HUMA Committee Report

        The Employment Insurance Act was intended to modernize Canada’s approach to providing income support and adjustment assistance to unemployed workers across the country. New features included coverage from the first hour of work and an hours-based qualification and benefit structure. Compared to its predecessor UI, EI was intended to encourage workers to work longer and reduce the length of time on claim. It was also intended to be fairer in terms of qualifying for benefits, reducing benefits for high-income earners and increasing benefits for low-income families with children. EI reform was also intended to produce a less costly program so as to meet the commitment made in the 1995 federal budget to reduce the costs of unemployment insurance by 10%. The government had determined that fiscal order needed to be restored and to do so program spending had to be curtailed.

While the 1996 EI reforms involved some significant changes, much of the Employment Insurance Act mirrored its predecessor. Major changes included:

• minimum insurability rules replaced with coverage from the first hour;

• a qualification and benefit structure based on hours instead of weeks of insurable work;

• an increase in the qualification requirement for new entrants/re-entrants;

• a new way to calculate average weekly insurable earnings (“divisor” rule);

• experience-rated benefits (“intensity” rule);

• a tougher benefit repayment provision with an experience-rated component (“clawback”);

• a higher earnings exemption for low-income claimants;

• higher benefits for low income claimants with children (family supplement);

• a reduction in maximum insurable earnings;

• a reduction in maximum weekly benefits to $413;

• a premium refund for employees with annual earnings equal to or below $2,000;

• a new premium rate-setting process that was supposed to create a reserve to achieve premium rate stability;

• tougher penalties for violations; and,

• new eligibility conditions and delivery mechanisms for “active” labour market adjustment.

Professor Fortin characterized the unemployment/employment insurance reforms in the 1990s as follows:

        There is little doubt that EI reform has produced a smaller program. Today, the beneficiary-unemployment ratio (commonly called the B/U ratio) is about 45%.^[2] Nevertheless, it is estimated that roughly 80% of those for whom EI was designed were eligible for benefits in 1999. Moreover, this measure of EI coverage has remained fairly stable over the past two reporting periods (based on results from the Employment Insurance Coverage Survey).^[3]

        According to the Canada Employment Insurance Commission’s (CEIC) most recent assessment of the 1996 EI reforms, EI continues to meet its primary objectives of providing temporary income support for people who lose their jobs while assisting them to become re-employed; and by providing maternity, parental and sickness benefits. Nevertheless, and despite a strong economy, the Committee was frequently told that some regions of Canada continue to experience relatively high levels of unemployment and continue to experience problems adjusting to the 1996 reforms.

        According to the most recent data available, claimants use, on average, less than two-thirds of their benefit entitlement and only a small proportion (12%) of those who become unemployed experience a drop in family income.^[5] The Committee suspects that many of those who suffer a drop in family income reside in high unemployment areas of the country. Claim frequency has also declined, although much of this has occurred among non-seasonal workers. This suggests that seasonal workers face limited employment opportunities in the off-season and will continue to use EI even during periods of strong economic growth.^[6] The Minister of Human Resources Development Canada (HRDC) told the Committee that the percentage of frequent claimants who are seasonal workers remains at the same level as that prior to the reform. In addition to the intensity rule’s marginal effectiveness in reducing EI frequency, the Minister also indicated that this provision has had the unintended consequence of being punitive. It is for these reasons that the government decided to eliminate experience-rated benefits.

        Many low-income workers reside in labour markets that offer unstable employment and these workers rely on EI for income support during periods of unemployment. The Committee was told repeatedly, that year-round employment opportunities are limited in many parts of the country and that seasonal employment is a fact of life. This is implicitly recognized in Bill C-2, and while favourably received by many witnesses, the Committee was told that this legislation did not go far enough to address some of the ongoing problems associated with the 1996 reforms. Some recommended that EI be significantly softened and returned to a program like that which operated in the early 1970s. Although all Committee members acknowledge the need to continue to fine-tune the EI program, most oppose a significant dismantling of the 1996 reforms.

        Today, we need an EI program that provides adequate access and income support to unemployed workers, while maintaining incentives for individuals to secure jobs and invest in skills required in the workplace. Of equal importance, EI must be fair to all premium payers. What follows is a discussion on how EI might be further improved so as to achieve these ongoing policy objectives.