Trudeau government should reform EI program now

The Trudeau government recently announced it will move Canadians receiving the Canada Emergency Response Benefit (CERB) into the employment insurance (EI) program. Although this news is not surprising, it will reignite discussion of EI’s major problems.

Employment insurance offers financial assistance to people who involuntarily lose their jobs and are actively looking for work. However, benefits are only available to Canadians who have made EI contributions during the preceding 52 weeks. Current EI benefits provide weekly payments equivalent to 55 per cent of a worker’s average insurable earnings for a period of 14 to 45 weeks.

There are several flaws in the design of the program. While EI is federally administered, eligibility and the duration of benefits vary by region. Canadians in high unemployment regions receive benefits for longer and have easier access to EI than those living in lower unemployment regions. As a result, some Canadians must work more hours to qualify for the same benefits as Canadians in other regions.

This arrangement produces notable inequities. For instance, two Canadians earning similar incomes and working the same number of hours can be treated very differently. For example, to be eligible for benefits, a worker from Abbotsford, British Columbia must contribute to EI for longer (595 hours as of July 2020) than someone who lives in Vancouver (455 hours), even if they are at the same worksite doing similar jobs.

The EI program also creates disincentives to work, which have sustained high unemployment rates in several regions, especially Atlantic Canada. The program’s current design encourages workers in high unemployment regions to remain unemployed for an extended period of time because benefits are available longer than in other regions. The result is longer durations of unemployment and seasonal employment, which lead to more frequent claims.

Moreover, the rise of the “gig economy” has seen more Canadians becoming self-employed. But self-employed workers are not eligible to receive EI benefits. As such, the EI program has failed to achieve its objective of providing temporary income support to all Canadians that involuntarily lose employment income. Importantly, the federal government recently announced it will create a parallel EI program for gig workers but it hasn’t specified if this will apply more broadly to the self-employed.

Finally, the experience of past recessions suggests that EI will likely face marked financial strain. Higher unemployment means fewer workers making EI contributions, at the same time that benefit payouts will rise due to the increase in unemployed workers. And workers will likely be eligible for a longer duration of payments. EI premium rates will also likely increase and unfortunately employees will bear a large portion of the cost in the form of lower wages.

Employment insurance is a flawed federal program in dire need of reform. The current design creates and perpetuates regional disparities while discouraging the mobility of labour and capital. And the looming financial strain on the EI system makes a government overhaul even more important.