The Budget, Employment Insurance and the Unemployed

Following  are the notes on which I based presentations to the Senate National Finance Committee on June 6 and the House of Commons Finance Committee on May 29. They summarize key CLC concerns with the Budget Implementation Bill.

Lack of Consultation

The significant changes to the Employment Insurance (EI) program proposed in Budget 2012 should not be implemented without a major consultation with all affected parties, notably workers and employers who pay the premiums to support the program.

Lack of Focus on the Real Issues

It is disappointing, to say the least, that the government is failing to respond to the fact that less than 40% of unemployed Canadians are now qualifying for EI, well below the already low pre-recession rate. This has especially severe impacts on women, young workers, and recent immigrants.

And, for all of the talk about skills shortages in Canada, it is notable that there is NO increased investment at all in EI-supported training which would assist unemployed workers to find good jobs in the future. The government has also cut funding for bodies which provide useful labour market information and promote skills training, such as the Canadian Apprenticeship Forum (CAF).

The Problem is a Shortage of Jobs, Not a Shortage of Workers

Government policy appears to be based on the premise that Canada is experiencing major labour and skills shortages.

While there are certainly some skilled labour shortages in some parts of the country, which have to be addressed through changes to training, labour mobility, immigration, and other policies, the reality is still high unemployment and under-employment in much of the country, especially in those provinces and communities where most unemployed workers live.
We still have an unemployment rate of 7.3%. The “real” unemployment rate in April – which includes involuntary part-time workers – was 10.7%, down only marginally from 11.3% a year earlier. The “real” unemployment rate for youth is still 20.4%.<!–more–><!–more–><!–more–>

The most recently released data show that there are almost six unemployed workers for every job vacancy reported to Statistics Canada by employers, rising to above ten unemployed workers per vacant job in some provinces. Likely the skill sets of most unemployed workers do not match needed in occupations with skill shortages such as the trades, professional health care workers, etc.

Further evidence of labour market slack and high unemployment is the fact that average hourly earnings in April were up just 2.3% compared to a year earlier, barely matching inflation.

This context is important. It means that pressure on unemployed workers to take jobs at significantly lower wages could put further downward pressure on already stagnant wages.

The CLC is concerned about the possibility of increasing skills shortages in the future. EI could be used in a positive way to deal with the issue, including through greater support to skills training and to labour mobility.

A Solution in Search of a Problem

Minister Finley has spoken to the need to “strengthen work incentives.” However, the vast majority of unemployed workers are actively seeking new employment and accepting job offers. Research commissioned by HRSDC shows that EI has no significant impact on labour mobility from high to low unemployment regions. To the contrary, there is a demographic crisis in rural regions with high unemployment, and tens of thousands of workers are making long-distance commutes to jobs.

We are unaware of any research showing that unemployed workers remain unemployed for long periods due to “unreasonable” wage expectations. In fact, research shows that many permanently laid-off workers already accept new jobs at much lower wages.

The New Rules on Offers of “Suitable Employment” Will Impede Labour Mobility and Lower Wages in Lower Paid Jobs

EI regular claimants are currently expected to undertake “reasonable and customary efforts to obtain suitable employment” and can be cut off benefits if they do not do so. “Suitable” employment is defined in S. 27 (2) and (3) of the Act. Jobs not in the claimant’s usual occupation are not suitable if they offer a lower rate of pay than the worker enjoyed previously, except that after a “reasonable interval,” a claimant is expected to accept a job which offers wages and conditions matching those in agreements, or offered by “good” employers.

The reasonable intent of these sections is to require EI claimants to search for work while allowing for a period of job search to find a job generally matching wages and conditions in previous employment.

Under the proposed new rules, turning down job offers with wages up to 30% below the previous wage will justify being cut off benefits for so‑called “frequent” claimants after just seven weeks, and after 18 weeks, for “occasional” claimants. “Frequent” claimants – those who have made three claims over the past five years, and collected 60 or more weeks of benefits – make up about one in three claimants. (See Annex 3.2 of the Monitoring and Assessment Report.)

“Long-tenured workers” – those who have worked in seven of the last ten years and collected less than 35 weeks of benefits in total – are relatively spared, but will not be allowed to turn down a job paying more than 80% of their previous wage after 18 weeks on a claim.

Treating unemployed workers differently based on their claim history is problematic, since it is employers who make the decision to lay off workers.

In our view, forcing most unemployed workers to take jobs at a lower skills and wage level after a brief spell of unemployment is not good labour market policy since periods of job search allow for a better fit between unemployed workers and job vacancies across the country. For example, an unemployed welder in Moncton may need time to find a suitable job in ship-building in Halifax, or in resource projects in Western Canada, and deserves income support from EI for the needed period of active job search.

These changes will also work to lower wages and working conditions for all workers, employed as well as the unemployed. The major impact will be on wages in lower paid jobs, since EI claimants are generally paid significantly below the average wage, and live in higher unemployment regions where wages are already lower than average. (The average hourly wage in previous employment is about $16.) Forcing unemployed workers to accept pay cuts will also have a ratcheting down effect, since any subsequent claim will be based on a lower rate of pay. Moreover, employers may take advantage of these new provisions to cut wages.

Beyond requiring workers to take jobs at lower wages, the new rules will require workers to accept jobs which are different from their previous job in terms of working conditions and work schedule. For example, a worker may be obliged to shift from day work to shift work.

Minister Finley has said that claimants will not be required to move from their community. Workers will, however, be expected to accept jobs to which they can commute in one hour, or longer, in some communities.

While there will be recognition of personal circumstances, such as health and family obligations, it is questionable whether the new appeal process will provide adequate protection.

A Threat to an Impartial and Effective Appeal Process

Appeals, which mainly concern denial of claims, are currently made to local EI Boards of Referees for 83 regions, which have three members: one appointed from each of labour and business by the respective EI Commissioners, and a neutral chair appointed by the government. The part-time members of Boards are knowledgeable of local labour conditions as well as of EI legislation and regulations, and deliver timely decisions, usually within 28 days.

In 2010-11, there were 53,905 appeals, about half of which were resolved before a Board hearing, usually due to departmental recognition of an error; 26,290 appeals were heard by Boards of Referees, and many claims that were initially denied are upheld, underlining the importance of the process of getting a fair hearing. The great majority of Board decisions are unanimous.

The some 1,000 part-time members of Boards of Referees who currently handle something like 25,000 cases per year are to be replaced by just 39 full-time members of the EI section of the new Social Security Tribunal (plus a very few part-timers up to a maximum of about four full-time positions). Hearings from April 2013 will be before a single, supposedly expert, full-time member of the tribunal.

It is unclear if hearings will be held in the community and how the volume of complaints can be handled without leading to long delays. The new changes to the EI rules are likely to result in an increased volume of appeals.

There are serious grounds for concern that determinations will be much less informed by knowledge of local conditions and the changing realities of the job market than is now the case, and will instead be decided on narrow legal and technical grounds.

Changes to EI in the High Unemployment Regions

The budget makes changes to pilot projects which will impact on high unemployment regions found mainly in the North, Quebec, and rural Atlantic Canada. As of September, unemployed workers in these regions will lose access to an extra five weeks of benefits, and some will no longer have their benefits based on their best 14 weeks of prior earnings. The first $75 of earnings from taking a very short-term job will now be subject to a 50% claw back (though the 100% claw back now in place above $75, or 40% of the claim amount, will be replaced by the universal 50% claw back).

On the positive side, the budget changes the rules regarding working while on a claim and establishing the rate of benefit based on weeks worked in such a way as to lower penalties paid by most unemployed workers who accept part-time and temporary jobs.<!–more–><!–more–>

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