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Description
The Backgrounder in Brief
Employment insurance reforms in the mid-1990s were intended to reinforce the program's role in insuring against unpredictable job loss, rather than supplementing regular income. Have more recent changes undone those hard-won reforms? For seasonal workers in high-entitlement regions, the answer seems to be yes; further backsliding in the program should be avoided.
When Ottawa made sweeping reforms to employment insurance (EI) in the mid-1990s, it was seeking, in broad terms, to elevate the principle of insurance within the system. The far-reaching changes in the Employment Insurance Act of 1996 were aimed at such goals as ensuring that workers develop significant attachments to the labour force before collecting EI benefits, and discouraging use of EI as a regular income supplement as opposed to insurance against unpredictable job loss (see Gray 2004).
A decade later, however, there is public concern that recent changes to the EI system might constitute backsliding relative to those prior, hard-won reforms. Poschmann and Robson (2006) state that, "Recent new payments to workers who routinely work less than a full year are undermining a decade-old effort to remake EI as an insurance backstop against unexpected and temporary unemployment." Indeed, the government's own EI Monitoring and Assessment Report asserts that while "we can conclude that the 1996 reform led to significant savings amounting to billions of dollars ... certain elements of the reform have been undone" (Canada Employment Insurance Commission 2005, 93).
Has EI reform unraveled? If so, to what extent and with what implications? To examine these questions, and formulate policy recommendations based on the findings, this Backgrounder focuses on changes to regular EI benefits since 2000, (1) with analysis restricted to the passive benefits that are called regular income benefits. (2) Some of the modifications to these regular income benefits have been implemented in the form of "pilot projects," a mechanism designed to activate new policy measures that was laid out in the EI Act, (3) while others were delivered in 2001 through Bill C-2.
Do these post-2000 changes fly in the face of the important reforms of the mid-1990s? The 1996 Employment Insurance Act (Bill C-12) is considered to be the most sweeping overhaul since the 1971 UI Act. As well, there were two other important pieces of relevant legislation during the period. Bill C-113, passed in 1993, reduced the replacement ratio (the percentage of insurable earnings that are replaced by benefits) from 60 percent to 57 percent and eliminated benefits for those who leave their jobs voluntarily. Bill C-17, passed in the subsequent year, significantly shortened the length of benefit periods, and reduced the replacement ratio to 55 percent. To what extent has backsliding on reforms undercut their intent?
In what follows I explain the elements of EI reform that have endured and their impact on outcomes in the EI regime. I then summarize the EI regular benefit rules that have changed since 2000 and discuss their overall thrust, which, I argue, raises concern about their long-term impact on seasonal unemployment patterns.
Finally, I draw conclusions and make policy recommendations for future reform initiatives.
The primary conclusions of this study are:
* Overall, the reform measures in Bills C-12, C-113 and C-17 have succeeded in delivering substantial cost savings and have reduced certain inefficiencies; the incidence of seasonal use has declined in both absolute and relative terms since the mid-1990s. (4) Given the current favourable labour market conditions, the number of affected claimants remains low relative to the labour force, and therefore on a quantitative level one cannot assert that EI reform has entirely unraveled.
* Certain elements of these bills, however, have been either explicitly or implicitly rescinded.
* On the qualitative level, most of the modifications to the EI regime since 2000 have had an economically meaningful impact on financial incentives, by raising the generosity of EI benefits paid to seasonal workers. Other factors held constant, these changes can be expected to encourage frequent and seasonal use and to discourage structural adjustment, which contravenes one stated objective of EI reform; namely to reduce the degree of dependence on the EI regime of seasonal and frequent users.
* The modifications to the EI regime have the effect of facilitating bouts of short-term labour market attachment at the expense of long-term, year-round labour market attachment.
Elements of EI Reform that have Remained Intact
Among numerous program changes in the past decade, no statutory changes have occurred with respect to the following provisions: the hours-based system for qualification, the reduced maximum duration of benefits, the reduction in the maximum insurable earnings ceiling, and first-dollar coverage (Appendix A carries a summary of the major provisions of the Employment Insurance Act of 1996, along with the current status of each element).
As well, the nominal freeze of the ceiling on maximum insurable earnings has lasted over a decade during which the CPI (Consumer Price Index) has increased by 25 percent, thus eroding the benefits for those workers whose annual insurable earnings surpass $39,000. This doubtlessly reduced expenditures, although that constraint was binding on only about 25 percent of claimants for regular benefits. Furthermore, because premiums are only levied on annual earnings up to this ceiling, all contributors earning more than this amount benefited. (5)
To determine the effect of EI reform, one should also look beyond the statutory changes and consider the impact on outcomes. Overall usage rates appear to be much lower than they were just before the implementation of reform. In fiscal year (FY) 1995/1996 there were 1,725,322 new claims for regular benefits, just over 700,000 claims by frequent claimants, and 486,461 claims filed by first-time claimants. By comparison, in FY 2004/2005 there were 1,394,000 claims for regular benefits, 406,000 frequent claimants, and 445,000 first time claimants. Over the period between 1995 and 2004, Audas, Gray, McDonald (2006) find a significant decline in the number of frequent users relative to the labour force and relative to the number of the unemployed, as well as a decline in the incidence of EI receipt among successive cohorts of younger workers.
The figures noted in the above paragraph reflect unadjusted trends. It is quite a scientific challenge to assess empirically the overall impact of EI reform on take-up rates and program-use patterns compared to the counterfactual scenario of the absence of reform. One has to take account of several confounding influences, such as labour market conditions, shifts in the demographic composition of the labour force, and shifts in the composition of employment. The latter... |
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