CCSD Response to Bill C-12: An Act Respecting Employment Insurance in Canada*

April 1996

The Canadian Council on Social Development (CCSD) is an independent, national, non-profit organization, focussing on issues of social and economic security. This position paper was prepared in response to Bill C-12, the Employment Insurance Act, tabled in the House of Commons in February, 1996. It is based on a March 12 presentation by the CCSD to the House of Commons Standing Committee on Human Resources Development, and includes a review of amendments to Bill C-12 that were subsequently proposed by Liberal members of the standing committee.

The CCSD's framework for assessing Unemployment Insurance

The CCSD believes that the overarching objective of Canada's social security programs, including unemployment insurance, should be to support a system of income security for all citizens. This is the foundation upon which our social security system was built in the post-war period. On the whole, however, the changes proposed in the Employment Insurance Act stand in direct contrast to this objective.

The direction of Bill C-12 is consistent with that pursued by the federal government in its efforts to restructure income security programs over the past decade. The government has steadily narrowed programs that once supported all Canadians to programs that now target only the very poor. The CCSD's criticism of the current unemployment insurance system is not that it fails to meet the needs of the poor: it was not intended to do so. Rather, the CCSD's concern is that unemployment insurance is no longer adequately insuring the earnings of many working Canadians. By 1995, only half of the unemployed were drawing UI benefits a drop from the three-quarters of unemployed who received UI benefits just five years previously. This is the real failure of unemployment insurance, and correcting this problem should be the objective of reforms to the system.

The CCSD's assessment of Bill C-12

The introduction of the Employment Insurance Act brings with it major changes to unemployment insurance in Canada. Perhaps the most fundamental of these changes is the switch from using weeks to hours when determining eligibility and the amount and duration of benefits. Beyond this, the new act continues previously established policy directions by increasing the severity of the high-income clawback and penalties for "repeat users," providing differential benefits for low-income recipients with children, and expanding the range of "employability" measures available to recipients.

Eligibility: The shift from weeks to hours

Under the current system, eligibility for UI is determined on the basis of the number of weeks worked over the past year. (Only weeks of 15 or more hours of work, or $163 per week in earnings are counted.) Under the new Employment Insurance Act, the government proposes to determine eligibility for regular and special benefits that is, sickness, maternity and parental benefits on the basis of hours, rather than weeks of work in the last year. All hours of work from one or more jobs will count towards eligibility.

The CCSD is concerned that these proposed changes in the eligibility criteria will:

  • generally reduce the duration of benefits for all people except those who work more than 35 hours per week, if they become unemployed;

  • have little effect on full-time and "overtime" workers (those working more than 35 hours per week), other than possibly providing overtime workers with greater UI benefits;

  • make it harder for those who work between 15 and 34 hours per week (75% of all part-time workers) to qualify for benefits, and reduce the duration of their benefits;

  • disproportionately harm women, who dominate part-time employment (women accoount for 78% of all those who work between 15 and 35 hours per week), and who are the majority of claimants for maternity, parental and adoption benefits;

  • fail to provide benefits for the majority of those working less than 15 hours per week (more than half of whom are women);

  • make it more difficult for those with temporary jobs (10% of the labour force in 1994) to qualify for benefits.

In light of these concerns, the CCSD recommends that:

1. In order to maintain equitable access to the UI program for part-time workers, the government should retain weeks of work as the basis for determining program eligibility and duration of claim.

2. In order to avoid excluding "non-standard" workers those in temporary and part-time jobs by requiring that they work 910 hours in the past year, the government should amend the definition of new or re-entrants to require a minimum of 490 hours of work (the equivalent of 14 weeks at 35 hours per week) over the past two years.

The 16 to 20 week averaging period

Under the current UI system, the benefit level is based on average weekly insurable earnings during the last 12 to 20 weeks of work, depending on the regional rate of unemployment. Under the proposed EI system, the benefit level will be based on average weekly earnings during a fixed period ranging from 16 to 20 consecutive weeks prior to lay-off, depending on the regional unemployment rate. As a result, any weeks without work during the fixed period will reduce the benefit level.

The CCSD is concerned that this proposed change in calculating UI benefit levels will:

  • mean that more than 14% of all UI claimants will see their benefits reduced by approximately 23%;

  • have an uneven impact across the country: more than half of claimants from Newfoundland and PEI will likely see their benefits reduced by 30%; in Ontario, Manitoba, Saskatchewan and Alberta, about six per cent of claimants may see their benefits reduced by approximately 15%; the rates in other provinces fall somewhere in between;

  • disproportionately harm seasonal workers who have little control over the timing of their work;

  • fail in its intention to encourage workers to take on lower-wage work because there is no indication that such jobs are available.

In light of these concerns, the CCSD recommends that:

3. In order to treat part-time, part-year workers equitably in relation to permanent, full-year workers, the government should retain the current benefit determination formula. At a minimum, the government should not include weeks without earnings when calculating average weekly earnings.

Maximum insurable earnings

Under Bill C-12, Maximum Insurable Earnings (MIE) will be reduced from $42,380 in 1995 to $39,000 per year in 1996. They will be frozen at that level until at least the year 2000. The stated rationale of the government is to bring the MIE closer in line with average earnings (currently at $30,000 a year).

The CCSD is concerned that this proposed change will:

  • result in a seven percentage point drop in the proportion of insured earnings within four years, thus reducing the security of millions of workers;

  • have a varied impact on different regions of the country: for example, more workers in Ontario, where one-third earn more than the new MIE, will be affected than in other provinces;

  • reduce benefits for those claiming maternity, parental and adoption benefits (the majority of whom are women), who earn more than $39,000;

  • provide an incentive for overtime work by making it cheaper for employers to pay overtime wages to current employees, thereby pushing their incomes over the MIE, than to hire new employees for whom UI contributions must be made.

In light of these concerns, the CCSD recommends that:

4. To adequately insure earnings, especially for those claiming special benefits (maternity, parental, adoption and sickness benefits), the government should retain the current level of MIE at $42,380 in 1996.

5. In order to reduce incentives for overtime work, and hence create jobs, the government should remove the MIE for employers so that they pay premiums on the cost of their total payroll. The employer premium rate could be reduced to ensure that this change does not lead to an increase in the overall premium burden.

Provisions that target "repeaters" (the "intensity" rule)

Bill C-12 introduces the concept of penalties for repeat users of UI. Repeat users are defined as those who have collected benefits for more than 20 weeks in the five years prior to 1996. For each week of EI benefits above 20 weeks, the standard EI benefit replacement rate of 55 per cent of insurable earnings will be reduced by one percentage point. Up to a maximum of five percentage points may be deducted, dropping the replacement rate for some recipients to just 50% of insurable earnings. These lost percentage points would be replaced at a rate of one point per year, up to a maximum of 55% of insurable earnings, for each year that no EI benefits are received.

For those with annual incomes above $39,000, an additional penalty will be applied. The standard "high-income clawback" levied against all UI recipients will be increased for those with more than 20 weeks of EI benefits in the last five years. This additional penalty will range from 30% to 100% of EI benefits.

The CCSD is concerned that these proposed changes will:

  • reduce benefits for nearly one million claimants, based on 1993 figures showing that about 40% of total claimants had made three or more claims within five years;

  • penalize individuals, including seasonal workers and a growing proportion of workers in other fields who find only temporary employment, for taking the only kind of work available.

6. The government should eliminate the intensity rule. It discriminates against workers in areas of high unemployment and those engaged in forms of non-standard and seasonal employment.

7. The government should eliminate the new intensity-based clawback provisions, as well as the basic clawback provision for workers earning more than the maximum insurable earnings.

Earnings exemption

The earnings exemption under the UI system was set at 25% of a beneficiary's weekly benefit; the new floor is 25% of the benefit or $50, whichever is higher. After this point, every dollar of earnings reduces the value of the benefit claim by the same amount. The earnings exemption is not indexed. This provision is designed to encourage those with incomes of less than $200 a week to seek work while on unemployment insurance.

The CCSD supports this change, as it would mean that:

  • potentially about 320,000 workers earning less than $20,000 a year who received UI in 1995 (about 40% of beneficiaries) would be able to raise their incomes more than they can now, by working while collecting benefits.

The CCSD therefore recommends that:

8. The increased earning exemption should be adopted.

The Family Income Supplement

The Employment Insurance Act introduces a new Family Income Supplement (FIS). The FIS would replace a provision introduced in 1994 that increased the benefit rate to 60% for claimants who had children and incomes of less than $390 a week. Claimants in low-income families who receive the Child Tax Benefit (CTB) and who have family incomes below the CTB threshold of $25,921 would receive a "top-up" of up to 80% of their insurable earnings by the year 2000, depending upon the number of children in the family. The income threshold is not indexed.

The total value of the Family Income Supplement would be capped when total benefits reach 80% of insurable earnings, or the Maximum Insurable Earnings ceiling of $413 a week. Eligibility for the Family Income Supplement will be determined on the basis of total family income. (The 1994 benefit rate of 60% for low-income claimants with children was based on individual earnings.)

The CCSD is concerned that this proposed change will:

  • provide only 20% of all children in households with family incomes under $25,000 with income assistance, thus offering limited help in alleviating child poverty;

  • inappropriately use a system based on individual contributions (UI) to offer family benefits;

  • disproportionately exclude women from receiving the supplement because the majority ofwomen earn less than men. (The CCSD estimates that at least 30% of all people now eligible for the supplemental benefit will be excluded.) ;

  • eliminate an important source of independent income for many women based on the doubtful assumption that family income is shared equally between household members;

  • in combination with the proposed clawback of benefits from higher-income workers, it will weaken the social insurance objective of income replacement by further targeting benefits only to the poor.

In light of these concerns, the CCSD recommends that:

9. The government should not provide any UI benefits on the basis of family income. The unemployment insurance plan is not the place to address child and family poverty. The CCSD supports income redistribution as a goal, and believes it should be actively pursued through the income tax system and other income transfer programs. At a minimum, the government should enrich the existing Child Tax Benefit to provide assistance to all poor families with children.

Premium rebate

Under Employment Insurance, all workers will be required to pay premiums on all hours of work. Previously, those who worked 15 hours per week or less or had less than $163 a week in earnings were excluded from the program. They did not pay premiums or collect benefits. A new premium rebate is proposed for workers with earnings under $2,000 a year. These workers will have their premiums up to $60 a year reimbursed through the tax system.

The CCSD is concerned that while this proposal will move the program in the right direction by offering the rebate to approximately 1.3 million individuals:it will not provide a rebate to many who earn more than $2,000, but have not worked enough hours to qualify for benefits should they become unemployed. In light of this concern, the CCSD recommends that:

10. The government should expand the premium rebate to include all workers who will now pay premiums but will not have the weeks or hours necessary to qualify for UI.

The UI/EI fund

Since 1991, UI has been totally financed by employer and employee premiums. Prior to 1991, the federal government also contributed to the UI fund. Until 1986, the UI fund was at arms-length from other government accounts. In that year, however, the UI fund became an "account" within the federal government's general revenues and expenditures.

The most important result of this change was that from that point on, surpluses and deficits in the UI fund affected the government's overall deficit position. Prior to Bill C- 12, deficits and surpluses in the UI account were settled every few years. So even though annual surpluses would improve the government's short-term deficit position, the surplus did not reduce the long-term deficit because the money had to be returned to contributors either through reduced premiums or increased benefits. Bill C-12 proposes to eliminate the requirement for this settling of the account.

The CCSD is concerned that this proposed change will:

  • allow the government to use the UI fund to reduce the deficit, at the expense of those who contribute to it.

In light of this concern, the CCSD recommends that:

11. The government should keep the EI fund separate from the government's general revenues. The intention should be to establish adequate surpluses in the fund during years of economic growth so that they can be drawn upon during economic slow-downs.

Proposed Amendments to Bill C-12 by Liberal members of the Standing Committee on HRD

Five proposed amendments to Bill C-12 were introduced by Members of Parliament Andy Scott, Geoff Regan, Jean Augustine and Maurizio Bevilacqua to the standing committee. They will likely be integrated into the Act, and therefore are commented upon here.

Andy Scott and Geoff Regan each propose an amendment to Bill C-12's formula for calculating average earnings and, as a result, benefit levels. Scott's proposal would reduce the penalty for workers who have weeks with no earnings. It is seen by the CCSD as a positive step. Regan's proposal would reduce the number of weeks of work used to calculate average earnings for those in high unemployment areas and increase the number for those in low unemployment areas. It is seen by the CCSD as a step in the wrong direction because it would, in effect, reduce the period of eligibility for full benefits in areas of high unemployment and increase it in areas of low unemployment.

Jean Augustine's two proposed amendments to the "intensity" rule would exempt claimants eligible for the Family Income Supplement, and would allow claimants who take on paid work beyond the maximum allowable amount to accumulate credits against future intensity penalties. As stated earlier, the CCSD does not believe there should be an intensity rule. Augustine's proposals further complicate an unwieldy system of determining benefit levels and they assume without proof that work exists for those to whom she is offering more incentives.

Maurizio Bevilacqua's proposal is a positive change to Bill C-12. He clarifies that claimants of special benefits such as maternity, parental and sickness leave should not be subject to the higher entrance requirements demanded of new and re-entrants to the labour force. However, the government should still examine the impact of other provisions in the Bill on special benefit claimants.

CONCLUSION

The CCSD believes that Bill C-12 moves unemployment insurance in the wrong direction that is, away from its key function of insuring earnings against short-term unemployment. The changes announced in Bill C-12 are likely to further reduce the number of people covered by the plan from the already low level of 50% of the unemployed, and to further restrict benefits to successful claimants. Although the fund has a healthy surplus that will grow to $5 billion by the end of 1996, Bill C-12 will reduce spending on UI by $2 billion. The CCSD believes that this spending reduction is unnecessary, and that any reforms should extend UI coverage to those now excluded and should increase benefit levels.

The Canadian Council on Social Development's primary recommendation is that the federal government investigate measures outside of the unemployment insurance system to address concerns such as:

  • child poverty, which continues to afflict one in five children in Canada;

  • barriers to employment and the difficulties faced by the working poor;

  • training and skills improvement for all Canadians, not just those eligible for unemployment insurance;

  • stable income maintenance for those in seasonal industries to recognize that unemployment stems from the cyclical nature of the work available, and not the workers themselves;

  • small business start-up and local job creation.

  • These are all goals that should rank high on the federal agenda and could be addressed through various tax measures or through direct programs and provincial and private sector partnerships.

CCSD

Canada's Social Development Convenors

info@ccsd.ca

Phone: 613-236-8977

Kanata, ON

P.O. Box 13713 K2K 1X6

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