It’s past time to modernize EI program

Today’s EI is not fit for purpose. With less than four in 10 jobless workers able to access it, it’s too stingy

I’ve been waiting more than 30 years to write this column, and suddenly — for both good and bad reasons — the stars have aligned.

You may think that stubbornly high inflation is the worst thing that could happen to you — but wait till you meet the next global recession.

After the foreseen economic rebound from the pandemic, business pages are newly flooded with warnings of a looming slowdown and even economic contraction around the world.

Whether China, Europe or the U.S. is first to drag Canadian growth, it’s an unwelcome development at an uncomfortable scale.

But it’s not a complete surprise, because it’s being driven by the same things that caused inflation in the first place; widespread supply and labour shortages caused by COVID-19, which has triggered China’s latest lockdowns of whole cities and North America’s latest wave of illness due to premature lifting of masking and slowed vaccination efforts.

Russia’s invasion of Ukraine has caused global oil prices to spike, impacting energy costs and production throughout Europe.

Now central banks are tackling inflation by raising rates, which will not address the root causes of inflation but are necessary for the credibility and legitimacy of these institutions.

Still, we’re on a tightrope, swinging from a strong but temporary rebound from the pandemic to a softening, perhaps faltering, economy.

Any one of these conditions — pandemic, war, interest rate hikes — occurring simultaneously in major production centres around the world would of course be worrisome. But having the three collide at once raises the odds that Canada will, once again, be unable to duck a downturn that has almost nothing to do with its own economic and policy decisions.

But we are not recession ready. CERB is long gone, and it’s not coming back. With mere days since the federal and Ontario budgets tackled affordability, and after two years of soaring deficits, is there anything left in the playbook that could soften the blow of a global recession?

Yes. It’s time to modernize Employment Insurance (EI).

Unemployment Insurance (UI) was introduced here in 1940 to provide automatic stabilization of the economy.

A form of social insurance, it supported purchasing power for the jobless during economic downturns, thereby shortening the duration and degree of downturn.

In the 1990s, EI was deliberately gutted by four rounds of “reform.” We went from 80 per cent of the unemployed receiving jobless benefits to less than 40 per cent in the decade before the pandemic hit.

The people hardest hit by the reforms were more likely to be women, low-paid, and in large urban centres — exactly the people most impacted by the pandemic.

That lack of access to EI guaranteed the Canadian economy would be clobbered during the pandemic without the invention of CERB.

And largely thanks to CERB, our GDP and labour force bounced back months before the U.S.

So why not just bring back CERB when recession hits next time?

Because it was too generous to be fiscally sustainable over the long run and not politically sustainable due to sectoral labour shortages.

But today’s EI is not fit for purpose either. With less than four in 10 jobless workers able to access it, it’s too stingy.

However, there is a lot of consensus on how to fix EI, according to a new report by the Institute for Research on Public Policy, prepared just in time for a fresh round of federal consultations on how to modernize EI, which Ottawa is taking seriously.

Full disclosure, I was part of this process. Spoiler alert: modernizing EI mostly means reversing the “reforms” of 30 years ago.

Change is urgently needed, because 57 per cent of GDP is propelled by household spending and the major source of that income comes from workers.

More workers need to be able to access jobless benefits when they need them.

Before the 1990s “reforms,” it took just 165 hours of insurable earnings to be eligible for employment insurance in regions with more than eight per cent unemployment.

That ballooned to 595 hours after the cuts.

During the pandemic, a universal requirement was set at 420 hours, but on Sept. 25 that will jump to between 420 and 700 hours, cutting off many.

Make it 360 hours — for everyone. A 360-hours threshold won’t reach everyone, and isn’t as generous as pre-1996 cuts, but it will provide shelter from the storm for most workers.

Improved coverage needs to extend to higher earners, too, largely shielded from the pandemic’s economic impact. Technology means people working from home can be replaced by workers from lowerwage countries.

Maximum insurable earnings — the upper limit of earnings that will be replaced, though not fully — need to be raised.

The formula for determining the maximum was reduced by eight per cent in 1996, and frozen at that level until 2006.

Today, only $60,300 of a workers’ earnings is covered (meaning you can receive a maximum amount of $638 per week). Thirty per cent of Canadian workers earn more than that, which is why that threshold should be raised to $88,000.

Better coverage for more workers needs to go along with less of an income hit when you lose your job. Since 1994, you only get 55 per cent of your insured earnings up to the maximum allowable.

That’s not enough. More than one in five (21 per cent) of Canadians earn less than $15 an hour, and many more earn just above that hourly amount.

Even before the challenge of soaring inflation, it was impossible to make ends meet on 55 per cent of insurable earnings, especially for minimum-wage workers, about half of whom are adults, not teenagers. Raise the income-replacement rate to two-thirds of insurable earnings, and make sure there is an income floor below which you can’t fall.

Why not the $300 a week from the dying days of CERB? It won’t cover rent in most places, but it’s a good start. There are many other ideas for improving EI, but these measures get us closer to becoming recession-ready.

Workers, employers, consumers, taxpayers all need a system that meets the needs of the majority of the unemployed, and in so doing helps businesses and those lucky enough to avoid layoff.

With the Canadian economy staring down the barrel of the recession gun, it’s time to do just that.