It’s the year of the pink slip. In the first month of 2009, Canada’s economy shed 129,000 jobs. No recession in recent memory has seen this large a slump in a single month, according to Statistics Canada.
In anticipation of mounting job losses, the Harper government made a special provision for EI in this year’s budget. Recipients can claim an extra five weeks of EI benefits, bringing the maximum length of eligibility to 50 weeks.
The Conservatives’ response was meager at best. They missed a golden opportunity to significantly overhaul Canada’s employment insurance regime.
EI currently pays the same level of benefits no matter how the economy is faring. A more practical approach would be to reform the system so that it’s more generous in tough times and less generous in prosperous times.
Employment insurance needs to be restructured now more than ever. Canadians collecting EI are likely to spend every extra dollar they receive, says Ian Lee, MBA director at Carleton University’s Sprott School of Business.
He says this type of EI reform would act as a stimulus and ultimately help end the recession sooner.
Unlike EI recipients, middle-income earners who receive tax cuts are naturally inclined to pay down debt and save when the economy is shaky.
Lee identifies three ways the federal government can make EI more generous. It can extend the length of eligibility, which it did. It can also increase the size of payment and it can shorten the length of time Canadians wait for their EI cheques.
Currently, Canadians must endure a two-week unpaid waiting period before their first cheques arrive in the mail.
Perhaps a more compelling reason to reform EI is simply out of compassion for the unemployed as a Canadian economy in recession continues to bleed jobs.
“You target those most in need,” says Lee.
Critics suggest that we can least afford to spend right now precisely because the economy is in rough shape, but the idea is to create a program that is revenue neutral.
A change in the way EI is doled out wouldn’t increase government spending in the long-run because it would even out over time, says Lee. Spend more now, spend less post-recession.
EI reform would also be met with resistance from seasonal workers who face lower eligibility requirements than the rest of us. In places where unemployment is traditionally high, workers have to log fewer hours in order to claim EI benefits.
EI effectively subsidizes the natural resources industries found in rural communities, says Lee. Seasonal workers only have the incentive to fulfill the minimum number of hours on the job required to claim EI.
They can live off of EI payments for the rest of the year, even though there may be work available.
EI has become central to the local economies of communities that play host to these natural resources industries.
If industries that have traditionally benefited from the EI system deserve to be subsidized, then the government should do so, directly.
Others would suggest they’re entitled to claim EI whether the economy is good or bad. But Lee says, “The government needs to educate the public that there is no free lunch.”
In good times, generous EI benefits can overheat an already-stimulated economy, he says. Labour is in high demand but as long as laid off workers are collecting EI, they can afford to be picky about their next job.
To attract labour, employers are forced to offer higher wages. The cost of labour is artificially high as a result, so the Bank of Canada must increase the interest rate to fend off this inflation.
When the economy is thriving, EI is designed to assist as temporary job shortages crop up, says Lee.
At the end of the day, making EI more generous during lean times and less generous during good times is the fairest approach. Not only would it help the unemployed when job prospects are sparse, but it would hasten the economy’s recovery.