EI reform: Easier said than done

Policy-making in the time of COVID has often been an exercise in baling wire and duct tape — with hurried introduction of support measures when the existing safety nets could not keep up. On-the-run modification of the Employment Insurance (EI) system is an example. Though many people are now looking for more permanent, “21st-century” solutions, such solutions are not always so easy to come by.

One stat we often hear about the EI system — and did even before the COVID-19 crisis — is that only 42 per cent of unemployed Canadians qualify for it. To the layperson that sounds like a colossal policy failure, but the truth is not so dire. The vast majority of recently employed people are covered. At 420 to 700 hours of insurable work normally required to access EI, Canada actually has very modest qualification requirements. In other countries it is common to require 12 months paid work in the previous year or two in order to receive benefits.

According to Employment and Social Development Canada (ESDC), most unemployed Canadians who fall outside the EI benefits envelope had either never worked before, not worked recently, or were self-employed — meaning they had not paid premiums. Many of the rest had left their previous jobs voluntarily, many to go to school, or had not built up sufficient hours of work in the past year to qualify. These kinds of situations are not unique to Canada — other countries don't open up their unemployment insurance systems to these groups, either.

As in other countries, many Canadians inhabit the fringes of the labour force, with relatively modest participation and annual earnings. No doubt they could use better, more creative forms of assistance. We can't make generalized assumptions, however, about their needs and perspectives or even whether they are where they are by choice or circumstance — as a group, they are very diverse. It would be far too simplistic to suggest the solution is just to make them fully-entitled EI beneficiaries.

Some people in this category may be members of well-off households working for lifestyle or interest's sake. Others may be self-employed and would be very difficult to fit into a job insurance scheme: as their own employers, they can dis-employ themselves whenever they like. Many of the self-employed — “gig” or otherwise — would likely balk at the premiums they would have to start paying in order for the EI system to continue to be self-sustaining, while it would be difficult to convince other employers and employees to pay higher premiums on their behalf.

There are good reasons to help displaced workers, families, students, new Canadians and others, but providing such support would be difficult within an insurance-based system. EI is already straining under the burden of special programs, which now account for about the same share of total costs as regular jobloss benefits do. Perhaps some current EI programs could be spun off onto different platforms, while others might introduce voluntary components.

But incentive effects need to matter in program design. The aim should be to keep as many people in the workforce as possible — at the very least in order to help pay for the enormous economic cost COVID has inflicted on the economy. The government's temporary extension of EI benefits to people with as few as only 120 hours of employment is questionable at best even in uncertain COVID times and it is certainly not the way to run a long-term system.

There are as many cost-benefit trade-offs involving generosity, eligibility and benefit duration as there are suggestions for program redesign. If you provide too much assistance, costs rise and employers have trouble attracting and keeping workers. If you provide too little, then people's long-term financial futures are stunted. Hitting the right balance requires good data and policy design and widespread support among all groups involved, including taxpayers.

A lot is riding on the next few years as employers and employees struggle to get back on their feet financially. In changing a big, complex program there are many moving parts to consider, which means due care is necessary. Governments owe Canadians the opportunity to participate fully in the design of any new workplace policies.

HITTING THE RIGHT BALANCE REQUIRES GOOD DATA AND POLICY DESIGN.