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Because of recent successive cuts, coverage provided by the EI program is now at the lowest share in its 75 year history, just 39 per cent of the workforce. The good news is it could easily be fixed with a few key changes. All it will take to revitalize the EI program on its 75 th anniversary is for Canadians to elect a new progressive government this October. Send a message to Prime Minister Trudeau and ask him to fix long-term care, now.
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Committees and working groups. Order materials from CUPE. For the roughly 60 EI regions, the current VERs run from hours for those regions with 13 percent unemployment or higher, to hours in regions with 6 percent unemployment or lower. The still-operative contribution structure set employer premiums at 1.
The premium rates were set to ensure that the system would be self financing at 4 percent unemployment, excluding special benefits. In other words, there were substantial stabilization and social-policy components built into the version of UI: Ottawa bore the costs of benefits arising from unemployment rates above 4 percent, as well as those for fishing and for sickness, maternity, and retirement benefits.
Benefits were set at 75 percent of insured earnings for claimants with dependents and 66 percent for those without. The frequently changing regulations relating to the duration of benefits were typically based on weeks worked, the national unemployment rate and the various regional unemployment rates.
In passing, it may be noted that while it may have had some hortatory value as a target or ideal, the 4 percent threshold used to determine weeks of regional benefits was a level never in fact achieved nationally, let alone in the areas subject to regional benefits. It would appear, therefore, that its primary purpose was to effect an ongoing interregional transfer of benefits.
Moreover, allowing claimants who worked in a low-unemployment region to file for benefits in a high-unemployment region contributed to the size of this transfer. Compared to the previous iterations of UI, the Act shifted the program quite dramatically away from insurance principles.
Perhaps the most evident manifestation of this was the famous — or infamous! Thus working hours will trigger 31 weeks of benefits in a region with 13 percent unemployment and 37 weeks if the rate is above 16 percent. In contrast, in a region where the unemployment rate is below 6 percent, one needs hours to even qualify and 1, hours four times the hours entry level to be eligible for 37 weeks table 1.
Perhaps an even more extreme example of short-term labour-force attachment triggering long-term benefits is provided by the requirements for self-employed fishers. The moral-hazard consequences of such arrangements have already been alluded to and should certainly give pause to those seeking to bring all self-employed persons under the EI umbrella.
With lower entry requirements, extended coverage and higher replacement ratios, it is hardly surprising that post UI costs mushroomed. Indeed, post-implementation outlays vastly exceeded forecast costs, and the resulting overrun, which was almost certainly attributable to an underestimation of the moral hazard effects of the enrichment, was huge and embarrassing.
Further rapid increases occurred during the recessions of the early s and s, when, as shown in figure 1, outlays doubled and then redoubled. Given the actuarial requirements of the program, these burgeoning outlays triggered increases in premiums, which from to more than doubled, those for employees rising from 1.
As the economy recovered from recession, the fund moved into surplus, and premiums once more fell back to more sustainable levels under 2 percent. Equally unsurprising, this escalation of outlays led to a series of measures to reduce the total cost of EI, most particularly the cost to the federal government. In the Act was amended to raise entrance requirements for new entrants and re-entrants to hours, and the qualifying period for special benefits was set at hours.
Repeat claimants were faced with a benefit clawback of up to percent if earnings on claim exceeded maximum insurable earnings, and the replacement rate was reduced. Despite these moves to control outlays, there were still some important extensions of coverage parental benefits, for example, were phased into EI, with the December changes extending the total period of maternity and parental benefits from 25 weeks to 50 weeks. Also, the Act effectively distinguished between unemployment benefits and employment benefits i.
Despite these developments, the general thrust in terms of regular benefits was toward increased restraint. Since any unshifted premium burden is likely to encourage or force employers to adopt more capital-intensive and labourdisplacing production processes, the presumption is that the burden of employee and employer premiums will largely be borne by employees in the form of lower wages than would otherwise prevail.
The rationale for requiring employer premiums to be 1. In consequence, the entire cost of the system is now underwritten by employers and employees. The fall parliamentary sitting will presumably be the next iteration in EI reform. The clear difference from the recent past is that all the pressures on EI point to an expansion of the program the chief contenders for this expansion were highlighted in the introductory paragraphs of this article.
Unfortunately, none of these options goes beyond the confines of the parameters of the existing EI program to situate the program in a larger and more appropriate context. Accordingly, we now consider the recommendations of the two Royal Commissions that proposed more radical reform of the EI system, recommendations that condition our own proposals for reform. The first of these is from an unexpected source — Newfoundland and Labrador henceforth NL — the report of the Newfoundland Royal Commission on Employment and Unemployment.
With by far the highest ratio of benefits received per dollar of premiums paid, NL was arguably the province that benefited most from the operation of what was then still UI. The Commission was nonetheless rather scathing in its condemnation of the impact the program was having on the provincial economy. While the devil is always in the details when it comes to overarching approaches that bridge program areas and levels of government, this conception of a reworked social Canada still has merit, especially given its provenance.
The second reference document is the report of the Royal Commission on the Economic Union and Development Prospects for Canada, generally referred to as the Macdonald Commission. Among other things, it would have provided on-the-job training, earned income tax credits, and mobility grants.
It would be funded inter alia by the diversion of resources from what were then CAP transfers, family allowances and the personal exemptions and credits in the income tax system. At first blush, these challenges are clearly short-term; namely, how to rework aspects of EI so as to accommodate the needs of Canadians who either are or soon will be unemployed as a result of the global financial and economic crisis.
However, this framing of the issue is inadequate in at least two respects. First, and most important in the short term, the challenges of the unemployed transcend EI, especially for those who are not EI-eligible or have exhausted their EI benefits. Second, the manner in which we deal with these short-term challenges may not be consistent with the longerterm evolution toward an integrated welfare-work system.
In turn, these considerations suggest that the preferred way to approach EI reform is to begin by elaborating on the characteristics of an integrated welfare-work subsystem as part of our overall social envelope.
Our view is that most of what falls under these benefits is better viewed as part of the larger Canadian social envelope. These benefits should, therefore, be funded from general revenues; to the extent possible, they should be available to all Canadians rather than only to those who are EI-eligible; and most certainly they should not be run through the current regime, where employers pay, at least in the first instance, 58 percent of EI costs.
Our starting point is to note again that the EI Act distinguished between unemployment and employment benefits. Focusing on the former and, specifically, on regular unemployment benefits, our first point is that these should be funded by premiums set in general accordance with insurance principles. In our view this means not only a uniform entrance requirement but, as well, a uniform way of calculating the duration of benefits. A more generous approach would be 1 week of benefits for each week of contributions for the first 15 weeks of work, a further 1 week of benefits for each two 2 weeks of work for the next 30 work weeks; and beyond that, 1 additional week of benefits for each 3 additional weeks of work, to an overall maximum that could be the current 50 benefit weeks or could follow international practice and provide longer maximum benefits.
This would ensure equality of treatment for all unemployed Canadians and it would guard against the risk of short-term labour-force attachment triggering long-term benefits. In terms of buttressing the proposal for a uniform entry requirement, in addition to the obvious equity case, several commentators have noted that in this recession it is not evident that it is any easiertofindajobinalow-thanina high-unemployment-rate region, which was presumably a major part of the original rationale for the easierentry and longer-duration provisions in high-unemployment regions.
Second, with these insurance principles in place, together with the principle that benefit weeks can only be triggered by weeks worked, one would presumably want the uniform qualifying period to be set quite low, e.
As an interesting aside, there would no longer be an incentive, on becoming unemployed, to move back to a high-unemployment region to collect benefits.
Fourth, whether the model proposed here is adopted or not, there seems to be little reason for employers to be saddled with higher premium rates than are employees. Since any unshifted premium burden is likely to encourage or force employers to adopt more capital-intensive and labour-displacing production processes, the presumption is that the burden of employee and employer premiums will largely be borne by employees in the form of lower wages than would otherwise prevail.
Fifth, on moral hazard grounds we would not include the self-employed in the EI program relating to regular unemployment benefits.
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