[Recorded by Electronic Apparatus]
Thursday, April 18, 1996
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[English]
The Chairman: I'd like to call the meeting to order. This afternoon we'll be going to Edmonton, Alberta, via video-teleconference. We will be hearing from the president of the Alberta Restaurant and Foodservices Association, Elizabeth Kuhnel.
Welcome. As you know, we have approximately a half hour, a 10- to 15-minute presentation followed by 10 to 15 minutes worth of questions and answers from the members of the committee. We look forward to your comments. As you know, our major role here is to improve Bill C-12, an act respecting employment insurance in Canada, so we are looking forward to your input. Welcome and please begin.
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Ms Elizabeth Kuhnel (President, Alberta Restaurant and Foodservices Association): Thank you. The Alberta Restaurant and Foodservices Association appreciates the opportunity to present the views of the restaurant and food services operators in the province on Bill C-12.
My name is Elizabeth Kuhnel. I am president of the Alberta Restaurant and Foodservices Association. With me today is Mario Nardelli, chairman of the ARFA and the owner-operator of Shakers Acres.
The Alberta Restaurant and Foodservices Association represents some 7,500 food service establishments in this province. The restaurant industry is employment intensive. Labour accounts for close to 30% of a restaurant's operating expenses in Alberta, so any payroll tax increase has a significant impact on cost.
The restaurant association initially supported the government's reform of the unemployment insurance system because there appeared to be a recognition of the growing burden of payroll taxes. There is not an industry in Alberta that is not looking for ways to reduce labour costs, primarily because they have no control over the costs related to payroll taxes, WCB, health insurance, and so on. The restaurant industry is no different. However, part of our product is our people, so we cannot reduce staff like other industries.
While we support efforts to reduce the administration burden of UI premiums, we are concerned that the government is losing sight of its objective. Rather than reducing premiums, this bill increases UI costs for the food service industry by an estimated 17%.
We still support many of the reform principles contained in the legislation. Proposals that tighten entry requirements and encourage individuals to take more responsibility for themselves are necessary and should result in a less expensive, more sustainable program.
However, we are extremely concerned about one particular change, which will jeopardize thousands of industry jobs. The focus of my remarks today will be on first dollar coverage and the devastating impact this change will have on part-time employees, particularly students attempting to save for their education or put themselves through school.
We know from the throne speech that this government cares about Canada's youth. We agree with comments in the speech that young Canadians deserve a climate of opportunity and that this should be a national objective. As an industry we would like to accept government's challenge to create new approaches to assist young people in finding their first jobs. Unfortunately, we will be forced to cut back on the first-time job experiences we currently provide.
We are one of the largest private sector employers in this province. We create jobs for close to 100,000 Albertans. For many young Albertans our industry opens their first door to the job market. We do not believe it is the intention of this government to discourage youth employment. That is why we wanted to appear today. We are here with the objective of proposing solutions that will help improve this bill, to make it a job creator, not a job killer.
Let me begin by explaining why this bill will kill industry jobs. I mentioned earlier that a third of restaurant revenues goes directly into employee salaries and wages. Most of a restaurant's other operating costs are fixed. Profit margins in our industry average only 5% before taxes. Passing costs on to consumers is not an option in today's tough competitive marketplace. Our industry has also lost 5% of its share of the food dollar to grocery stores since 1991, primarily because of the GST. This leaves operators with no choice but to cut hours and staff.
What I would like to do now is have my chairman give you an operator's perspective on this issue.
Mr. Mario Nardelli (Immediate Past Chairman, Alberta Restaurant and Foodservices Association): Good afternoon.
I operate Shakers Acres in Edmonton, a banquet and catering facility. My entire staff is made up of part-time students. I have analysed the financial impact of the first-dollar coverage for my establishment. This dollar coverage will increase my salary costs by as much as 20%.
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I'm in a very competitive business and my customers are extremely price conscious. They react if I increase the price of a cup of coffee by 5¢. I cannot increase my prices without losing business. My margin just gets skinnier every year.
First-dollar coverage will impact on my ability to create jobs and give employees a pay increase. My students currently working fewer than fifteen hours per week at an average of $6 an hour will see their hourly wage decrease by 18¢ per hour. This is a significant drop for one of my student employees, who is saving for university.
I feel first-dollar coverage will affect the viability of my restaurant in Alberta and of those across this country.
Ms Kuhnel: Mr. Nardelli has provided you with the implications of first-dollar UI coverage on his business, and the scenario will be similar for most restaurants in Alberta. Our preference would be for government to abandon proposals to convert to a first-dollar coverage system.
There are valid and defensible reasons for a maximum weekly insurable earnings system. Employees working under fifteen hours a week in our sector are primarily students whose attachment to the labour force is limited. Their part-time job is not their first priority, nor should it be.
Research shows that students who work a moderate number of part-time hours while attending school do better in terms of their grades than those who do not work, or who work over twenty hours a week. School drop-out rates increase when students work an excessive number of hours. Educators support industry efforts to limit student part-time hours so there is a balance between their school, social, family and work activities.
Provided there are no further modifications to the legislation, we accept the rationale that converting to an hours-based system would mean less administration for both government and business. But we are already hearing about modifications involving gaps in employment. This would undo the only legitimate reason for converting to an hours-based system.
We do not accept the rationale that first-dollar coverage will take away the incentive to hire part-time employees. Employers in our industry do not schedule according to the UI program. In my eleven years of involvement in the industry, we never gave a thought to limiting staff hours to fifteen hours a week. Our focus was to have the best staff working when they were needed.
Peak periods occur over meal periods, and the busiest meal periods vary from restaurant to restaurant and by hours of the day, by days of the week, by weekday or weekend, by local events, by weather, by holiday, etc.
Employers also schedule according to the needs of their part-time employees, who want to maximize their earnings in the minimum number of hours. You need to understand that flexibility in scheduling is one of the major attractions of part-time jobs in our industry.
If, for the purposes of calculating eligible benefit, the committee is seriously considering changes to the legislation to deal with situations where there is a gap in employment, you must understand the implications for an industry such as food services. It would be impractical and totally unworkable.
The pattern of work of part-time employees is uneven because this is what employees desire. They have the ability to decline shifts when their school work gets too heavy. They often ask not to be scheduled during exam periods or because of other school or family obligations.
Tracking every gap in employment would be very costly and time-consuming for operators. In addition, it would totally negate any efficiencies that would have been derived from first-dollar coverage. It would limit operators' ability to provide the flexibility their employees require.
We see the proposal for a $2,000 earning threshold and a small business rebate as an acknowledgement of the cost impact and unfairness of first-dollar coverage. Unfortunately, neither option will provide more than marginal relief for food service employers or full-time students.
According to the most recent figures from departmental officials, which are based on taxation records, the $2,000 rebate will only apply to 34% of full-time students working in Canada. Employers will not be eligible for the rebate.
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The small business rebate is completely inadequate. First, it is only a temporary measure, and secondly, it only applies to selected companies. In two years' time all Canadian businesses will be hit with the full cost impact of the change.
If the government is determined to proceed with first-dollar coverage, there is a way to mitigate the financial burden, save student jobs and also advance the government's political agenda: introduce a student premium exemption. Our counterparts at the Canadian Restaurant and Foodservices Association have been working with departmental officials to pare down the cost of this option. From the department's first estimate of $1 billion, CRFA has been able to develop a proposal that would cost less than $200 million. This involves a $5,000 earnings exemption targeted at students. It would work the same as the basic exemption under CPP, but it would only apply to full-time students and their employers.
According to departmental figures, 76% of full-time students earn less than $5,000 per year, compared to 34% who earn under $2,000 a year. Student UI eligibility would begin the first hour after the student's earnings reach $5,000. The student exemption would complement the government's national agenda of facilitating the creation of jobs for youth, it would reinforce the stay-in-school message, and it would allow students to save for and contribute to their education at a time when governments have had to pull back their support.
The workplace experience students could accumulate while going to school would greatly enhance their opportunities for full employment upon graduation.
The bill will have the hardest impact on small entrepreneurs who offer the best job creation potential for youth trying to acquire an education and a future. We find it impossible to understand how the committee could ignore the costs and job impact of first-dollar coverage when so many jobs are at stake. We find it even more incredible that the committee would consider proposals to address the gap issue, which will negate the administrative advantages of the first-dollar coverage and further constrain student employment.
That is why we urge you to hear and understand our message. For the future of our industry and the thousands of young people we employ, please work with us to put a student exemption in place. Thank you very much.
The Chairman: Thank you very much for your presentation and for the perspective you've offered the committee.
We're going to have a question and answer session. Mr. Crête, followed by Mr. Easter.
[Translation]
Mr. Crête (Kamouraska - Rivière-du-Loup): Your brief is very clear and provides us with excellent information. I would like you to describe the possible impact of this measure. Do you think that this additional cost will affect consumer prices or will lead to a reduction in the number of jobs, particularly for young people? What part could be absorbed by restaurateurs? You say that the cost will increase by 17%. How do you think these costs will be distributed and do you think this will bring about the closure of certain restaurant businesses?
[English]
Ms Kuhnel: The Canadian Restaurant and Foodservices Association estimates that the cost to our industry will be $35 million with the proposed first-dollar coverage. We do not feel we can pass that cost onto the consumer. We have great consumer resistance in pricing. The implications for the industry are that certain establishments will either reduce their staffing requirements or will reduce the number employed, and the result will be poorer service and probably in the future a closure of many operations across the country.
[Translation]
Mr. Crête: Thank you.
[English]
The Chairman: Thank you.
Mr. Easter.
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Mr. Easter (Malpeque): Welcome, people. You indicated that your costs could increase by as much as 20%. I find that figure high. I'm in business myself in the farm sector, and I don't see the UI premiums as a major cost to my operation.
Now I know in the restaurant business that labour is certainly a big factor in terms of your overall costs, but do you have any percentage figure in terms of how much the premium costs are going to be as a percentage of your gross expenditures?
Mr. Nardelli: Thank you for that question, sir. I think when you look at the industry we're in and the high labour cost of 20% - I think it's something we haven't figured out to be exact - this cost is going up.
Mr. Easter: Yes, but what we're looking at here is the increased burden of costs as a result of first-dollar coverage. What I would like to find out is how much more burden of cost is there going to be on the restaurant industry as a result of now having to pay employment insurance premiums on that first fifteen hours that's avoided at the moment. You don't have any figures on that. I'm having difficulty getting them anyplace.
Mr. Nardelli: Well, that's the question right there. Those are the figures that we in industry didn't have before. If this bill goes through, we would have to pay from the first hour. We estimate that cost, especially when we have so many part-time people, to increase to that 20%.
Mr. Easter: Okay. The other question I had was this. You mentioned in terms of your submission that you would like to see a student exemption. What about other part-timers? It's not just students who are working what I call the fifteen-hour trap. It's not just students who are working in that area. What about the others? Are you asking for them to be exempt as well?
Ms Kuhnel: We had a preference, obviously. If the fifteen hours was to remain in place, that would be our preference overall, because we do not hire just students on a part-time basis. We have a lot of non-students and women employed, a lot of people who hold several jobs, for whom we currently are not paying UI premiums. So the overall costs will, even with the student exemption, still increase, but not as dramatically.
Mr. Easter: The reason I raised the point is that you've made an argument in terms of your submission that the administrative costs of you pacing the gaps and the hour coverage are fairly extensive. If you just drop out one component, the students, your administrative costs are still going to be there because your other part-timers are in. I just wondered how you squared that circle of having one in and the other out. I think that would be even more complicated.
One thing you have is that all the restaurant trade would be in the same boat with this measure. It's not that one restaurant is going to have a benefit over the other. Everybody's facing the same cost pattern, which I don't view as too excessive.
But that's my view. I want you to give me the arguments otherwise. If you can convince me, I'll listen.
Ms Kuhnel: I'm sorry. I'm missing the gentleman's comments.
However, the industry, as I mentioned, has a fairly low profit margin, the average being about 5%. We are, as an industry, struggling every day to just make ends meet, because there has been consumer resistance to cost increases such that we cannot raise our prices on our menu, particularly since the introduction of the GST. It's just impossible. So this is just another tax that will decrease the viability of several operations across this country.
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The Chairman: Thank you, Mr. Easter.
Thank you to the representatives of the Alberta Restaurant and Foodservices Association. You certainly made your point quite clear. We understand perfectly well where you stand on this particular issue. As you know, we've heard from a cross-section of Canadians offering different perspectives and different points of view on Bill C-12. Our duty and obligation, as members of this committee, is to try to arrive at something everyone can feel comfortable with. That's a challenge we have, and we thank you very much for helping us out.
Ms Kuhnel: Thank you.
The Chairman: We're going to stay in Edmonton, Alberta. Before we hear from the Edmonton and District Labour Council, and Mr. Bill Stephenson, president, we'll take a short break.
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The Acting Chairman (Mr. McCormick): Order.
Good afternoon. We're hooked up again with Edmonton. Our next witnesses are from the Edmonton and District Labour Council.
Welcome, gentlemen, to the Standing Committee on Human Resources Development, as we look to improve Bill C-12.
I'd ask you, Mr. Stephenson, to introduce your colleague. We have approximately half an hour and perhaps 10 to 15 minutes for your presentation, if you wish, and then questions around the table.
Mr. Bill Stephenson (President, Edmonton and District Labour Council): Thank you,Mr. Chairman.
I have with me Gil McGowan, a researcher with the Alberta Federation of Labour. He is mostly responsible for putting this brief together.
The AFL and the EDLC welcome this opportunity to present before the committee on the UI system. Together, the AFL and EDLC represent 110,000 workers from 43 affiliated unions. Our mandate since inception has been to speak out for working people on a wide range of issues, including government-sponsored benefits to workers.
I will not go through the whole document you have before you. However, we are willing to answer questions on any area we may not touch on. Instead, we will touch on the 10 objections we have to the UI changes, which begin on page 5 of the brief. If time permits, we will jump to our recommendations, which begin on the bottom of page 11 of the brief.
First of all, our objections. The first is that the $2 billion in cuts to program spending announced in the budget and written into the new EI legislation cannot be justified in terms of cost. At the current rate, the fund will have a $9 billion surplus next year. Where then is the need to continue cuts to a plan that is already doing so well financially?
Under the new EI system, it will become too difficult for unemployed workers to qualify for benefits. The government's own estimates show that 90,000 current recipients will not qualify under the new system. Another 480,000 who work fewer than 35 hours per week will now have to work longer to qualify. You must remember that it is not the employee who sets the hours of work.
We do not share the government's confidence that this total of 570,000 Canadians who will be denied benefits will find some way to make ends meet. We do, however, agree that the system should change to reflect the changing nature of the labour market. In fact, we support the concept that hours of work instead of weeks to calculate eligibility makes more sense. However, what this government is doing is setting the number of hours needed much too high. In fact, if this legislation passes, Albertans will have to work 133% longer to qualify.
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The government's contention that more part-time workers will qualify under this new system is a fallacy. By lowering the maximum duration for benefits to 45 weeks from 50, the government will be throwing many people off UI before they are able to find work. This will force more people onto the already overburdened welfare rolls. It's hard to call this a reform when all it really does is download the problem onto the provinces, which are already fighting with debt and deficits and, as in the case of Alberta, are cutting welfare programs.
Once the new rules have been implemented, many UI recipients will no longer be able to make ends meet financially, as a result of dramatically reduced benefit rates. The impact of the new formula for setting benefit rates will mean that claimants will have their benefits cut by anywhere from 8% to 50%, plunging more people into poverty. The proposed penalties for unemployed workers who apply for UI more than once over a five-year period are unethical and do nothing to attack the real causes of unemployment.
We believe that all the changes do nothing more than blame the victims of corporate and government downsizing for being unemployed, and this change certainly makes that obvious. Supporters of this change would have us believe that claimants want to be unemployed or that this will somehow reduce unemployment. The reality is that even under the current system, people who quit a job without cause or who are terminated for misconduct cannot collect.
It's only logical to assume that people who receive unemployment, no matter how many times they have had to apply, have no control over the fact that they are unemployed. Federal statistics show that 43,000 people were unemployed in Edmonton in the month of February, while 1,700 jobs were posted at the employment centres. That's 43,000 people chasing 1,700 jobs.
We're also deeply troubled by the government's seeming willingness to abandon the basic principles that form the foundation of the original UI program. We support the concept of government-sponsored retraining programs. However, the UI fund was never meant for this purpose. UI was implemented to help people who are temporarily unemployed to continue their normal lifestyle until they can find a job. It was neither meant nor should it be meant to force recipients into retraining programs that do not guarantee employment.
Individual workers won't be the only ones to suffer as a result of the proposed changes. Without the money generated by UI cheques, many communities and regions will also suffer financially.
We question the government's claims that the new focus on active employment measures will have better results than the traditional approach of income replacement. To argue that these changes will create incentives for the unemployed to find work only serves once again to assume that all claimants are on UI because they want to be. Again, the reality is that the current system only pays 55% of a claimant's previous earnings. One must believe that if there are jobs out there, this would be incentive enough to find one.
Wage subsidies and income supplements are not the answer. These types of programs only serve to distort the labour market and drive wages down. What's worse, history has shown that these jobs only exist for the length of time that government funds keep flowing. In effect they are short-term band-aid solutions and do not create long-term full-time employment.
Finally, the proposed devolution of responsibility for unemployment services from the federal government to the provinces and community or business groups will inevitably lead to a hodgepodge of services across the country.
As in most areas of social policy, there is no magic formula for improving UI, but we think there are several things government should keep in mind when making the effort. The prime goal of reform should be to reduce poverty in Canada and improve the economic security of unemployed people. You can't legitimately call any change reform unless it improves conditions, and under this definition the proposed changes cannot be described as reform.
The primary reason for the large number of people on UI in recent years is high unemployment. The best way to reduce UI rolls is to create new jobs, not punish UI recipients. The overwhelming majority of people who fall back on UI have legitimate claims for assistance. Reports of fraud and abuse have been grossly overstated.
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In concrete terms, we have several suggestions for alternative approaches to UI reform. We support the concept of moving to a system for determining eligibility based on hours of work as opposed to weeks, but the threshold must be low enough to allow part-timers and contract workers reasonable access to benefits.
Instead of going after the unemployed, in effect blaming the victim, the government should turn its attention to employers by giving them incentives to hire full-time workers and imposing penalties on profitable employers who lay workers off. Perhaps employers who try to use the UI system for relief of their normal payroll obligations could be required to pay both the employer and employee portions of premiums.
UI dollars could also be saved by providing the option of early retirement for UI beneficiaries 60 years and older, who have little realistic hope of finding decent jobs before they reach the normal age of retirement, 65.
These are only a few examples of creative alternatives to the government's current approach to UI reform. We are convinced that many other constructive changes could be devised to improve the system, changes that wouldn't confuse the purpose of UI or plunge unemployed Canadians into poverty.
We urge the government to seek out these alternatives to find a better way. If they don't, they may end up doing irreparable damage to a program that has served our country very well, and they may end up leaving hundreds of thousands of Canadians out in the cold.
The Acting Chairman (Mr. McCormick): Thank you very much.
We'll proceed in the normal way. We'll ask for the official opposition to put the first questions forward.
Mr. Crête.
[Translation]
Mr. Crête: Thank you for the presentation which was very clear. It's interesting to hear a presentation made by people from Western Canada and to see that you perceive the problems the same way they are viewed elsewhere, whereas one might suspect the opposite is true. We can therefore see that the problems of workers are the same just about everywhere.
I would like you to tell me whether it would be possible to create some kind of parity organization where employers and employees would manage the unemployment insurance fund together. Do you feel this would be a solution that would enable us to ensure better management of the unemployment insurance fund?
Secondly, do you think that the best way to foster job creation is to have a surplus of money that could be used entirely for employability measures, or a surplus that is limited to $3 billion in part with another part reimbursed to employers and employees in the form of premium reductions? Which solution would you advocate? Do you have any other solutions to propose?
[English]
Mr. Stephenson: To answer your first question, we believe that as far as the running of the system goes, input from the people paying the premiums is very important. However, it is still a government-run program and should remain that way. With our input, the government should make the rules and regulations and govern it.
As to your second question regarding the surplus being used, personally I think it makes more sense to use any surplus in the fund to make sure that workers who are unemployed are being covered and getting access to UI. Under the current system it has become very difficult for employees to gain access to the fund, and with these changes it would become even worse.
To create a surplus on the backs of unemployed people in no way does them any good. It doesn't do the government any good, it doesn't do the economy any good, and I really can't see how this money could actually create jobs.
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[Translation]
Mr. Crête: You represent workers in the eastern part of the country, and I would like to hear your opinion about a proposal made by employer associations, that is, that we should have a uniform system throughout the country that would require an identical number of weeks everywhere. What do you think of this? Does that seem to you to be a realistic and desirable situation?
[English]
Mr. Stephenson: Again, it could only be realistic if it were a fair number of weeks for everybody. For instance, if you're going to take the lowest common denominator and make that the number of weeks needed throughout the country then obviously there are going to be places in the country where that just won't fit. As we said in our brief, we're more in favour of having hours of work calculate eligibility for UI. Our only concern is that those hours of work have to be fair and not increase the need for work for eligibility. In fact, to go along with the workforce and working ways of our country today, it should be reducing, not making it harder for workers to get the program.
The Acting Chairman (Mr. McCormick): Thank you, Mr. Crête.
We'll proceed to Mr. Allmand on the government side.
Mr. Allmand (Notre-Dame-de-Grâce): Thank you very much.
Mr. Stephenson, how long have you been with the Edmonton and District Labour Council?
Mr. Stephenson: It has been about nine years now.
Mr. Allmand: Over the years, have you heard many complaints from workers, from employees in your unions? Have they complained about the unemployment insurance system? Do they feel that it wasn't a good system? Have they been dissatisfied with the unemployment insurance system as it was?
Mr. Stephenson: The ones who are losing their jobs certainly are. I also sit on the UIC Board of Referees in Edmonton and I see, on a continual basis, people coming in to fight to get what they feel is rightfully theirs, and what in many cases I feel is rightfully theirs. Unfortunately, the legislation has been changed so much in recent years that there's really nothing they can do to collect.
Yes, many people, because they're worried about keeping their jobs, are also very concerned about the changes to this system.
Mr. Allmand: But have you heard any complaints over the years that would justify the amendments in this bill?
Mr. Stephenson: No.
Mr. Allmand: Have the workers in your unions complained that the premiums are too high?
Mr. Stephenson: Of course. Any kind of payroll tax gets complaints.
Mr. Allmand: Finally, while you point out in your brief that abuses are a small percentage of the system, we know that abuses do exist. Do the members of your union generally support measures that would reduce abuse but would not be directed at those who do not abuse it? Sometimes what happens when there's abuse is that everybody, both the innocent and the guilty, get hit with these kinds of reforms. Would your union support measures that would be directed just at the abusers and at nobody else?
Mr. Stephenson: Certainly, we have no problem with programs being put in place that stop people from abusing the system. I'm not sure that you can ever do that. If you look at any system as far as government benefits are concerned, there are always going to be people who try to abuse it. I believe Statistics Canada says that 2% of people who are receiving UI are the abusers of the system; to ask 98% of the people who collect UI to pay for what 2% are doing is certainly out of line and does nothing whatsoever to improve the system.
Mr. Allmand: Some members of this committee have already put forward proposed amendments to improve the bill, to correct some of the things you are speaking about. Are you familiar with any of those proposed amendments?
Mr. Stephenson: No, I'm not.
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Mr. Allmand: I see.
This is my final question. There is also a provision in the bill to provide a supplement for families in lower income brackets, which would top up their benefits. What's your assessment with respect to that provision?
Mr. Stephenson: It sounds like a good idea, but I would have to see exactly what it entails. That's pretty wide open.
Mr. Gil McGowan (Executive Director, Communications, Researcher, Alberta Federation of Labour): We've taken a look at the suggestion for income supplements, and on the surface of it we don't have any serious objections. What we do object to, however, is that money from the UI fund would be used for this purpose. We don't think money that has been collected for the specific purpose of replacing the incomes of unemployed workers should be used for other purposes. In effect, the income supplement and several of the other proposals contained in the new legislation are social assistance programs. By using UI funds to pay for them, we're confusing the entire purpose of UI. It is, after all, an insurance program and a program designed to meet the needs of unemployed workers and replace their income. In our opinion, there should be no other purpose to the UI fund. To use the money for any other reason is to forget the purpose of UI and to betray the trust of the workers and employers who have paid into the program, assuming they knew what that money was being used for.
Mr. Allmand: Thank you very much.
The Acting Chairman (Mr. McCormick): Thank you very much, Mr. Allmand.
Gentlemen, thank you for your excellent presentation. We have your brief here, and I'm sure your recommendations will be discussed and considered in our further discussions and possible amendments to this bill.
Mr. Stephenson: Thank you.
The Acting Chairman (Mr. McCormick): We'll take a five-minute break as we move from Edmonton to Calgary on one of the fastest trips of our lives.
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The Chairman: We are now in Calgary, Alberta. The next presentation will be from the president of the Calgary Chamber of Commerce, Peter Wallace, and its chairman of human resources, Peter Edwards.
Welcome, gentlemen. As you know, our role here in this chamber is to improve Bill C-12, an act respecting employment insurance in Canada. We look forward, of course, to your input on ways and means in which that can be achieved. As you know, we have a half hour. You can take 10 to 15 minutes for your presentation, and that will followed by a question and answer session.
Thank you very much. You may begin.
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Mr. Peter Edwards (Chairman, Human Resources, Calgary Chamber of Commerce): Thank you, Mr. Chairman. Good afternoon.
We welcome this opportunity to present the position of the Calgary Chamber of Commerce to the Standing Committee on Human Resources Development. Peter Wallace, the president of the Calgary Chamber, sends his regrets. He's between here and you right now, in transit. We have, fortunately, the services of Peter MacKenzie, a policy adviser of the Calgary Chamber of Commerce. He is with me here.
By way of background, the Calgary Chamber of Commerce has approximately 4,500 representatives. Our membership includes a broad spectrum of businesses in Calgary. Our chamber is strongly representative of the small business community, with over 80% of our members being in this group.
The chamber has monitored issues related to today's discussion over the past number of years. In late 1994 we had the opportunity to submit our views to the Improving Social Security in Canada paper. In there, we stated that we believed Canadians must actively make a shift in their attitudes towards a greater sense of responsibility for their own economic, physical, and mental well-being, and they must adjust their thinking from entitlement to what is affordable, and also insist that all governments involved eliminate the waste that is being caused by duplication and the overlap in the delivery of our social programs. That remains the fundamental premise of our presentation.
We'd like to acknowledge and recognize the efforts and the commitments that have been undertaken to revamp the Unemployment Insurance Act through the introduction of the proposed Employment Insurance Act. We've given additional consideration to some of those issues surrounding work insurance and we would like to make recommendations. Our presentation focuses on the following areas: first, recognition of employment insurance as short-term insurance; premium disparities; the intensity rule; benefit repayments; and then we have some general observations on employment benefits.
First we'd like to point ourselves in the direction of employment insurance as short-term insurance. We really believe employment insurance should refocus assistance and protection as short-term insurance that covers Canadians who have lost their work positions for reasons beyond their own control and their own efforts. We firmly agree insurance benefits should not be available for those who have quit their jobs for no good reason.
We appreciate that the proposed legislation reduces the maximum number of weeks for payment of benefits from 50 weeks to 45 weeks. We believe this period could be further reduced to a benefit period that reflects a consistency across the country.
We understand as well that a review will be submitted to the Minister of Human Resources and it is scheduled for December 31, 1998. We really would emphasize that it should be as intensive as possible, to measure the effectiveness of this measure in encouraging Canadians to acquire employment in the shortest timeframe possible.
Secondly, as far as the premium issue is concerned, the issue of premium disparities, employees and employers both recognize that the primary base for any insurance program is the premium. We acknowledge the responsibility of employers for ensuring a healthy insurance base is maintained. Under the proposed legislation, though, we see there is an intention to maintain what we believe is inequitable treatment between employees and employers in the allocation of these premium rates.
The Calgary Chamber believes the premium allocation inequity continues to be a disincentive to employers to hire more people. We believe it's a necessity for a move towards more equality between the employees and employers, as far as the allocation of premiums is concerned.
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With respect to the rainy-day reserve that is being built up by the premiums, we understand this is to smooth fluctuation in the premium rates during slowdowns or recession, but as it stands this reserve is open-ended. This could result in difficulty in measuring how efficient the delivery of employment insurance is to Canadians. We'd see this as a payroll tax on potential future trends.
We recommend that the premium rate allocation between employees and employers be equalled by lowering the premiums paid by employers but not increasing the premiums paid by employees. We'd also recommend that the rainy-day reserve be capped at a maximum of $5 billion as a surplus.
Turning now to the intensity rule, we're pleased the government is recognizing that frequent users of the insurance program have put a drain on maintaining the integrity of this program. It's been stated that the percentage of Canadians collecting insurance benefits frequently has risen very dramatically, particularly in the last twelve years. We believe the introduction of the intensity rule as an incentive to encourage people to reduce the frequency of claims is a good directional step.
Nevertheless the unemployment insurance system has been in place for many years, and the attitude seems to have developed towards considering the program as an entitlement. Therefore there's less impetus to pursue work opportunities. So there's a clear need to encourage Canadians to shift that attitude towards greater independent responsibility.
One of the factors we're encouraged by with the intensity rule is we believe it will encourage those, over time, to consider better employment opportunities in other parts of Canada. We realize it's a gradual process and you can't just take things out at a stroke, but we believe market forces should be allowed to prevail to encourage Canadians to relocate to regions where opportunities for employment are strong. We would encourage people to consider these opportunities in other parts of Canada. So we're recommending a greater maximum reduction for frequent claimants.
Our fourth point is on benefit repayment. We're very encouraged by the improved provisions to have benefits repaid to the federal government from claimants who have high incomes. We feel this provision could be further strengthened if the benefit repayment were determined on an assessment of household income rather than individual income. Therefore we would recommend that for the purpose of benefit repayment under part VII of the employment insurance legislation, household income should be used to determine the amount of benefits.
The final point is with respect to employment benefits and support measures. We acknowledge the intent of the federal government to work with the provincial governments in designing the benefits and the measures that will determine how they are to be implemented, and in establishing the framework for measuring their success, and we support this.
We're concerned, however, that there be effective coordination of training and education in the maintenance of national standards. We've pointed out that our international customers look to standards and levels of training as being Canadian. Nevertheless effective coordination of these training standards between governments is essential to preserve our competitiveness internationally. We encourage the government to establish a very strong consultative process with all interested parties, including the Calgary Chamber, in designing employment benefit programs with the provinces.
Thank you. That is the gist of our presentation today.
The Chairman: Thank you very much for your presentation.
We'll have a question from Mr. Crête, followed by Mr. Scott.
[Translation]
Mr. Crête: One sentence caught my attention at the beginning of your brief. You state:
- The new realities reflect a direction by Canadians to regain their own strengths and capabilities
that were prevalent 50 years ago.
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Indeed, yesterday an expert told us that there had been no better program than the unemployment insurance system as an anti-recession regulation mechanism. It's the best regulation mechanism that has ever existed in Canada. It's better than the tax system or any other system of that kind. It has enabled us to avoid major disasters.
You stated that market forces should allow people to determine where they chose to live. Don't you think there are other criteria that are just as important as market forces, for instance the fact that one may want to develop the area of the country in which one grew up, try to make it an interesting living environment, try to develop the economy, etc.?
I will make another comment with my last question. You referred to the fact that there has been a major increase in the use of unemployment insurance in the past 12 years. Are you claiming that this is because people have become lazier, or isn't this due instead to the transformation of the labour market itself? Because new trade patterns have given rise to the development of part-time jobs that have not necessarily had an impact on unemployment insurance, but which still led to the results we have now. I therefore do not share your view that people are less inclined to work. I think that it's the labour market that has changed.
Moreover, when you say that the reserve should be limited to $ 5 billion, what do you suggest can be done with the additional amounts? Would you prefer that it be reimbursed as premium reductions or that it be used for something else?
[English]
Mr. Edwards: Starting with your last question first, yes, we strongly believe premiums should be reduced.
With respect to the market forces prevailing, I note that in the guide to the Employment Insurance Act, one of the mandates of Human Resources Development Canada is to assist unemployed people in finding employment wherever it may be available. That's the thrust of our argument here. We would prefer people to consider opportunities elsewhere rather than get into the mode of entitlement, where their lifestyle exists around employment or unemployment insurance.
You had two other questions. I'm just trying to recall what they were.
Mr. Peter MacKenzie (Policy Adviser, Calgary Chamber of Commerce): Perhaps I could respond.
You raised a question about the part in the opening of our letter that says:
- The new realities reflect a direction by Canadians to regain their own strengths and capabilities
that were prevalent 50 years ago.
[Translation]
Mr. Crête: I still have something to add on a problem that I think is fundamental. Don't you think that we should focus on developing our economy so as to enable people to ensure development where they live rather than have them move around according to market forces?
[English]
Mr. Edwards: We're not suggesting people should be forcibly moved to new locations. We're suggesting that where employment opportunities exist, people should seriously consider those rather than relying on employment insurance as a means of maintaining their status.
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We're pleased to see that the programs are moving from a passive to a more active approach. This follows on our thinking that people should be encouraged. There should be more active encouragement rather than a passive sitting back and accepting the status quo. That is our response.
The Acting Chairman (Mr. Proud): Thank you, Mr. Crête.
Thank you, gentlemen.
Mr. Scott.
Mr. Scott (Fredericton - York - Sunbury): Thank you very much, Mr. Chair.
Good afternoon, gentlemen. I'd like to explore some of the definitions and what your intentions are under the first topic or item, the recognition of employment insurance as a short-term insurance. Basically what I'm trying to find out is exactly what this means to those people who draw upon the system regularly annually and work in industries that simply cannot support that person year over year. Are you suggesting this program should not be available to those people?
Mr. Edwards: I don't believe we're suggesting the program shouldn't be available, but it goes back to the point of people being encouraged to look for alternative employment.
We recognize that employment can be a seasonal issue, but there was an indication in the job guide that 40 weeks is about the maximum people can take to look for employment opportunities with any prospect of success. I understand that was the original concept in the bill: a 40-week benefit period. The legislation has proposed a reduction, but we believe a further reduction is viable in terms of this being an employment insurance program.
Mr. Scott: I'd like to point out that that 40-week or 45-week maximum is never available to the seasonal people we're talking about, because you have to have accumulated sufficient numbers of weeks of work in order to be entitled to that. For those who think that might mean you could work 12 weeks and somehow be entitled to 40, it doesn't work that way. It hasn't worked that way for quite some time. It's important for people to know that.
Generally speaking now, many of the seasonal people we're talking about are not able to in fact draw benefits for the period of time when they're unemployed and waiting for their job to return in the following season. It's important that Canadians understand there's a relationship between the amount you work and the amount you draw, and that maximum benefit is available only to those who have a large work record to draw upon in order to make their claim. It's important for people to realize that.
What if you could be convinced there aren't other jobs for the people we're talking about to go to? What I'm trying to do is find out whether I could find support if we agreed on that assumption. I know we don't necessarily agree on that, and I'm not drawing you into it, but if we could, would the employment insurance not be a reasonably efficient way to stabilize communities and economies, not forever, but at least for the time being, rather than having people trying to dislocate?
We're talking about many people for whom the training requirements would be quite considerable in a lot of cases and relocation wouldn't make a lot of sense in the context that they own their homes and so on and so forth. It might sound theoretically appropriate and possible, but I'm sure if we actually looked at it, it might not make so much sense. What's happened with UI or EI is we recognize there are certain industries that might last four months, five months or six months, and this becomes a way to stabilize those communities and those family incomes over a period of time.
If you could be convinced it isn't causing those people not to try, wouldn't you see that there are some efficiencies in this fashion of stabilizing those local economies in those communities?
Mr. Edwards: Yes, if we could be persuaded it were short term, but we believe it has become part of the social fabric. If it were truly short term - and that's what an employment insurance program is about - then yes, but it seems that over the last number of years it has become more a way of life than a truly short-term employment insurance program.
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Again, we're encouraged by the move from passive to active employment insurance initiatives. Perhaps over time these will prove to be the assistance that people are looking for or to be the assistance that will help.
But history seems to indicate that it is not being treated as a short-term measure.
Mr. Scott: Were you under the impression that the maximum benefits, the 50, now 45, weeks that you're entitled to, were the amount of benefits that people might be entitled to? To put the question in another way, are you aware of how much entitlement someone would get annually if they could only find - and I come from New Brunswick - 12 weeks of work? Are you aware of how much you are entitled to as a result of having worked 12 weeks? It's in the area of 26 weeks. It's variable depending on the rate of unemployment, but if you add those two figures together, it doesn't add up to 52. So in the middle of that equation you've got a lot of scrambling for work.
Mr. Edwards: We understand that the 45-week maximum is not attainable across the country, but we're looking at this maximum and at reducing the maximum as an incentive for people to look at alternatives.
Mr. Scott: My point is that you're encouraging us to take an action that will cause people to look more aggressively for employment, and I'm trying to find out if, in making that recommendation, you are aware that many people do not complete the cycle on an annual basis. In fact, many are falling 8 or 10 weeks short. So for 8 or 10 weeks out of every year, they don't have income.
Is that not a sufficient ground for them to try to find work?
Mr. Edwards: We hope they would try to find work. Yes.
Mr. Scott: If they're not finding work for that 8 or 10 weeks, what would cause you to believe that they would find it if it were 16 or 12?
Mr. Edwards: You're probably more expert on this issue than I am. I think we're taking two issues, seasonal work and the maximum benefit, and mixing them.
The Acting Chairman (Mr. Proud): Thank you, Mr. Edwards and Mr. MacKenzie, for your presentation. Certainly we'll use the parts that we feel will make Bill C-12 a better bill for the country in general. Thank you very much for taking the time to make the presentation to us.
We are staying in downtown Calgary, and the next group to appear before us is the Environmental Technology Sector Council.
I welcome Grant Trump, the executive director and chief executive officer of the Canadian Council for Human Resources in the Environment Industry.
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Mr. Grant Trump (Executive Director and Chief Executive Officer, Canadian Council for Human Resources in the Environment Industry): Thank you very much for the opportunity to discuss with you today Bill C-12, an act respecting unemployment insurance in Canada.
It's with a great deal of interest that I reviewed the documents pertaining to the new employment insurance legislation. The key areas of interest to me personally and to the Canadian Council for Human Resources in the Environment Industry, as a national sectoral council initiated and led by industry, focus on the sections pertaining to re-employment.
The Canadian Council for Human Resources in the Environment Industry, with its mission to ensure an adequate supply of people with demonstrated excellence in the skills and knowledges required to meet the environmental human resource needs of the public and private sectors, fully realizes that the Canadian labour market, and indeed the Canadian economy, is undergoing significant changes as the realities of the new economy affect the lives of Canadian workers.
You will note from our mission that it is twofold. It is quantitative and it is qualitative. It is quantitative with respect to the number of individuals required. It is qualitative with respect to the skills and knowledge they require to be gainfully employed.
Shifts in our economy from being driven by national resources to one of value-added products and knowledge-based industries, such as the environment industry, have, and will have in the future, large effects on how and where Canadians find employment.
The environment sector, like many others, has change as the rule rather than as the exception. Changes in technology and in the skills and knowledge required by individuals are the way of the future.
We must have federal policy that recognizes these changes and that will act as an enabler for Canadians to secure and maintain employment.
In this changing world of work, some skills and knowledge are obsolete within a few years. A mechanism to ensure that the workforce can keep pace with these rapid changes is essential.
We cannot abandon those workers of 35 to, say, 55 years of age whose skills become obsolete or whose jobs no longer exist. Instead, we must partner with the workforce to ensure ongoing employment by transferring existing skills to new jobs and defining career pathways for the future.
Canada, as a technologically advanced country, cannot sustain our high standard of living from passive income-support mechanisms. We must define and implement active employment measures to take full economic advantage of technological change.
In the responsible management of an insurance system that pays benefits when people lose their jobs, a set of risk management tools must be implemented to reduce the risk exposure to its clients. The responsibilities for these actions lie with both the insurer and the insured. Employees or workers must minimize the effects and develop strategies to avoid or, at a minimum, to reduce the negative impacts of job obsolescence and develop strategies for seamless transitions to other or new careers.
Canada, as a nation of provinces and territories, competes in an ever-increasingly complex global economy. Artificial and real boundaries exist across the labour market. The service sector of our economy, one of the fastest-growing sectors, can only realize its potential with a defined competitive advantage. However, the competitive advantage of our service sector lies completely within the realm of the skills and knowledge of its employees.
This single factor will allow Canada to realize growth and prosperity in this sector. We must therefore develop a mechanism that facilitates the transfer of skills and knowledge from industries experiencing negative adjustments to those of the new economy. These re-employment activities will be the focus of my discussion today.
The goal of any employment insurance program must be to assist its clientele, the unemployed, in securing new positions and again becoming active, positive participants in the Canadian economy. To achieve this goal, individuals require access to current employment information as well as the ability to assess realistic employment prospects. This must be the primary focus of any cost-effective employment insurance plan.
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With the advent of sophisticated data transmission capabilities, one would assume that linking to the employment insurance job bank would be the preferred mechanism for Canadian companies to recruit new personnel. It would, however, appear by commonly stated values that perhaps 75% of all jobs are not advertised, neither through federal government agencies nor commercial avenues. One must again begin to question if the Canadian formal and informal employee recruitment mechanism is as efficient as it can be.
Bill C-12 discusses numerous mechanisms to link employers and potential employees - job centres, kiosks, on-line matching services, electronic labour exchanges and others. Comprehensive monitoring programs must be developed to evaluate these activities and streamline the process to those that are most effective. As well, it would appear that Canadian business must be encouraged to use these services. Perhaps the major factor in the success of such activities will be an effective matching of skills required and skills available.
The sectoral partnership initiative, or the SPI, began in 1992. Funded by Human Resources Development Canada, it would be an ideal mechanism to ensure skill matching occurs.
The Canadian Council for Human Resources in the Environment Industry, for example, has the capacity, thanks to a variety of environmental practitioner inputs, to define skills and knowledges required and therefore assist in matching employees and employers for specific jobs. Sector councils are ideally suited to respond quickly to labour market demands with innovative projects aimed at assisting Canadians back to work.
We have a variety of projects now that facilitate the school-to-work transition. We believe similar programs would be of use in re-employment. Entrepreneurial, reverse co-op and internship projects would assist in facilitating back-to-work strategies and are totally consistent with and complementary to the five defined active measures proposed in the new Employment Insurance Act.
One must also consider that when one purchases insurance, it is assumed that the insured will use all reasonable care and caution to avoid using the purchased policy. This deals with the issues of rights and responsibilities of individuals. If one has the right to receive income while unemployed, one also has the responsibility to minimize the possibility of being unemployed.
As with health care, preventive maintenance will dramatically reduce claims. This will mean awareness and education of the employed to ensure that their skills and knowledge are current with industry, or employer, demands. Part of the social contract must be a mind-set that all employees have a responsibility to avoid redundancy and ensure transportability and currency of skills and knowledge.
The concept of ongoing training and lifelong learning must become one with the Canadian culture. A training culture will be the greatest asset to an employment insurance plan. Resources used to develop such a culture will be offset in the long run, and the plan will incur substantial savings in the future.
One must avoid and minimize chronic unemployment. The solution to this problem is continuous and ongoing upgrading and development of transportable skills and knowledge. The Canadian Council for Human Resources in the Environment Industry has to date defined those skills and knowledge and therefore assisted individuals in self-identifying strengths and weaknesses in the environment sector.
For those individuals without transferable skills or the ability to secure meaningful employment over the short term, active employment measures must be implemented. The Canadian Council for Human Resources in the Environment Industry data, collected from several thousand environmental practitioners Canada-wide, indicate that to obtain full employment in the environment sector typically requires five years from the completion of formal education and training.
This strongly indicates that considerable learning occurs on the job. There is no doubt that many important employment-related skills are better learned on the job rather than through formal training. This on-the-job experience is a cost to business. It is, however, very true that business must invest in its own future. To this end, partnerships between industry and the employment insurance plan must be solidified.
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Mechanisms must be sought to facilitate back-to-work strategies across Canada. The Canadian environment sector, a multi-disciplinary sector of the Canadian economy, employs about 150,000 people in 4,500 mainly small to medium-sized companies, and it generates approximately $10 billion annually. It's expected to see double-digit, 10%, growth to the year 2000.
This industry does require people, people with specialized skills and knowledges, to allow it to reach its full economic potential. The environment sector will not be the industry to save the Canadian economy. It will, however, offer good jobs to qualified people.
The environment sector deals with several areas: first of all with the past sins of our society and industrialization, those dealing with contaminated sites, environmental auditing, site assessing, as well as waste handling, both hazardous and non-hazardous. It also deals with new technologies, re-engineering, pollution prevention, waste minimization, and a variety of others.
There's therefore a requirement for individuals with a variety of educational backgrounds, from high school level through PhD. Recent surveys have shown that areas of knowledge as one moves up the employment ladder in the environment sector are the same. The primary difference is in the level of detail and understanding. This seamless transition in moving up the employment ladder illustrates how re-employment strategies can be documented to assist individuals.
Also, many declining sunset industries have technical specialists whose skills are transportable to the environment sector. An individual may spend only a portion of his or her time dealing with environmental issues. However, if the individuals did not have the environmental skills they would not have procured the job, nor would they be able to maintain that job.
Canada has moved through an industrial revolution and a political revolution and is now in a knowledge revolution. An active adjustment strategy to create a partnership among employees, employers, academics, and governments must be developed. The building of institutional capacity will determine the success of this new venture. We must all work together to ensure portability and recognition of the capability of individuals.
We fully realize education and certification in all their forms, whether they be licensing, apprenticeship, or exclusive right to title, are provincial jurisdictions. However, we must ensure the commonality of skills and knowledge, as well as the recognition of such, if Canada is to compete domestically and globally. A coordinated effect, with strategy being developed and set by interested and affected parties, must be implemented in an organized, systematic way to ensure reciprocity. This will require full participation of federal and provincial governments.
The adjustment strategy must be as simple as possible, easy to understand, and logical to Canadians. It must be flexible, but not to the extent that individual programs potentially jeopardize the national nature of the strategy. Unemployment is a national problem. Active national sector councils, representing all partner groups, may well be a cost-effective way to lead the project to success in those cases where the first step of actively using the labour market information system has not been effective.
Efficient analysis of an individual's need will be a key to any adjustment process, to any employment process. There must be evaluation of individual requirements and mutual agreement on the defined pathways to employment. The adjustment process must be a partnership.
Active measurements defined under the new case management system will meet these requirements: the concepts first of wage subsidies; second, earning supplements; third, self-employed assistance; fourth, job creation partnerships; and fifth, skills, loans, and grants. These active measures, when combined with skills and knowledge, can lead to effective employment strategies.
However, they must look at several steps in leading to this conclusion. Step one will require detailed evaluation, documentation, and validation of the skills and knowledge required. Is there indeed a mismatch between skills that are being taught and skills that are being required? As mentioned, the Canadian Council for Human Resources in the Environment Industry has developed and validated these skills and knowledge for the environment sector, and other national sector councils have completed similar projects in their sectors.
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These skills and knowledge are further refined to national occupational standards, or the defined core knowledge required in the functional areas of employment. These are developed with the full partnership of industry, federal and provincial governments, and the academic community.
The second step will require personal evaluation of the unemployed client to define strengths and weaknesses and to assist in career counselling so that the active measures can be better targeted to their specific needs.
There's a third step, and that is the selection of one of these five active measures that best meets that individual's requirements and has a strong indication that portable skills and knowledge will be gained during the time of assistance to significantly improve the success rate for employment as defined by documented industry needs.
The federal government's new employment insurance strategy, working with the National Sectoral Council, has a potential to help Canadians find and keep jobs.
Thank you.
The Acting Chairman (Mr. Proud): Thank you very much, Mr. Trump, for a very enlightening and interesting presentation.
I'll now go to questions and answers, starting with the official opposition. Mr. Crête.
[Translation]
Mr. Crête: The presentation was very clear and I will ask a brief question. With regard to the situation of the labour force in the environmental field, do you think there's an employability problem? That is, that we must develop workers' skills, and not an employment problem, which would instead be due to the fact that our society has not necessarily given the environmental field all possible chances to produce what it is possible to produce? We're just starting to realize what our obligations are in relation to sustainable development.
[English]
Mr. Trump: As I mentioned, in 1994 we created a human resources assessment to go through the environment sector and take a look at and define what indeed are those skills and knowledge. It was a very large problem in that no one had a common definition of environmental employment.
From a literature search we found some 230 different occupations classified as being environmental. What we did as a function was to create a definition of environmental employment. We then had that definition independently validated by a tripartite group of industry, government, and academics from across the country. So in the environment sector we are now at a stage where we do have environmental occupations defined.
Are the jobs there? We have kept track of that as a result of the 1992 survey done by Employment and Immigration Canada. Using two sources, The Globe and Mail and the Calgary Herald, we have documented over 750 senior environmental positions in the country since 1993. One would anticipate that there's probably a multiplying factor going to junior positions and to other positions, and certainly there would be another multiplying factor for jobs that were unadvertised.
My answer to your question is yes, I believe the jobs are there. One of the problems is that people do not have the relevant experience. They do have perhaps the technical background, but they do not have the applications of those technologies to the environment sector.
The Acting Chairman (Mr. Proud): Thank you.
Mr. McCormick.
Mr. McCormick (Hastings - Frontenac - Lennox and Addington): Thank you very much for your excellent presentation. I understand the national sectoral councils have played a very valuable role and I look forward to your contributions.
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You mentioned that the environmental sector will not be the industry that saves the Canadian economy. I certainly respect and look forward to the fact that you can help protect the jobs within different sectors of that economy.
Near the end of your presentation, as you were wrapping it all up very well, we heard about an evaluation needed on the individuals. This certainly needs to be done on a local basis, where people can really understand, study and check into the background of these individuals.
You mentioned that the question is sometimes whether there is a mismatch between the skills and the knowledge taught and the skills and the knowledge needed. Could you suggest any other ways that the local HRD offices, or any part of HRD, could work with your national sectoral councils? How could they work better together to support what you want to do and what we want you to do?
Mr. Trump: We used to make the statement that there was an apparent mismatch between skills required and skills offered. We now no longer use the word ``apparent''. There is a mismatch between skills being taught and skills required.
One of our main functions was to document what those skills and knowledge were so we could have the training community, as well as industry, be more effectively involved in those skills.
We find post-secondary education is becoming more like industry these days. We find industry is becoming more like post-secondary education because it has taken on a requirement for skills and knowledge.
I think it's very important that we think nationally, but of course we have to act locally. These individuals live in the local regions. There is no doubt that the local offices have a very major role to play. We want to make very certain there's a coordinated effort across the country so we can ensure those portabilities.
We firmly realize that in the environment sector there are core skills and knowledge required by all individuals, regardless of where they live in this country. There is a variety of other activities that are more regional.
I certainly think we could harmonize these evaluations of shortcomings of skills and knowledge or realistic employment capabilities for individuals and come up with a strategy to help the local offices meet these requirements. We could then make certain that the active programs being offered are consistent with the national strategy. So if an individual moves or is involved in international activities where there's a tremendous potential in the environment sector, the skills and knowledge they acquired locally would be recognized nationally and internationally.
Mr. McCormick: There's certainly no greater need. I commend you and encourage you. Let us know how we can help.
Thank you, Mr. Chairman.
The Acting Chairman (Mr. Proud): Thank you, and thank you, Mr. Trump. We certainly appreciate you appearing before us today to give us your views. It has been a very in-depth and enlightening presentation.
Mr. Trump: Thank you.
The Acting Chairman (Mr. Proud): We'll take a one-minute break. I believe the presenter, Alice Nakamura, is here with us. We'll ask her to come to the table.
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The Acting Chairman (Mr. Proud): From the Faculty of Business at the University of Alberta, we want to welcome Alice Nakamura before the committee.
Thank you for coming. We would ask you to make a presentation of between 10 and 15 minutes. From there we'll go on to some questions and answers. Time is always our enemy and we're running a bit late at the present time, so I'll ask you to start whenever you're ready.
Professor Alice Nakamura (Winspear Professor of Business, Faculty of Business, University of Alberta): Thank you very much, Mr. Chairman.
I will try to be very brief. I've given a written copy of my remarks, so if I miss some things or go over some things too quickly, you'll be able to refer back to the written copy.
I would like to begin today by talking about what I see as the key features of this bill that you have before you. I would then like to go on to talk about why I think these features are important. I want to talk about the business of paying for income support for those who need continuing income support, which is something that's very much on the mind of many of those here. And then I'd like to end by talking about some of the amendments that members of Parliament have proposed to this bill already.
The three key structural features of this bill that I would like to focus on are, first of all, the switch from weeks of work for UI to hours of work as the basic unit of account; second, the new intensity rule; and third, the clawback provisions of the bill. These are points of the bill that I was very interested in as a member of the Axworthy task force. There were things that I brought to the task force and tried to push and encourage there, and which I am delighted to see in this bill in the form they appear.
The first of these key changes, the shift from weeks of work to hours as the main unit of account, is a forward-looking provision that has to do with changes that are going on in our labour market. Basically, we have a continuing expansion of part-time jobs in our economy. Part-time jobs are largely excluded from our present UI program, which has a cut-off of 15 hours per week for covered jobs. As part-time employment has been growing, the coverage of our UI program has been falling, and this is expected to continue. With a switch to an hourly unit of account, this would stop this erosion of the coverage.
If we take unemployment insurance programs in Canada or in other developed countries like the United States, we've had them for so long that I think most people have largely forgotten or have come to take for granted their really important macro-economic stabilization properties. When Canada slips into a recession, those who are laid off and who don't have any sort of earnings insurance are forced to cut their expenditures much more drastically than those who do have coverage under the UI program. This not only hurts them and their families, as they cut their expenditures back more drastically, but it additionally causes sales to fall more drastically for businesses, which leads to more lay-offs and causes a downward economic spiral.
I believe the automatic stabilizer functions of a UI program are every bit as important now as they were back in the 1930s. They are what protect us, largely, against having another Great Depression. I believe the value of a UI or an EI program as an automatic stabilizer depends critically on broad coverage and that the switch to an hourly unit of account is an extremely good way of dealing with the coverage problem for part-time workers.
Second, this switch to an hourly unit of account would have the advantage of taking away an incentive for businesses to take what used to be full-time continuing jobs and chop them up into mini-jobs. I've seen this go on even just with my students who come to the business program at the University of Alberta. Many of them used to get jobs in the surrounding supermarkets, for instance, that were full-time jobs in the summer. Those supermarkets have now mostly gone to jobs that are under 15 hours. People say, ``Well, that tax rate isn't really that heavy'', but look at the mark-up rate on, say, supermarket products. You cannot ignore that type of tax if you are trying to stay in business, whether you're running a supermarket or almost any other sort of business today.
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The third reason I would very much like to switch to an hourly unit of account is that it will lead to greater equity between part-time and full-time workers. This becomes particularly pressing as we see increasing numbers of workers who have part-time jobs, but who have several part-time jobs and who are working more than full-time hours. They're also working more than full-time hours without the benefits full-time workers normally enjoy and without the ability to coordinate between their jobs. They mostly have no vacations and have none of a lot of the other things full-time workers take for granted. This at least would level the field somewhat for them.
The second provision that I feel is very important is the intensity rule. The 1971 changes to the Unemployment Insurance Act set us on a course towards turning our UI program into an income transfer program rather than a social insurance program. It became an unwieldy mix, really, of regional equalization, social insurance and income transfers to individuals. We have a great deal of experience by now that says that mix is not working out for us and is expected to work more poorly in years to come. The intensity rule would help to re-establish UI or EI as a social insurance program.
When I use the words ``social insurance'', I mean a program that provides insurance coverage against specified perils, with those who are paying for this coverage receiving fair personal value. So the program has social value, but the participants in it, each and every one, are also receiving fair personal value for their money.
An insurance program is not the same thing as a rainy-day account. You hear a number of people talking about having paid for this and therefore having something ``owed'' to them. But insurance is not a rainy-day account. You have insurance against insured perils and if they happen to you, you get more than what you paid in. If you're lucky and these bad things don't happen to you, well, you had the peace of mind of knowing you were insured. That's all you have.
You do not have a right, then, to collect back what you paid for your peace of mind. Virtually all insurance programs involve some sort of ``experience rating'' precisely because they pay out more than what the individual paid in if the individual actually has the insured risk occur.
So those in higher risk groups must pay either higher premiums for the same coverage or they must get lower coverage for the same premiums. One way or another the program has to be experience rated, otherwise we have a tremendous incentive there for people to basically abuse the program. That is what is often called a moral hazard.
If the program is experience rated, it means that if you abuse it there is a cost to you in the future. This future cost, however, cannot be so high that you don't get anything, that you get no coverage in terms of the insured peril. It has to be the case that if you actually are unlucky and the insured peril occurs to you, you get back more than what you paid in.
Because of this, even with experience rating, virtually all insurance programs need some kind of surveillance and rules to guard against fraudulent use, but there does not have to be as many rules and as much surveillance. It can be cheaper and less intrusive and can work better if there is also some experience rating helping to keep people using the program in a fair way.
In contrast, public income transfer programs simply take money away from some and give it to others, with no idea at all of providing some kind of return service or value to the individual. We seek a social value with public income transfer programs.
Because of this, the use of those programs has to be constrained by regulation. In provincial welfare programs, for instance, we have means testing. We must have means testing, not because we wish to do something to people that most people find uncomfortable, but because it's really the only way of assuring taxpayers that their money is going to somebody who needs it more than they themselves do.
As for our present UI program, use of it is constrained by neither experience rating nor means testing. One consequence of this has been a tremendous growth of repeat use, which can be documented in any number of different forms. The intensity rule would introduce a mild degree of experience rating into the UI program.
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The third of the provisions that I think is very important in this bill is the clawback provision. If the parameters of the intensity rule were set such that we had full experience rating, we wouldn't need those clawback provisions. The clawback provisions are there precisely because when somebody becomes unemployed, what they collect is generally more than what they have paid in.
In addition to that, the intensity rule is purposely being set now with parameters that result in a very mild degree of experience rating, far less than what we would call ``full experience rating''. Because of this, we would like to have the clawback provisions as a way of increasing the experience rating for the upper-income users. It's a way of stopping repeat use by those who have higher incomes and of putting more pressure not to use the program as an income support program on those with higher incomes than we do on those with lower incomes.
If we take the bill now before us and we ask how we can judge the provisions of it, and as you go into the amendment process, how we can judge these amendments, how good they are or whether or not they should be supported, I'd like to suggest that you keep two principles in mind.
One is the principle that there are properties you would like to have for a fair, user-funded program, the sort of program that UI really is in terms of how it is paid for. There are two basic properties that I think are very important there. The first is that the insured peril needs to be an undesired and also an unforeseen event. The second is that either higher premiums need to be assessed or the level of the insurance coverage needs to be reduced for those who are at increased risk of the peril, which in this case is unemployment.
Both the intensity rule and the clawback provisions of Bill C-12 would help to make these provisions of fair insurance more fully fulfilled by the UI or the EI program. If you look at workers who have jobs known to provide work for only part of the year and where those workers know they are not going to find other work in the off periods for those main jobs, the risk of unemployment is 100%. This is not a risk at all; it's a certainty.
In an insurance situation, if you have a risk that's 100% and if the premiums do not fully cover what you're going to pay out to the people who will have this risk with certainty occur to them, you then have a necessary transfer. For sure, you have a transfer going on from those who do not have the certainty of unemployment to those who do have the certainty of unemployment.
Of course there are all sorts of situations where Canadians are very pleased or very willing to have income transfers. This has been demonstrated again and again. But in an income transfer program there are also some principles of what would be considered fair. I'd like to suggest three to you.
The first one is that those who are going to be provided with help are willing to shoulder the same burdens as those who are being asked to provide the help.
The second is that the standard of living enjoyed by those who are receiving the help is not higher than the standard of living for many of those being taxed to pay for the help.
The third is a ``Robin Hood'' principle, that either all Canadians are taxed at the same rate to provide this help or those with higher incomes are taxed at a higher rate, not the other way round.
Our present UI program violates all three of the conditions for fairness of a public income transfer program. Let's take a numeric example. It's in my written notes. Consider a very simple case of two workers, both of whom are covered by UI or EI.
Let us suppose the first worker is employed for 40 hours per week and works 4 weeks in a month at $20 per hour. That would be a wage in the range of what a large portion of the workforce actually gets, but this job is certain to provide only ten months of employment in the year. UI premiums would be collected only on the first $750 of this person's weekly earnings of $800 a week. Without the new intensity rule, every single year this person can collect two months of UI benefits for the period that is known to occur.
Look at a second person who also works 40 hours every week and 4 weeks in every month, but who gets only $10 per hour. That's above the minimum wage in every single province. Suppose this person works all 12 months in every year, as many minimum wage workers do. This second person earns $400 a week. So this second person is above the insurable maximum for the program, even with it being reduced. This person pays the UI tax on every single hour and every single dollar they earn. The second person earns $19,200 in the year. They will be taxed on every single dollar of that to provide a transfer to the first person, who works 10 months rather than 12 months and gets an annual income of $32,000.
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To me, this is not fair. It's not fair on insurance principles. It's not fair on income transfer principles.
If we recognize that we all care, or most people care, about the situation of those who truly do not have work and who are poor, we can put aside what is really some empty rhetoric between those who say they're concerned about the fiscal situation of the country and those who say they're concerned about the poor. This is not the issue.
Nor is the issue one of theoretical principles of economics.
The reason why most economists, and I, oppose the business of paying for ongoing income support out of the UI program is not that they don't care about the poor. It's because of where the money to make that help available comes from.
The money disproportionately taxes full-year workers, including those with very low wages, to provide help to other workers who are part-year workers and have low wages. It disproportionately taxes the working poor to pay for another part of the working poor.
My feeling is that if we are going to have programs to help those who are poor - and we should have such programs - then to pay for them you should be taxing more people like myself, not somebody who has a very small fraction of what I earn.
We are told that there's no choice. I've been told that again and again by people: in the present fiscal climate, there's no choice; this is the only money that's available. But, as I read the record, it's the same Liberal government that is introducing this bill that back in 1994 also introduced the provisions that removed the CAP and that ended the cost-sharing that was going on between the federal government and the provinces with respect to welfare. I don't see why this Liberal government cannot turn that around.
If the CAP was undesirable - and for many reasons it was - then make a new CAP. Make a new cost-sharing arrangement with the provinces. There are a lot of reasons why the provincial welfare programs work and are more appropriate than things you can do through the UI program.
In closing, I'd like to talk about the process of amending the bill. It seems to me that the amendment process is very important and the first thing to keep in mind is that changes always cause apprehension, even if people recognize that changes are very badly needed. Because of this, a phase-in strategy is crucial, and a two-part phase-in strategy is probably very important for a bill that involves structural changes, as the present one does.
It's probably very important first to have the structural changes made, but with the parameters for the new structures set so the actual dollar impact of the program is not very different from that of the old program. In that way people can get over their panic at the structural change, and once the bill is better understood, once the new provisions are better understood, the parameter values can be adjusted to what might be more appropriate for the longer run.
It's very important for the business community to recognize that. They take a long-run view of their own affairs; they should take a long-run view of the affairs of the nation and recognize that the structural improvements in this bill are important enough to wait on putting the parameter values where perhaps they should be for some of the specific provisions.
If we take the intensity rule in particular, the provisions that are in the bill right now would have the replacement rate drop by one percentage point for every 20 weeks the person has been on UI, but down to a floor of just 50%. Fifty percent is still a very high replacement rate. It gives us UI benefits that are considerably higher than those of our southern neighbour.
If you think that's still too low - you don't want 50%, you want something higher.... I actually would have favoured something higher for a replacement rate for the whole program. It's more of an automatic stabilizer with a higher replacement rate. If you think the floor is too low at 50%, then set it higher, but don't lose the intensity provision. The intensity provision is what gives you a way of turning around what has become a mess in terms of a bill or program that combines both social insurance and income transfers.
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A second thing is that if you take the business of the hours, the switch to an hourly unit of account, there's considerable panic in some parts of the country about what effect this will have, what will happen to specific individuals. I think again it would be very helpful to point out to people that the parameters of the bill, as it has been tabled, specifically were set to try to make it so that for most workers there would be very little change in the impact on them in terms of the dollar situation. This was done intentionally, not as a way of doing nothing but as a way of helping people get used to a structural change first and then the values could be changed later.
I think it's also very important for this committee not to let finance department ultimatums about the amount of immediate savings that have to be achieved undermine what would be a sensible transition process to this new structural program you're setting up. We have had several attempts at reforming UI, which have all failed because of deadlocks.
The country needs a change. We need these new measures. Don't let it fail because of haste, even from the point of view of a hard-line deficit reduction strategy. If you let this bill fail, you have failed the country.
Considering the bill and amendments, I think there are two things you should keep in mind as each amendment comes across your desk. The first is whether or not the proposed amendment will enhance the structural changes the bill seeks to accomplish. If so, the amendment probably deserves careful consideration and may well deserve to be enacted. If the answer is no, ask yourself what other purpose there is. Ask, for instance, if there is a purpose here in terms of easing the transition. If it's a transition or a measure, ask if you could do it by changing parameter values rather than changing the parameter and the structure and taking out the parameters or changing the basic structures of a bill that I believe is very well put together.
I'd like to close by considering just the specifics of some amendments that have been tabled. Mr. Scott has suggested changing the wording of subclause 14(4) of the bill. This subclause currently reads:
- (4) The rate calculation period is the period of weeks equal in number to the applicable divisor
determined under subsection (2)
This amendment would enhance the structural changes of Bill C-12 if we take the principles I just mentioned a minute ago. It would make EI a fairer public insurance program. It would seem to me that this amendment deserves very careful consideration and that it would be an improvement.
Mr. Regan proposes to link the period of weeks of work used in calculating benefit payments to the prevailing regional unemployment rate. As long as the intensity rule stays in place and as long as the benefit clawback provisions stay there, the Regan amendment would increase the benefit payments to those in high unemployment regions without seriously undermining the fairness of the bill, as far as I can see, from the point of view of a social insurance program. This amendment would not seriously impair what are the intended structural changes in this bill. Again, it probably deserves very careful and positive consideration.
A third amendment that I was made aware of is Ms Augustine's proposal that individuals who work while on claim and earn enough to cause a reduction in their weekly benefit cheque should be awarded a credit against the intensity rule penalty. Ms Augustine explains her proposal as follows. Suppose someone on claim finds work for several days a week that pays enough to cause a reduction in a weekly EI cheque. If that person ends up, because of that work income, taking half of what normally would have been received from EI, then only half the weeks on claim should be counted towards the intensity rule.
I believe this is an outstandingly good amendment. In fact, I think this amendment could be usefully extended to allow those on claim to voluntarily elect to collect less than the maximum weekly benefits to which they're entitled with corresponding credits against any penalty rule reductions. This amendment would enhance the basic structural changes that Bill C-12 seeks to bring about. It's a very good amendment, I believe.
The last amendment that I'd like to comment on is the Augustine proposal to exempt family income supplement recipients from the intensity rule. Ms Augustine proposes that Bill C-12 should be amended to exempt farm family income supplement recipients. She asserts that anyone in a family living on $26,000 a year or less needs no further incentive to work as much as they can. I agree. Who could not agree with that? But I still feel it's wrong to pay for this incentive with a tax that disproportionately falls on low-wage workers employed full year, including those in families that don't have any more than $26,000 a year to live on.
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Why is it right to tax full-year working poor at a higher rate than somebody like me to pay for that type of help to the poor? I believe it is wrong. I believe Jean Augustine does not intend that to happen. I believe she's concerned for the poor and is not thinking carefully enough about where the money is actually coming from.
Ideally, I would like to see her and your party reinstate full cost sharing for welfare with the provinces. However, if there's still a desire among people on this committee to provide assistance for part-year working poor through Bill C-12, I'd recommend a different approach to doing this.
I'd recommend that you do not exempt family income supplement recipients from the intensity rule. If you do that, it will just be the first of a long list of worthy requests for exemptions from the intensity rule, each one right perhaps from the narrow perspective of that exemption, but wrong in terms of what's happening to the overall fairness of the program.
I'd instead suggest that what you do is increase the supplement to the low-income families enough that you leave them wherever you think they should be at the end of when the intensity rule is applied. In other words, make the supplement to them more generous, but leave the intensity rule for them as for everybody else.
In closing, I'd like to say that I tremendously admire what those of you now on this committee and the committee I met in Edmonton have done and what the department has accomplished. When I joined the Axworthy social security reform task force, many of those around me told me I was foolish to put in the time. They said, ``Look what happened to the previous reform attempts''. I didn't need reminding about that. I helped on the Macdonald Royal Commission on the Economic and Development Prospects for Canada. I put a lot of time into that too, and those proposals basically came to naught.
I was also told that the Canadian government and the bureaucrats in Canada's departments will never consider proposals for reforms that haven't been tried somewhere else, that people are just too timid to go ahead with something that hasn't already been tried in Sweden or New Zealand or the United States or somewhere else. Our situation is truly different here in many respects. Besides that, you can see from what's happening in other places that other countries do not know the answers to all of these problems.
I was totally wrong. This is a brilliant bill.
I believe that if you institute this bill you will find people in other countries looking at Canada as a country that's found a way on some of these problems. I believe it's an excellent bill that also proves wrong those who say that when you have different political parties, an opportunity like UI reform is bound to end in deadlock because each one of those parties and the provinces versus the federal government are going to use it to jockey for position, with the reform effort left to no avail. I believe you have proved that wrong.
I believe it's an excellent bill, and I believe that if you manage to get it through the process and into law, basically in one piece, future generations will look back on this as they do to 1971: it was a time when something very important and major happened. But they will be saying something very important and major happened that was a very positive change for the country.
Thank you.
The Chairman: Thank you. Mr. Crête, do you have a question?
[Translation]
Mr. Crête: You say in your brief that you support that bill because it will contribute to improving job prospects for our youth. But that goes completely against most of the testimony that we've heard.
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It is true that restaurateurs who habitually hire young students have told us that this would kill jobs. The fact that we have to collect premiums from the first hour on will significantly reduce employment for young people.
With regard to other measures, the fact the 910 hours are required for first-time claimants to be eligible for unemployment insurance will, in our opinion, have a major impact and will encourage people to work under the table. It will be very difficult for young people whose skills are linked to seasonal employment to obtain the necessary number of hours. After a year or two, without receiving direct encouragement, they may be strongly tempted to go into the illegal market, the underground economy. I don't see anything in this bill that supports your statement that this will improve job prospects for younths. Where do you see anything in this bill that will allow us to offer more jobs to young people?
[English]
Prof. Nakamura: I think there are two things here that are very important. One is to recognize that this is not a job creation bill. This is a bill to try to fix up problems with our social programs that are probably harming the job situation. But in and of itself, this is not a job creation measure, and it does not exempt the government from needing job creation measures.
Second, if you take the business of the service industry, like the restaurants, one advantage they have going for them is that they are not involved in international trade. Therefore, if they all are subjected to a cost increase, and it's the same for all of them, their prices can rise some. They have no competitors who are able to avoid the costs they are being asked to pay. I do not believe this will harm employment in the service sector, because there will be a level playing field there.
As to the business of the underground economy, I believe it will make that better, not worse. The situation right now is that as long as you can stay under 15 hours, you don't need to pay UI tax. This gives an enormous incentive for that, but also for individuals who are on claim. Well, there are so many jobs where you don't have to pay the UI tax, it gives an individual a great deal of incentive to look for those jobs. They don't even really have to be illegal jobs, as it is right now. It's just that the person doesn't mention them.
[Translation]
Mr. Crête: Why require more hours from young people than other workers? We're not saying that it's not desirable to go to an hour based system, but when you change a system and go from weeks to hours and take advantage of this to increase the requirement, we find it kind of surprising. A person who used to be able to collect unemployment insurance after working 300 hours will now have to work 910. That makes an enormous difference!
I was pleased to see that you acknowledged that your sentence in the brief concerning employment went beyond reality because you admitted that the bill is not aimed at creating jobs.
[English]
Prof. Nakamura: With respect to the business of the entrance requirements, I'm not going to defend the specific figure that's there for those requirements. I have no particular desire to support higher entrance requirements now from what we had before. What I'm quite sure of is that the bill as an overall package would improve things, including the economic situation for younger people, for the job market as a whole.
If you feel the entrance requirements for young people are too high, make them lower. Make them the same. Don't differentiate the new workers from the older workers. I don't think that will really make a whole lot of difference in terms of how the bill will work out. There are other provisions of this bill that I think make a great deal of difference.
I think the one justification you can give, or the one justification I understand, at least, for why you might have higher requirements for new workers is the business that you might not want to be taxing the ongoing workers through a user-pay program to provide help for those who are just getting into the job market. That should come from other sources.
In the existing situation, though, we don't have much in the way of other help for new workers getting into the job market. That's a murky situation. I think you have to choose a number somewhere between the one you have in the bill now and what it would be if you gave no penalty for being a new worker.
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The Chairman: Thank you, Mr. Crête. Mr. Scott.
Mr. Scott: Thank you very much, Mr. Chair.
I think we should thank you, Ms Nakamura, for your participation in this exercise, which paralleled that of the social security review and the committee's work through the piece. If my memory serves me correctly, I think when the original task force was struck you participated in that exercise, even prior to the social security review. So your efforts in this regard are appreciated by the members of the committee as well.
Like you, I just don't want to engage in a discussion as to whether the insurance program or other programs should be used for income support. Like you, I think I would prefer that we did this through the income tax system, which is much more progressive, and through general revenues.
Having said that, were we to disconnect the notion of insurable earnings, and disconnect premiums to that notion - in other words, if we allowed premium payments to rise and disconnected this from insurable earnings such that we could have an MIE that was limited to, in this case, $413, but we didn't connect that to the premiums paid, thereby drawing on high incomes - would that mitigate the unfairness in the program in terms of the fact that you're drawing the revenues from the low end, in some cases transferring it back on the high end? Notwithstanding the fact that I think we both agree this might be done better someplace else, but within the context of the situation we find ourselves in, dealing with this bill, would that be a way you might be able to deal with this, to meet the inequity that's part of the program now, because you do find yourself transferring it upward, in some cases? Would that be a way to do that?
Prof. Nakamura: I think the business of having higher maximum insurable earnings as a way of broadening the tax base for the program is a good one. I also understand, though, why there's a desire to make it so that the maximum insurable earnings also relate to what a person can get back in benefits and to not have the benefits be so high that from the point of view of the private sector they're regarded as being competitive with wage rates. That's the first point.
The second thing, though, is on this more basic issue of to what extent you would want to even try to accommodate what would be really a federal welfare program within the unemployment insurance program. I am aware of the fact that, for instance, provinces such as Newfoundland have had proposals for a long time that would move the program in that direction rather than back in the direction of social insurance.
There are a few reasons why I would suggest you not go that way. First of all, I'd suggest you look at the realities of the welfare programs in Canada as a whole. I'm on the technical support committee for a program called the Self-Sufficiency Project, which is being tested right now in New Brunswick and B.C. I was on the technical advisory committee for New Brunswick Works. I was dumbfounded when I first started interacting with officials with respect to those programs and also people in the federal government who are associated with the unemployment insurance program about the extent to which the American welfare program dominated people's ideas about what's going on in Canada. In particular, I found many people who thought our welfare programs were predominately for single mothers.
The fact of the matter is, if you look at the case records, if you look at the records for any province, you'll find that in Canada we pay welfare to large numbers of single people, large numbers of employable people and quite a few couples. Our program is nothing like the U.S. program. If we look at the provinces where there's good data, and where I know a lot about it, we find a tremendous amount of movement back and forth between welfare and UI.
If we look at the welfare stays of people who are employable, for instance, young men, who are about 50% of the caseload in B.C., which perhaps has the best economy in the country right now, their stays are often under four months. The average length of stay would be under four months in many cases.
This means the welfare program already is being used a great deal by employable people who are sufficiently poor that other people would feel they should have money to live on. That's what we would like them to have.
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The reason I think those provincial programs are much better for doing that than doing it through this program is, first of all, they take into account the fact that the standard of living, the cost of living, is much different from one province to another. If you take the New Brunswick Works program, or you take the Self-Sufficiency Project, the cost levels for a person on welfare in B.C. and in New Brunswick are very different. When you make a national program and you get national amounts across the whole country, it's more expensive.
If you take the UI program and we want it as an automatic stabilizer, it can't be that way without broad coverage. Yet if you want to go the way of having it be a transfer program, all of a sudden you need means testing, or at least income testing. You have to worry about families. You need a lot of the surveillance, which has to be there with a welfare program. It's expensive and it's intrusive.
I would hope you would go back to supporting the provincial welfare programs, recognizing their importance, and you would not try to remake them within this particular bill.
The Chairman: Thank you, Professor Nakamura.
One very brief question from Mr. Easter.
Mr. Easter: I want to congratulate you on your presentation. You certainly cleared up a number of things that were in doubt in my mind.
It's not that I disagree with your point on getting rid of the exemption on the intensity clause, but as one of the people who worked in an internal group trying to achieve the last working income supplement in the last budget, I wouldn't want to have to go through that fight again. Where I come from we have a saying: a bird in the hand is worth two in the bush. For that reason I still believe we need that exemption in this bill for those low-income families.
But I wonder if you would comment on this point. If we could be given assurance from Finance... As I understand this bill, the clawback on higher income at the moment in fact goes to the Consolidated Revenue Fund, which is to my mind really a tax on an employer-employee program that is going to the Consolidated Revenue Fund. On that basis I could certainly justify arguing with Finance that we should have an income supplement to accomplish what you claim here. What's your view on that? Am I right or wrong?
Prof. Nakamura: I believe you're right. I believe the business of that tax flowing out of the UI program back into general revenues is something that should be stopped. I don't want to see this bill go down because it isn't in this bill, but I think for the longer run that should be stopped, first of all.
Second, I recognize it may be impossible not to exempt the low-income families explicitly in some way from the intensity rule. But I would suggest you not make an exemption to the intensity rule. Instead, do the same thing by changing the regulations that govern how you pay that top-up to the low-income families. If you do it through the regulations to the top-up for the low-income families, it will not set the precedent of exemption from the intensity rule. Rather, it will be a provision of how you handle the pay-outs under that top-up. I believe you'll find that causes a lot fewer problems for the future.
The Chairman: Thank you very much, Professor Nakamura, for your excellent presentation. Certainly you raise some very interesting points. Your analysis was perhaps one of the most thoughtful ones we've heard to date.
Prof. Nakamura: I would like to thank all of you. I don't belong to any of your parties, and I would not like to have had your job over these last months. I really appreciate what you've been doing.
The Chairman: Thank you.
I would like to suspend the hearings for five minutes.
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The Acting Chairman (Mr. Proud): I want to welcome the members from the Canadian Chamber of Commerce: Sharon Glover, senior vice-president for government relations; and Tim Reid, president.
Ladies and gentlemen, we have half an hour. We'd ask you to make a presentation of between 10 and 15 minutes, and we'll go from there with questions and answers.
Welcome, and you may begin.
Mr. Tim Reid (President, Canadian Chamber of Commerce): Thank you very much,Mr. Chairman.
I'm Tim Reid and this is Sharon Glover. We do have about 10 to 12 minutes of presentation, and we'll be going back and forth.
I'd like to start by giving a brief reference to the Canadian Chamber of Commerce itself.
[Translation]
The Canadian Chamber of Commerce is Canada's largest and most representative business association. Our network of 500 community chambers of commerce and boards of trade provides us with affiliate partners in every federal member of Parliament's constituency. This network has a total membership of over 170 000 businesses.
The common thread among our members is that all see the need for an effective and an affordable way of ensuring that Canadians are ready to meet the challenges of the present and future job market.
[English]
The Canadian Chamber of Commerce has consistently been in favour of measures to stimulate job creation and believes that a well-devised system of insurance against unemployment can go some distance towards achieving this goal. As we have said to the federal government, both before the last election and since the last election, measures to reduce the barriers entrepreneurs face in expanding their businesses and hiring more people as a result are a must if Canada is to deliver on its promise about being a competitive nation of tomorrow.
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We are pleased to see that the government's overriding goal in revamping the unemployment insurance program is very much in line with the Canadian Chamber's: business expansion and jobs for Canadians. The Canadian Chamber recognizes that the effectiveness of the unemployment insurance program has been undermined over the years, and the need for major reform has become clear for several reasons.
First, the present system does not address deeply rooted economic problems faced by many communities in Canada. In fact the present system is perverse in that it encourages individuals to remain in geographic areas and industries where there will continue to be a permanent shortage of employment opportunities.
Second, there is an increasing use of the system by some employees and some employers alike for purposes that were not originally intended. What began as an insurance plan for Canadian workers facing temporary unemployment has become a form of social subsidization for seasonal workers in certain communities and businesses by way of an example.
Third, the unemployment insurance program has become very costly and simply cannot be sustained without seriously undermining the initiatives of Canadian businesses to expand and hire more people. The high cost of the unemployment insurance program is well documented; it's currently estimated at $16 billion, which is double the $8 billion in 1980.
Although the current legislation is clearly not perfect, the Canadian Chamber is generally in favour of the package of reforms to the unemployment insurance program proposed in Bill C-12 and recognizes its importance in fulfilling important economic goals of our country. Our view on some of the provisions of Bill C-12 are as follows, and I'd ask Sharon Glover, our senior vice-president of policy, to talk to some of those.
Sharon.
Ms Sharon Glover (Senior Vice-President, Government Relations and Political Relations, Canadian Chamber of Commerce): I'll start with ``Qualifying For Benefits''. The Canadian Chamber of Commerce is pleased that Bill C-12 includes provisions to tighten the eligibility requirements for UI benefits. The six-week increase in the number of weeks needed for first-time claimants to qualify for benefits will in our view minimize the attraction of part-time and seasonal work of many industries.
Similarly, we support the government's move to shorten the maximum period that recipients can receive benefits from 50 to 45 weeks, although we are disappointed by the retreat from the original proposal of 40 weeks. We also support the change in the insurance system from one based on weeks of work to a system based on total earnings and total hours worked starting from the first dollar and the first hour. The change will permit the simplification of the reporting requirements for employers and of premium collection.
In terms of frequent users of the system, while we are encouraged by the government's introduction of an intensity rule to the system of UI, we believe the restrictions in benefits for individuals who use the system repeatedly still remain too moderate. The Canadian Chamber of Commerce therefore proposes that an accelerated payback schedule be considered to deal with individuals who use the system repeatedly.
Alternatively, the problem could be addressed by increasing the premiums paid by those individuals who frequently use the system. Our proposal would bring the program closer to a proper insurance plan where premiums paid and coverage received vary according to risk, similar to many workers' compensation programs across Canada.
Mr. Reid: I'd like to turn to the unemployment insurance account, which was referred to briefly by one of the members of the committee just prior to us joining you.
We believe the surplus in the unemployment insurance account should never be allowed to exceed $5 billion. This is more than sufficient as a cushion for a downturn in the business cycle to ensure that premiums are not raised during that cycle. However, any surplus above this amount is unnecessary and cuts into the ability of employers, and indeed cuts into the incentives faced by employers, to hire more people. Any surplus in excess of $5 billion should be remitted to those who have contributed to it - employers and employees - in the form of lower premiums.
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With regard to those premium levels, the Canadian chamber has long argued that there is an indisputable connection between changes in payroll taxes unrelated to profits and job creation. We believe that reducing payroll taxes will enable many entrepreneurs to hire more people. This will increase the number of taxpayers, thereby increasing the revenue to the government. It will also allow more people to come off the unemployment insurance system and off the welfare system, thereby reducing government costs.
Ms Glover: In this vein, we are encouraged by the recent reduction in maximum insurable earnings proposed in Bill C-12.
Similarly, we are encouraged, but by no means overwhelmed, by the recent reduction in premiums of a mere 5¢ per $100 of insurable earnings. While we believe this decrease represents a start, it is simply not enough to stimulate job creation in this country.
We will therefore continue to make representations to this committee and to the Department of Finance for a 60¢ reduction in UI premiums by January 1997. A reduction in premiums in conjunction with a $5-billion cap on the UI insurance surplus are the most effective measures available to the government in its bid to work with the private sector to stimulate job creation.
In terms of the premium refund for small business, we're very pleased that the government has taken the necessary steps to boost the job creation efforts in this important component of our economy. Bill C-12 provides for temporary partial premium refunds for businesses with fewer than 25 employees that experience an increase in their premium payments of over $500. Coupled with a reduction in the maximum insurable earnings, this incentive should strengthen their hand in job creation.
In terms of training, given the questionable benefits of many training programs, we believe that no new funds should be directed to training programs, whether provided directly by the federal government or indirectly through the provinces, without first assuring us that the existing funds are being wisely spent.
We know that your committee is certainly aware that the Auditor General of Canada has been extremely harsh on the performance of the Department of Human Resources in tracking the training dollars that are already spent.
The government's priority in expending any new funds in connection with the UI program should be in an area where the benefits are proven and where the results are immediate; that is, premium reductions for employers and employees.
Mr. Reid: In conclusion, we're saying that in many respects Bill C-12 brings a significant improvement to the existing unemployment insurance program and has our support. In other areas, however, the bill does not go far enough and should be amended accordingly, as we have argued.
I shall conclude with the comment that we would like to see and we would like to hope that the bill will be called a bill of insurance against unemployment, rather than of employment insurance. We believe the latter concept conveys a very different principle, one of a social program as opposed to a program of insurance against temporary unemployment in the labour force.
We'll be very pleased to try to answer any questions the committee may have.
The Chairman: Thank you very much for a very thoughtful presentation, Mr. Reid and Ms Glover.
We're going to move to the question and answer session.
Mr. Dubé.
[Translation]
Mr. Dubé (Lévis): I will be brief to give my colleagues some time.
I would simply like to say that according to the government's figures, the impact of the reform will initially represent a cut of $ 1.2 billion in the economy. At the end of the program, around the year 2000 or 2001, it will be $ 1.9 billion a year.
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I would like to ask the representatives of the Canadian Chamber of Commerce, who themselves represent people who are in trade and who are employers, whether or not they're worried about the reduction in consumer spending that is growing a little bit each year, and which will affect people that they represent in so far as the public will have less money to spend in order to consume and buy goods. I was a little bit surprised that that aspect of the situation doesn't seem to worry you unduly.
[English]
Mr. Reid: Merci bien, monsieur Dubé. You are correct in saying that if one takes money out of the government sector, whether it's $1 billion or $2 billion, that money goes to people and that does in itself and by itself reduce the consumption.
Our point is very straightforward, and in this we agree very firmly with the government: the costs must go down. We believe that by getting the costs down we can get the premiums down. Getting those premiums down, particularly for small and medium-sized enterprises that are labour intensive, is the most effective way to create jobs in Canada at this time.
There are two studies that I will just refer to briefly. The Bank of Canada has done a study that has shown that the increase in the payroll taxes, particularly the increase in the unemployment insurance premiums over the past five years, has meant 170,000 fewer jobs in this country. That means 170,000 fewer taxpayers, and many of those 170,000 people are on social assistance programs rather than working. We believe that the key to growth, the key to getting government revenues down, is through that mechanism.
I guess that's the most fundamental point we can make. The other ones are well known to economists, in terms of the bad effects of a program that encourages people to stay much too long in industries that are for various reasons reducing employment or in communities that are reducing employment because of the nature of the industry. It would have been much better if these kinds of reforms had come in five, seven, or eight years ago. The adjustment process would have been much easier rather than having to do it in such a short period of time.
[Translation]
Ms. Lalonde (Mercier): Given the first answer you gave us, I'm somewhat surprised that you agree with the reduction of the maximum insurable earnings. We have indeed noted a difference between small and medium-sized businesses and large corporations. While small and medium-sized businesses are forced to pay premiums on their payroll, big capital intensive companies, which pay the highest salaries, are receiving a $ 500 million a year present, as are their employees.
If you really want a reduction in premium rates, you should agree to maintain or even increase the maximum insurable earnings, so that both large corporations and small and medium-sized businesses, together with their workers, can share this fairly and bring down the overall rate.
[English]
Ms Glover: In terms of maximum insurable earnings, in fact this is an issue that the chamber has raised for years with the government. We believe in and support wholeheartedly the reduction, and I'll tell you why.
You're right to say that it's mainly medium and large corporations that can afford to pay people more than smaller corporations, so when you reduce MIE the effect is greater on those companies. What you probably don't know is that for the last ten years maximum insurable earnings have been rising at a greater rate than the average industrial wage index. That means, to give you an example, that if I were to go on unemployment insurance for a few years versus someone else who worked for a few years, I would in fact get a greater increase in benefits than the working person would get in their salary.
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So the complicated formula currently entrenched in the bill, which has to go back seven years and take an average of industrial earnings, simply doesn't work. It completely skews how much the maximum insurable earnings should be raised.
Why we keep saying we're happy with the package, as opposed to individual pieces, is that along with the reduction of the maximum insurable earnings, the government has also given small businesses a break in terms of the reduction. I believe if their payments to UI go up over $500, then they get a break. So we believe the two combined will serve the whole gamut of small, medium and large business as well.
[Translation]
Mrs. Lalonde: Thank you.
[English]
The Chairman: Thank you very much, Madame Lalonde. Now, Mr. Easter.
Mr. Easter: I believe the study you mentioned was by the Canadian Bankers Association, was it? There were 170,000 jobs lost as a result of premium increases.
Mr. Reid: It was the Bank of Canada.
Mr. Easter: I haven't seen it, but do you know whether, in that study, they balanced the premium side against the amount of jobs created because of the UI system itself?
I look at my area. I'm from Atlantic Canada. There's the fact that the unemployment insurance system is there in the off season and all that money is spent within the business community. In fact, it ensures jobs during the off season. Do you know if they consider that part of the equation?
Mr. Reid: Mr. Chairman and Mr. Easter, I think my own advice would be to get your hands on the study and to make your own assessment of it. The Bank of Canada does very good work in this area with these kinds of studies, but I do not specifically know the answer to your question.
I would add this, however. At the University of Toronto's Institute for Policy Analysis, they've done an academic study based on very clear assumptions. If the unemployment insurance rate was reduced, in terms of the calculations, from $2.95 to $2.10, then over the next three years, over 200,000 new jobs would be created.
What we're saying is that our members from across this country - small- and medium-sized businesses and labour-intensive businesses - are being very clear that these taxes - in this case, the unemployment insurance rates have gone up - really create a fundamental disincentive to hire more people. That is the single most important message we believe we can bring to you in the committee.
Mr. Easter: I guess, Mr. Chairman and Mr. Reid, that's where we differ. I find the chambers in Atlantic Canada not necessarily on the same wavelength as you on this particular issue.
I employ people as well. I do not see, perhaps because I'm in a seasonal industry, the premiums as a major problem.
I do want to take issue with your first point on page 3 where you say it encourages individuals to remain in geographic areas. Basically, I think you're talking about seasonal industries.
Here's the fact of the matter. I hope you've seen - if you haven't, I'd encourage you to get it - the task force study on seasonal workers. That study clearly shows that, yes, although we have seasonal industries and full-time, highly skilled workers in those industries, they do create economies downstream for other workers in the system and they create year-round employment in that particular area.
Here's what I'm up against in my particular area when we talk about lowering premiums. They will refer to The Globe and Mail article of last week and the high salaries. They do not believe the big business community, which says that if premiums are lowered, it will create work, such as jobs for labourers and workers. Instead, it will just create increased profits for upper-level executives.
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That's what we're up against in terms of finding the balance. What's your response?
Mr. Reid: I would not at all question your statements about certain perceptions among certain people in the country. I would go back and say that the Canadian Chamber of Commerce did an unprecedented study two years ago called Aim for a Million. We went out and talked to 6,000 entrepreneurs. Yes, there were a few big companies in this because it was right across the country, but it was mostly small- and medium-sized enterprises.
What we got back was a very clear message. They said the accumulation of payroll taxes and the growth in those taxes over the last number of years, to them, was a barrier. That was a disincentive for them to hire more people.
I won't go through the whole Aim for a Million survey results, because we're trying to get at the issue of how to create jobs in this country, but complex labour legislation was piled on. We won't get into labour legislation today. That will be for another time. They're saying that when you take a look at that labour legislation and other kinds of regulations, there are so many disincentives for an employer to hire someone new these days when you pile everything together.
So all we're saying here is that the critical pieces of that puzzle to break down those barriers to small business enterprises hiring more people is to make sure you don't keep increasing - certainly it should be decreasing, in terms of the University of Toronto study - the taxes on the number of people you hire that are totally unrelated to your competitiveness and profitability.
Ms Glover: If I may also add a follow-on just to clarify, we're not suggesting at all that it is just employers who would like premiums reduced; we're talking about employees, people who earn $20,000, $21,000 or $22,000 per year. I bet if you asked some of those people whether they would like more money in their take-home pay, the answer would be yes.
We have thousands of people across Canada who are not earning a lot of money, yet they are paying premiums. They're overpaying their UI premiums. It simply isn't fair, and we want the money returned to employees and employers.
Mr. Easter: We may argue over the detail in several places, but in summary, do you see this bill moving in a direction of starting to deal with structural unemployment in a way that may be liveable for both the employer and the employee?
Ms Glover: Absolutely. In general, we support the bill. This committee was not privy to the letters and the correspondence to Mr. Axworthy when he had the portfolio, but essentially we were much tougher and wanted a much tougher bill. Do we think we got our way? No way. Is this a compromise? Yes.
What we warned the committee against doing was completely watering the bill down. You have three amendments that have been tossed around in the media, and others. We warned the committee not to play with what you've got too much because the business community does consider this a compromise position that we're willing to support. We would hate to see it completely watered down and destroying all that hard work that was done under Mr. Axworthy.
The Chairman: I certainly would like, on behalf of the committee, to thank you, since you are indeed the final witnesses to appear in front of our committee.
I can tell you that we, as committee members, have thoroughly benefited from the input of Canadians from coast to coast to coast. Of course, we have the challenge of bringing together the different perspectives and views that come from various Canadians and interest groups in making sure that in fact Bill C-12 is improved and fair to more people.
So thank you very much for your very thoughtful and informative presentation.
Mr. Reid: It's a pleasure.
Ms Glover: Thank you, Mr. Chairman.
The Chairman: The meeting is adjourned.