According to Georges Campeau, “the primary beneficiaries of this approach would be workers in fringes of the labour market, in precarious and low-wage jobs. Women and youth were overrepresented in this category.”
Unfortunately, changes to the EI program in the past 30 years have sidelined the social security role, favouring instead actuarial concerns around matching benefits to premiums and balancing contributions with costs. By this logic, some workers are deserving of the security provided by EI benefits, others are not, depending on the amount of contribution made to the program and the unemployment rate in areas where they live.
The regretful consequence of neglecting the social security function of unemployment insurance is that instead of mitigating labour market inequalities, the EI program now reinforces them: those who lose jobs that are relatively well-paid and long-term are more likely to receive benefits than those whose work status and income are already precarious.
The temporary, one-year changes to EI would include lowering the eligibility requirement to 120 hours across the country, regardless of local unemployment rates, and creating a minimum benefit rate of $400 per week.
Several studies in the past couple of years have called for a revamping of EI, including reports published by the Atkinson Foundation, the Canadian Centre for Policy Alternatives, the C.D. Howe Institute, the Institute for Research on Public Policy, and the Mowat Centre. But it was COVID-19 that finally threw a spotlight on the program’s shortfalls. Early into the pandemic, it became clear that EI was unable to respond to the high levels of unemployment and economic insecurity brought about by shelter-in-place emergency orders. The federal government had no choice but to bypass EI and create an alternative program, the Canada Emergency Response Benefit (CERB). For some commentators, the remarkable success of CERB as both an income support program and an economic stabilizer is the final proof of the need to reform EI substantively.
As the CERB comes to an end, the Liberal government has proposed coupling temporary changes to EI with a Canada Recovery Benefit for self-employed workers. The temporary, one-year changes to EI would include lowering the eligibility requirement to 120 hours across the country, regardless of local unemployment rates, and creating a minimum benefit rate of $500 per week.
If approved, these changes will make EI more similar to the program Canada once had.
The Act of 1971 set the eligibility requirement at eight weeks of insurable employment. By 1994, the requirement had increased to between 12 and 20 weeks, depending on the Variable Entrance Requirement (VER), which is determined based on the unemployment rate in the region. Currently, the eligibility threshold is between 420 and 700 hours, also depending on the VER. The consequence of these changes couldn’t be more explicit: the share of unemployed workers eligible for regular benefits dropped from 83 percent in 1989 to 42 percent in 2018. Half as many unemployed Canadians are eligible for EI today compared with 30 years ago.
Another factor determining whether a person is eligible for EI is her address. The original idea behind VER is that regional unemployment rates determine the level of difficulty of the job search. Researchers have criticized VER on the basis that it is discriminatory given that people lose their jobs involuntarily regardless of where they live, that it can fuel tensions across regions, and because the unemployment rate is too blunt of an instrument to determine benefit allocation.
Regarding benefits, the Act of 1971 set the benefit rate at 75 percent of insurable earnings for claimants with dependents and 67 percent for claimants without dependents. Subsequent policies gradually lowered the benefit to the current 55 percent of insurable earnings, up to a maximum amount of $573 per week. The implicit assumption in a low replacement rate, such as 55 percent, is that the beneficiaries can count on savings to meet their financial obligations. That is often not the case: 43 percent of working Canadians live paycheque to paycheque, and a quarter of working tenant households has less than two weeks’ worth of income in savings.
The EI program tries to compensate for this inadequacy issue with a family supplement that increases the benefit rate of low-income families from 55 percent to up to 80 percent. However, the low-income threshold hasn’t been updated for more than 20 years, and the number of beneficiaries eligible for the supplement has dropped by 60 percent since 2001.
The proposed lower eligibility requirement, the elimination of VER, and the new minimum benefit are positive changes to EI – a step toward the recoupling of EI and social security. The time to make them permanent is now.
This article is part of the Tackling inequality as part of Canada’s post-pandemic recovery special feature.