Posted: Tuesday, 21 October 2008

Canadian Labour Congress Submission to the Canada Employment Insurance Commission regarding the 2009 Employment Insurance (EI) Premium Rate Setting

On behalf of the 3.2 million members of the Canadian Labour Congress (CLC), we want to thank you for affording us the opportunity to present our views. The CLC brings together Canada's national and international unions along with the provincial and territorial federations of labour and 130 district labour councils whose members work in virtually all sectors of the Canadian economy, in all occupations, in all parts of Canada.

Summary

The Report of the Chief Actuary recommends no change to the EI premium rate of $1.73 per $100 of insurable earnings.

The CLC does not agree with the now dated economic projections underlying this recommendation, which indicate only a very modest increase in the national unemployment rate in 2009 compared to 2008. The prospect is for unemployment to increase much more dramatically than the forecast increases from 6.1% to 6.5% as the U.S. and the global economy tip into a recession which may well be deep and prolonged.

However, we are strongly opposed to increasing premiums in a time of recession, as would be required under the current financing rules unless the government directs otherwise.

Facing a recession, we call for no change in premiums, and also for improvements to inadequate benefits.

We also urge the government to announce that it will use its power to freeze the premium rate in the event of a recession.
A better Employment Insurance program is needed in a time of recession

EI is a critically important program for Canadian workers, especially in the tough times we face today. Laid off workers obviously need adequate benefits to support themselves and their families while they search for a new job.

Recessions mean that more workers lose their jobs, and that they find it much harder to find a new one. In the last two recessions, those of the early 1980s and early 1990s, Canada's national unemployment rate rose sharply, from about 7.5% to over 11%.

Most economists now agree that another recession is close at hand.

However, compared to previous recessions, our EI program will leave many Canadians out in the cold, unable to qualify for benefits.

Back in 1996, the maximum weekly benefit (in today's dollars) was $604. Today, after a decade long freeze on maximum insurable earnings which only recently expired, it is only $435. The average benefit today is much lower than the maximum, just $335 per week. This is not enough to keep even a single adult at the poverty (LICO) line, let alone support working families through tough times.

In 2006-07, only four in ten unemployed workers qualified for EI. While some unemployed workers not receiving benefits are new entrants or re-entrants to the workforce, low coverage of the unemployed also results from the fact that many young people, recent immigrants, part-time, temporary, and seasonal workers do not have enough hours of work to qualify, especially those in large cities. Women are especially affected. Only half of unemployed workers who were previously working part-time qualify for benefits. In the event of a recession, many working poor Canadians will see sharp reductions in their incomes due to cuts to their hours and weeks of work, and even more of them will be pushed out of the system.

Unemployed workers who do qualify are, on average, eligible for 32 weeks of benefits, about seven months. This is much less than the theoretical maximum of 50 weeks in a handful of very high unemployment regions. Some unemployed workers qualify for a maximum of just 14 weeks of benefits. In a recession, the proportion of claimants exhausting benefits will rise sharply from the current level of one in four.

We call on the newly elected government to increase access to EI and EI benefits along the lines proposed by the CLC and supported by the majority of Members in the last Parliament through Bill C-269.

We urge a lower entrance requirement of 360 hours of work across the country so that more workers would qualify if they are laid off; longer benefits so fewer unemployed workers exhaust a claim; higher weekly benefits based on the best 12 weeks of earnings before a layoff; and replacement of 60% of insured earnings.

We would also like to see more spent on training and labour adjustment programs for unemployed workers. We note with concern that the government has not proposed to increase the $2 billion per year allocated to Employment Benefit and Support Measures, even though it has forecast a rise in unemployment.

Program finances

Despite its inadequacies, EI is a hugely significant program which will provide an estimated $10 billion in regular benefits in 2009 to workers who are temporarily unemployed through no fault of their own. If it were not for EI, many more of the unemployed and their families would face poverty, and insecurity and income inequality would be even more pronounced. Regular EI benefits also help sustain the economies of local communities.

In the event of a serious downturn, the cost of EI regular benefits would increase sharply. It is estimated that 83% of employees now paying into the program would qualify for benefits if they were laid off. (The proportion of unemployed workers actually collecting benefits today is lower than this figure because many of the unemployed were previously self-employed or have just joined or rejoined the workforce.)

The Chief Actuary for the program calculates that a one percentage point increase in the unemployment rate would raise total EI benefits paid out by more than $1.5 billion per year, and even more if the proportion of the unemployed who qualify for benefits were to rise. (This is based on the data on p.9 of his 2009 report which show that a one percentage point increase in the unemployment rate would drive up the premium rate by 0.14%, and that each .01% increase in the premium rate represents $111 million.) An increase in the unemployment rate comparable to the last two recessions would, then, increase the cost of benefits by about $5 billion per year.

The EI program has accumulated a huge surplus of $54 billion since the mid-1990s, the result of deep cuts in benefits paid to unemployed workers. That surplus could and should be made available to backstop and improve benefits as we hit a recession. Rainy day funds are, after all, supposed to be there for rainy days.

However, under both recent Liberal and Conservative governments, the EI surplus has been placed off limits for the purpose of either improving EI benefits, or stopping EI premium increases.

Under the current system, EI premiums are supposed to be set so as to exactly balance revenues and expenditures as forecast for the year ahead, meaning that a recession would force premium increases at the worst possible time (by the upper limit of 15 cents per $100 of insured earnings). A reserve fund of $2 billion has been set up, but it is not a real reserve to be drawn down as needed since any draw on it has to be repaid from premium revenues in the following year.

That said, the government can set the premium rate itself if it chooses to do so.

With Canada on the brink of recession, we urge the federal government to continue to set the premium rather than proceed with the creation of the new EI Financing Board, and to announce that it will refrain from any increases during a downturn. Such an announcement-which is more than justified by the size of the accumulated surplus-would send a clear signal to workers and employers that the EI program will be sustained when most needed, without a damaging increase in premiums.

This document is respectfully submitted on behalf of the Canadian Labour Congress:

Kenneth V. Georgetti
President