Between October 2008 and May 2009, 363,000 Canadians were thrown out of work – and the OECD projects unemployment in this country to rise to 9.8% in 2010. In this global recession, the weakness of Canada’s Employment Insurance (EI) system has become a glaring federal policy omission.
EI is the major program by which our federal government has historically helped offset the financial risks of unemployment faced by Canadian families. Unemployment in Canada is now rising at an unprecedented rate and is forecast to stay high for some time to come – so many Canadians are now finding out personally just how little insurance coverage they have.
It is much less likely for Canada’s unemployed to receive EI benefits during this recession than in previous downturns. Now that they need a social safety net, many Canadians are discovering they don’t have much of one.
Compared to the majority of OECD nations, unemployment benefits in Canada are very low – much below the OECD average. As the accompanying table shows, our EI system’s replacement rate – the ratio of unemployment benefits to employment earnings – is tied with Britain’s in last place among the 16 OECD nations, according to the latest available OECD statistics.
However, the response of Canada’s federal government to the recessionary surge in unemployment since last fall has been decidedly meagre. Budget 2009 did little to change the fact that, in terms of access, benefit duration and income replacement levels, EI in Canada continues to fall far below OECD norms. Inadequate eligibility and benefit levels remained unchanged, while benefit duration was increased by only five weeks.
These inadequacies – combined with weakened provincial social assistance programs – have produced a massive risk shift, the burden of which is being borne by Canadian families who have fallen victim to the global recession.
Since low-wage individuals are especially likely to experience unemployment, the downloading of recessionary risk is having its biggest impact on disadvantaged Canadians – an impact that will only increase as EI benefits are exhausted in coming months.
Canada’s EI system is clearly and urgently in need of reform. Canadians need 1) a plausible expectation that they can get unemployment benefits if they are laid off – i.e., an easing of entrance requirements; and 2) a safety net for the possibility of a long duration recession – i.e., a “second tier” of unemployment benefits (combined with retraining and counselling) to deal with the problems of the long-duration unemployed.
The maximum duration of the EI benefits now being received by the minority of the jobless who qualify for them is less than a year. This implies that current EI recipients will run out of benefits some time before February 2010. What happens then if, as seems likely, the recession continues and job opportunities remain scarce? The need for EI reform, already pressing, will be imperative to prevent many more thousands of Canadian families from falling into poverty.
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(Lars Osberg is a professor of economics at Dalhousie University. This article has been adapted from his longer and detailed CCPA study, Canada’s Declining Social Safety Net: The Case for EI Reform, the full text of which may be accessed on our website.)
OECD Summary Measure of Benefit Entitlements, 1981 - 2005
1981 2005
Denmark.................. 54% 49%
Belgium.................... 45 41
France...................... 31 39
Netherlands............ 48 35
Finland..................... 24 35
Norway.................... 29 34
Switzerland............. 13 33
Italy.......................... 13 3
Austria..................... 29 32
New Zealand........... 29 26
Sweden.................... 25 24
Germany.................. 29 24
Australia.................. 22 22
United States........... 15 13
United Kingdom..... 24 12
Canada.................... 18 12
NOTE: The OECD summary measure is defined as the average of the gross unemployment benefit replacement rates for two earnings levels, three family situations, and three durations of employment. (For further details, see: www.oecd.org/els/social/workincentives)