Out in the Cold

"Out in the Cold"

As we have already mentioned, legislation currently before Parliament proposes radical changes to Canada's UI system. Rules regarding eligibility and maximum insurable weekly earnings will be revised. A new Human Resource Development Department will be created. Even the name of the program will be changed — to the Employment Insurance program or EI.

Although there are numerous proposals contained in the new legislation, the changes can be grouped into three broad categories: changes to benefits; changes in underlying purpose; and changes in how services are delivered. We will look at each of these categories in turn.

a) Changes to benefits:

Under the new EI legislation, program spending will be cut by approximately $1.9 billion on top of the $5 billion that was cut from the UI program in 1994. At the same time, the system will adopt new approaches for deciding who qualifies for benefits, how much those benefits will be and how long they will last. Among other things, the new rules will lead to the following changes:

When determining eligibility, the government will now look at total hours worked as opposed to weeks. To qualify for benefits, Canadians will have to work between 420 and 700 hours, depending on the rate of unemployment in their region. New entrants to the workforce and people re-entering the workforce after a prolonged absence will need 910 hours to qualify.

The maximum duration of benefits will be reduced from 50 to 45 weeks.

Benefit levels will be based on total earnings over a fixed period of consecutive weeks. The number of weeks used will vary from region to region, depending on the prevailing unemployment rate. Bouts of joblessness or lowered wages during the qualifying period will bring the benefit rate down.

Workers making more than one UI claim in five years will be penalized. In such cases, the benefit rate will be reduced by one percent for every 20 weeks of prior claims in the past five years to a maximum of a five percent reduction.

The amount of benefit money clawed back at tax time will increase substantially, especially for repeat claimants.

A new benefit supplement will be introduced for low-income families on EI. Families who earn less than $25,921 a year and qualify for the Child Tax Credit will receive an EI "top-up" to a maximum benefit rate of 80 percent (depending on family size).

Maximum insurable earnings will be lowered to $39,000 from $42,380, reducing the maximum weekly benefit to $413 from $449 (1995). The new maximum for insurable earnings will be frozen at least until the year 2000.

b) Changes in underlying purpose:

In addition to the significant changes in benefit rates and eligibility requirements, the new EI legislation marks a radical departure from the principles embraced by the architects of the original UI system.

Under the current model, the focus is on providing replacement income for workers who have lost their jobs. This income is designed to act a bridge between jobs — a supplement that will allow unemployed Canadians to maintain their standard of living while looking for new work.

Under the EI model, on the other hand, the focus will shift from income replacement — which the government regards as "passive" — to more "active" interventions like job training. Specifically, the new EI system will introduce five new "active employment" measures:

wage subsidies
earnings supplements
self-employment assistance
job creation partnerships with business and the provinces
loans and grants for training.

Most of these measures are not new. The federal government has been offering self-employment programs and loans and grants for training for the past few years. They have also sponsored "job creation partnerships" (with very limited success).

What is new is that these programs are now going to be financed out of the UI fund. Up until now, these kind of programs were paid for out of the government's general revenue.

Under the new EI system, then, more and more of the cash generated from worker and employer premiums will be used for purposes other than income replacement. UI funds will be used to pay for training and other programs that used to be viewed as separate from UI. UI dollars will also finance wage subsidies and earning supplements — programs that encourage unemployed workers to accept short-term, dead-end jobs and/or jobs that pay very low wages.

c) Changes in how services are delivered:

In addition to reduced benefits and a shift away from income replacement as a core principle, the new EI model also proposes sweeping changes in the way in which services for the unemployed are delivered. Most significantly, the new EI legislation will allow the federal government to transfer responsibility for many of these services to the provinces or third parties.

The federal government will continue to maintain a national employment service (almost entirely automated) to help match employers and workers. But other services — like career planning, job search assistance, service referrals and other related functions — will be delivered by the provinces, community groups or private-sector, profit-seeking companies.

Again, these services — including those operated by private companies — will be paid for primarily out the UI fund as opposed to general revenue.