From 1971 through 1996, the number of Employment Insurance (EI) claimants who filed for benefits every year rose steadily from around 100,000 to almost 750,000. Even good economic times barely put a dent in the expansion. Rich federal benefits encouraged legions of able-bodied Canadians not to work year-round. Thanks to Ottawa’s largesse, it was possible to make nearly as much money working 12 or 14 or 20 weeks, then living off the dole the rest of the time, as it was to work 52 weeks.
But after 1996, that changed. Under Jean Chretien, the Liberal government made EI harder to receive and the number of habitual claimants — who live mostly in rural Quebec and Atlantic Canada — slid gradually to just over 500,000. That change, though, cost the Grits dearly at the polls in eastern Canada. So after 2002, they began slowly liberalizing EI again. Not surprisingly, the number of habitual claimants began to rise again, too. Last year, there were nearly 550,000, despite four straight years of strong economic growth in all regions.
This month, one of the Liberals’ EI embellishments is coming up for renewal. On June 4, a program that grants a five-week extension of benefits to workers in areas with unemployment above 10% is set to expire. It is designed to bridge the five- or six-week wageless gap faced by some workers who combine seasonal employment and EI, which together typically last only 46 or 47 weeks out of a 52-week year. The program costs just $100-million, a tiny fraction of the nearly $15-billion paid out in EI cheques each year. Even so, the new Conservative government should let this top-up program die by not renewing its funding.
Examples abound of the perverse incentives this program creates. For instance, the unemployment rate on Prince Edward Island is 14.6%; yet just last month, the island’s Ocean Choice lobster processing plant had to import workers from Eastern Europe to fill a 50-worker labour shortage. Even at a starting wage of $9.40 an hour, too few Islanders could be enticed to give up their federal benefits in order to take up full-time employment. For the 7,000 or so individuals on PEI who receive payments from the expiring program, the economics simply didn’t add up: Why go to a tough job each day when Ottawa would pay you almost as much to stay home?
A similar situation is developing on Newfoundland’s Avalon Peninsula, where the unemployment rate is 17.7% and hundreds of residents have been laid off at fish plants, but where crab processing plants are running double shifts because they cannot lure enough workers off of EI and into full-time work.
As Brian Lee Crowley, president of the Atlantic Institute for Market Studies, wrote recently in the Financial Post, “Virtually every major business organization in the region reports its members have tremendous difficulties finding workers with the skills they need willing to work at prevailing wages.” This is due not only to the richness of benefits and the way they make unemployment an attractive option, but also the way EI has discouraged workers from retraining to acquire the skills needed by employers.
Ideally, the Conservatives should reform the entire EI system and make both premiums and payouts more consistent with the risks of becoming unemployed — like an actual insurance program. But it would take a majority government (and a lot of political courage) to change existing laws. For now, merely letting go of the top-up program for the most chronic claimants would be enough.