GOVERNMENT RESPONSE TO THE SECOND AND THIRD REPORTS OF THE STANDING COMMITTEE ON HUMAN RESOURCES, SKILLS DEVELOPMENT, SOCIAL DEVELOPMENT AND THE STATUS OF PERSONS WITH DISABILITIES
"RESTORING FINANCIAL GOVERNANCE AND ACCESSIBILITY IN THE EMPLOYMENT INSURANCE PROGRAM"
RESPONSE TO STANDING COMMITTEE RECOMMENDATIONS
A Sound Approach to EI Financing and Governance
Ensuring Adequate Income during Periods of Unemployment
Supporting Workplace Skills Development
ANNEX STANDING COMMITTEE RECOMMENDATIONS
Following hearings and deliberations in late 2004 and early 2005, the Standing Committee on Human Resources, Skills Development, Social Development and the Status of Persons with Disabilities (Standing Committee) made 28 recommendations touching on the Employment Insurance (EI) program. Its first eight recommendations, focusing on EI financing and governance, were tabled on December 16, 2004. The remaining 20 recommendations, mainly focussing on EI program benefit enhancements, were tabled on February 15, 2005. The Standing Committee’s recommendations address issues falling under three broad themes:
A Sound Approach to EI Financing and Governance;
Ensuring Adequate Income During Times of Unemployment; and
Supporting Workplace Skills Development.
The Government of Canada wishes to recognize the significance of the work of the Standing Committee. The following sets out the Government’s response to the Standing Committee reports, and the Government’s commitment to ensuring that the EI program continues to respond to changing labour market realities and the needs of Canadians.
Canada’s labour force participation rate and employment rate are currently at record highs. Canada’s unemployment rate fell to 7.2% in 2004, the second lowest rate in 25 years (6.8% in 2000). In 2004, close to 16 million Canadians were in employment and 285,000 new jobs were created. Over previous years, Canada has experienced consistent and steady job growth as well. For example, in the last three years, Canada led the G-7 in job creation with over 2% in employment growth during that time, despite a series of economic setbacks (such as SARS and BSE) and the rise of the Canadian dollar. Among the G-7, only the US, with a growth of 1.7% in employment, is expected to exceed Canada’s growth, estimated at 1.5% for 2005. (Source: OECD Employment Outlook 2004)
Despite the strength of the overall labour market, there continues to be a need to provide temporary income support and assistance to Canadians during periods of temporary unemployment. EI is one of the largest federal programs and is a key element of Canada’s social safety net and economy. Last year, EI provided over $13 billion in income benefits to over two million Canadians.
Regular EI benefits are designed to assist Canadians who are temporarily unemployed and seeking to re-enter the workforce. Special benefits play an important role in supporting working Canadians who are too sick to work, who need to stay home with newborn or newly adopted children and, most recently, who take a temporary leave from work to provide care or support to a gravely ill parent, child or spouse at significant risk of death within six months.
The EI Act also helps to maintain a sustainable employment insurance system through the establishment of Employment Benefits and Support Measures (EBSMs) and services provided by the National Employment Service, activities that represent important contributions to building the skills that Canadians require to achieve labour market success. In 2003/04, more than 650,000 individuals received assistance in returning to the workforce – an annual investment of $2.1 billion in active measures.
A Sound Approach to EI Financing and Governance
The rate-setting mechanism and the responsibilities of the Canada Employment Insurance Commission (EI Commission) are essential features in the financing and governance of the EI Program.
The Standing Committee’s recommendations call for a new rate-setting mechanism and funding structure, with the Chief Actuary having responsibility for estimating the break-even premium rate based on independent expert advice. In addition, the Standing Committee proposed a transformation of the EI Commission towards a body that in their view would offer more independence and authority to be a real partner in EI governance. Finally, the Standing Committee recommended changes to the principle of first dollar coverage and to the premium payment methodology for employers.
Building greater transparency and independence in the EI Premium Rate-Setting Process
The Government recognized that the rate-setting mechanism set out in the EI Act needed to be improved. As a result, it announced in the 2003 Budget that it would undertake a review of the premium rate-setting process and launched a public consultation process, based on the following principles.
premium rates should be set transparently;
premium rates should be set on the basis of independent advice;
expected premium revenues should correspond to expected program costs;
premium rate-setting should mitigate the impact on the business cycle; and
premium rates should be relatively stable over time.
Throughout 2003, the consultation process heard from a wide variety of stakeholders, including business and labour, economists and technical experts, EI Commissioners for Workers and Employers, and individual members of the public. Summaries of the results were posted on Finance Canada’s website in December 2003.
The Government of Canada has responded with a new rate-setting mechanism and with increased independence in EI Governance
A new permanent rate-setting mechanism was announced in Budget 2005 that meets all of the five principles and takes into consideration the views of stakeholders and the views of the Standing Committee. As proposed in Budget 2005, the EI Chief Actuary would annually determine, on a forward-looking basis, the estimated break-even premium rate for the coming year, based on the most current forecast values of those economic variables relevant to the determination, which will be provided by the Minister of Finance. In matters related to rate-setting, the Chief Actuary woud have a functional reporting relationship to the EI Commission, strengthening the independence of this process. The Chief Actuary would provide a report to the EI Commission, which the Commissioners would then make public and use to consult with their respective constituencies.
Beginning with the 2006 premium rate, the Budget Implementation Act 2005 (Bill C-43) proposes that the EI Commission would have the full legislative authority to set the EI premium rate. In setting the rate, the EI Commission would take into account the principle of expected premium revenues matching expected program costs, the report from the Chief Actuary and input from the public, which would increase the transparency of the rate-setting process. There would no longer be a requirement for the Government of Canada to approve this rate. The EI Commission would also be able to obtain, on an as-needed basis, the services of those with specialized knowledge in rate-setting matters. This meets the principle of independent expert advice.
The Government is also proposing to introduce limits on changes in the premium rate from year to year so as to mitigate the impact on the business cycle and contribute to stability of premium rates. In this regard, the extent to which the premium rate could change from one year to the next would be limited to a maximum of 15 cents. This provides protection against sudden large increases in premium rates in the event of an economic downturn. As a measure to provide rate stability during the period of transition to the new rate-setting mechanism, the Government has guaranteed a premium rate ceiling of $1.95 per $100 earnings for 2006 and 2007.
These new measures address issues raised in the Standing Committee’s reports by increasing the independence of the EI Commission in EI rate-setting and strengthening the transparency of the process.
EI premium rates have been substantially lowered over the last decade, benefiting both workers and employers
On December 6, 2004, the government announced that the 2005 EI premium rate would be reduced to $1.95, down from $1.98 in 2004, representing the eleventh consecutive annual reduction in EI premiums. Compared to the 1994 rate of $3.07, the 2005 premium rate of $1.95 represents a savings of $485 for employees who make maximum contributions and $679 for employers. As a result of this rate reduction, employers and employees will pay $10.5 billion less in premiums in 2005 than they would have paid under the 1994 rate.
Premium payment structure
The EI program is financed through cost-shared employee/employer premium contributions. Today, about 16 million Canadians contribute to the program each year. Employers pay 1.4 times the employee premium rate, as they have a greater control over decisions regarding employment, while workers bear the personal costs of unemployment. This structure also recognizes the co-insurance features of the program that claimants face, such as the two-week waiting period before receiving benefits and the partial replacement rate of 55% of earnings (to a maximum of $39,000). In this context, and in light of the current policy objectives of the EI program, the government shares the Standing Committee’s view that the current premium structure represents a fair approach.
The EI reform implemented in 1997 introduced coverage of insurable work from the first dollar earned. Under this system, every hour of work counts towards EI eligibility and differing work patterns are better recognized. However, it also means that some low-income workers pay premiums but may find themselves with too few hours to qualify. To address this issue, EI includes a premium refund. Under this provision, employees earning less than $2,000 have their premiums refunded when they file their income tax return. In 2002, over $15 million in EI premiums were refunded to 656,870 individuals, representing 5% of those in paid employment.
The Standing Committee recommendation proposes a policy change from first-dollar coverage to providing an annual premium exemption for employees and employers on the first $3000 of earnings each year. However, such a change would raise issues as to whether the earnings and hours of work represented could still be insured. If the change were implemented, low-income and part-time workers could find it harder to qualify for EI benefits and if they did access the program, a significant portion of their earnings – on which no premiums were paid – would not be insured.
The Standing Committee has also recommended the implementation of a mechanism to provide EI premium refunds to employers that would parallel the Government of Canada policy of refunding EI premium overcontributions by employees. For employers, such an "overcontribution" arises when an individual works for two or more employers and whose combined earnings exceed the maximum insurable earnings. The implementation of such a mechanism would represent a departure from the current Government of Canada policy that contributions of employers and employees are related to insurable work associated with a job, as opposed to the earnings of an individual, and the implications of this change would require careful analysis. Moving to implement such a policy change would also require the resolution of significant privacy issues related to the protection of personal information as an individual’s employment information would need to be correlated in order to apportion any overcontribution among employers. It would likely necessitate the disclosure of an employee's multiple employment relationships and earnings patterns to employers that would receive a refund. Finally, the administrative complexities associated with such a mechanism could add significantly to the administrative burden for employers and the operational costs of the EI program. Given these considerations, changes to existing policy on this issue are not envisaged at the present time.
In addition, the Standing Committee recommends that foreign agricultural workers and their employers be exempted from making contributions to EI. It is important to recognize that since foreign migrant workers pay premiums, they, like all other workers who pay premiums, are eligible to collect EI benefits provided they meet eligibility requirements. Should these workers be exempted from paying premiums, they would no longer be eligible for EI benefits, including special benefits such as sickness, maternity and parental benefits. The administrative and labour market impacts of implementing this change would require careful consideration since it would create a financial advantage for employers who hire foreign workers as they would be relatively less costly to employ than Canadians for any job. This could reduce employment opportunities for Canadians over time.Ensuring Adequate Income during Periods of Unemployment
EI is a large program that affects the lives of millions of Canadians
Given the important role EI plays in the lives of so many Canadians, the Government puts considerable effort into measuring the impacts and effectiveness of the program and reports to Parliament and Canadians each and every year. The Monitoring and Assessment Report (MAR) has been recognized as an important document by the Auditor General of Canada, whose November 2003 report indicated “The MAR provides Parliament with more information than is required of most programs”. On an annual basis, the MAR examines the impacts and effectiveness of EI from the perspective of the economy, communities, and individual workers.
In 2003/04, the EI program provided over $13 billion in income benefits to Canadians. Human Resources and Skills Development Canada (HRSDC) has staff in over 300 offices across the country and almost three million EI claims are processed annually.
HRSDC takes great pride in providing high quality service to its clients. The Standing Committee recommended that every HRSDC district office employ a claimants’ advocate. HRSDC’s 320 Human Resource Centres currently have the capacity to deal directly with claimants regarding their EI claim and in most of the 105 offices that process claims, Public Liaison Officers (PLOs) already provide specialized assistance to clients who have unique needs. There is currently the equivalent of approximately 75 full-time PLO positions across Canada providing advocate services to claimants.
The day-to-day administration of the EI Act involves many complex questions. The Standing Committee has expressed concern that there is a presumption of guilt for those employed in a family business. This issue arises because such individuals are asked to demonstrate that the conditions of their employment are the same as persons who have an employer-employee relationship, but who are not working in a family business. In practice, more than 92% of family member claimants are able to meet this requirement.
In addition, concern has been raised regarding the inclusion of pension, severance and vacation payments in determining eligibility to EI benefits. This longstanding provision ensures that individuals do not receive income from employment and EI benefits for the same period of time.
EI is there for Canadians when they need it
The Government of Canada recognizes that Canadian workers want the assurance that EI benefits will be there when they need them and that EI eligibility must take into account work and family circumstances in an appropriate and fiscally responsible way. The Standing Committee recommendations also address issues related to the entrance requirements for EI benefits.
Ongoing analysis, published annually in the MAR indicates that overall the EI program is there for Canadians when they need it. In 2003, nearly 84% of the unemployed who had paid EI premiums and either lost their job or quit with just cause were eligible to receive EI benefits. Among those who had worked full-time, nearly 92% were eligible for regular EI benefits.
However, the Government recognizes that labour market conditions vary across the country and in some sectors of the economy. To assure responsiveness to differences in regional economies, the EI program has been designed to automatically respond to changes in the labour market. Each month, entrance requirements and the duration of entitlement to benefits are adjusted based on local unemployment rates. This means that as unemployment rates rise, entrance requirements ease and duration of benefits increases.
EI entrance requirements range between 420 hours and 700 hours while duration of benefits range between 14 weeks and 45 weeks depending on the regional rate of unemployment. For example, in a region where the unemployment rate is 11.5%, the entrance requirement is 490 hours and the duration of benefits is 28 weeks for those who qualify with the minimum number of hours.
Individuals who have not worked in the last twelve months do not qualify for EI income benefits, regardless of the entrance requirement. As such, significantly reducing entrance requirements, as recommended by the Standing Committee, is not likely to equate to substantially increased EI coverage, particularly for the long-term unemployed. In addition, a reduction in entrance requirements would be of greatest benefit to those living in regions with stronger labour markets. Generally, such assistance is most needed in regions of high unemployment where alternate employment is limited and access to the program can be more challenging. It is also important to note that, since 1996, longer-term unemployed have had extended access to active employment measures to assist them in re-entering the workforce through Part II of the EI Act.
Improvements made to increase coverage and access
In 2001, the Government changed the re-entrant provision to support working Canadians with families. This change recognized that parents re-entering the labour market, particularly women, are likely to have a strong previous history of workforce attachment. Evidence has shown that women enter and exit the labour market more frequently due to their family responsibilities. This provision means that parents returning to the labour force following an extended absence to care for young children can access regular EI benefits with the same number of hours as other claimants in their region.
For other individuals who are new to the labour market or returning after an extended absence, evidence suggests that overall the entrance requirements are working as intended. However, concerns have been raised that some workers in rural and remote regions may be unable to attain 910 hours of employment because of the nature of the employment offered in these regions.
On February 23, 2005, the Government announced a three-year pilot project in regions of high unemployment (10% or more) that will test the impacts of reducing the minimum number of hours that new entrants and re-entrants to the labour market need to qualify for EI benefits from 910 to 840 when linked to EI employment programming. As part of this initiative, individuals will have access to income benefits and may be supported in EI employment programs that could include academic upgrading, the acquisition of occupational skills, or work experience. Pilot projects provide valuable information regarding the impact of EI changes on individuals and the labour market before considering whether a permanent change to the EI legislation is appropriate.
Coverage of self-employed Canadians
The Standing Committee also addresses the important changes in employment relationships which have affected the composition of the Canadian labour market over the past decade. While the share of the self-employed as a proportion of all employment has declined slightly over the past five years to 15%, self-employed persons remain a significant and stable component of the workforce.
As has been recognized by the Standing Committee in its past work, the issue of extending EI coverage to self-employed persons has always presented a policy challenge. The self-employed workforce is remarkably diverse and cuts across a very wide spectrum in terms of education and income. As well, defining a separation or cessation of employment in a self-employed context is complex. While some self-employed persons have expressed an interest in being covered, studies indicate mixed views among the self-employed population and among organizations that represent them. Recent trends suggest the self-employed are more interested than in the past in paying for EI maternity and parental benefits coverage.
Pursuant to provisions of the EI Act, the conclusion of a final agreement between the Government of Canada and Quebec concerning the establishment of Quebec's parental insurance plan represents an important development in supporting the availability of benefits for the self-employed population. The introduction of Quebec’s plan will provide important information for all governments concerning the practical and policy considerations associated with extending this type of coverage to the self-employed.
While it would not appear that there is clear consensus among groups representing the self-employed as to whether the Government of Canada should move forward on an EI type plan for the self-employed, it is recognized that it is important that the EI program continue to adapt to changes in the composition and needs of Canada’s workforce – including the needs of self-employed workers. For that reason, policy development priorities of HRSDC include gaining a further understanding of the needs of the self-employed – and how best to meet these needs, particularly in relation to special benefits. This knowledge will be important as we consider the potential for extending EI coverage to the self-employed.
Supporting Canadians and encouraging a return to work
The Standing Committee has made recommendations aimed at increasing benefit levels and the length of time that individuals can collect EI.
The Government of Canada recognizes that the income support afforded under EI benefits is important to Canadians facing temporary unemployment.
Overall, evidence continues to indicate that the duration of EI benefits is sufficient for the majority of claimants as they return to work before they exhaust their benefits. On average, individuals use only about two-thirds of their EI entitlement before finding employment and only about 1% of claimants entitled to 45 weeks of benefits exhaust. Even in areas of high unemployment, on average, individuals use only about 70% of their EI entitlement before finding employment.
In providing benefit levels based on 55% of a person’s insurable earnings, the Government strives for a balance in ensuring that the EI program provides adequate temporary income support while maintaining work incentives. However, to assist those most in need, low-income families with children can receive up to 80% of their insured earnings through the Family Supplement.
Seasonal work – improving program responsiveness
Although substantial measures have been taken to improve access and ensure adequate benefit levels and benefit duration for Canadians, the Government of Canada recognizes that some regions and groups of workers, such as seasonal workers, face unique circumstances.
While a significant number of seasonal workers rarely collect EI, others must regularly turn to EI for support to make ends meet between periods of seasonal employment. For those seasonal workers who must regularly turn to EI, the program is there for them when they need it.
A number of program enhancements have been made to address the challenges associated with seasonal employment:
in 2001, the intensity rule, which reduced the benefit rate of repeat claimants, was removed as well as the experience-rated elements of the benefit repayment or “clawback” provision;
consistent with previous Standing Committee recommendations, the Small Weeks provision was made permanent and national in 2001 and enriched in 2003 – whereby weeks of earnings of less than $225 are excluded from the benefit rate calculation so that they do not reduce a claimant’s benefit rate; and
a pilot project was introduced in 2004 which provides an additional five weeks of regular EI benefits in regions of high unemployment – reducing or eliminating the annual income “gap” for some seasonal workers.
In order to address concerns regarding work disincentives that can occur for seasonal workers under the current benefit rate calculation system, the Government has announced a three-year pilot project in areas of high unemployment (10% or greater). Under this new pilot project, EI benefits will be calculated based on the 14 weeks with highest earnings during the 52 weeks preceding a claim for benefits or since the beginning of the last claim, whichever is shorter.
This measure is designed to test the labour market impacts of improving incentives for individuals to accept all available work, including weeks of work that are shorter than their normal full weeks. It will also test whether employers facing labour shortages will have access to additional workers.
Encouraging labour force attachment
As noted, one of the objectives of the EI program is to encourage individuals to maintain labour force attachment. The working while on claim provision is a key element in this regard. Currently, individuals receiving EI regular, fishing, or parental benefits are allowed to earn the greater of $50 or 25 percent of their weekly benefits from employment without a reduction in their benefits. Earnings above this amount are deducted from weekly benefits.
However, evidence continues to indicate that the working while on claim provision may not be encouraging claimants to accept all available work. Successive MARs have found a declining proportion of regular claimants who report work while on claim since 1996/97. Between 1996/97 and 2002/03, the proportion of regular claimants working while on claim declined by 7.7 percentage points (62.6% to 54.9%).
Given this trend, the Government has announced a three-year pilot project that will allow claimants to earn from employment the greater of $75 or 40 percent of their weekly benefits rather than the current $50 or 25 percent. The pilot project will test whether increasing the allowable earnings threshold will improve incentives to accept incremental work.
Sickness and Compassionate Care Benefits
The Standing Committee has also highlighted two areas where it recommends further study to guide policy development. One issue identified as requiring examination relates to individuals who are unable to work for an extended period due to illness. A second concerns the potential expansion of EI benefits to replace lost income for individuals who must travel with an ill child for treatment.
Currently, the EI program includes a 15-week sickness benefit which is designed to provide temporary income support to individuals who are injured or too sick to work. The 15 week maximum for EI sickness benefits is based on an examination of the availability of sickness benefits in the private sector and in other countries, and on discussions with representatives of the medical profession. In the event a worker’s illness or injury extends beyond that period of time, long-term income protection may be available through the Canada Pension Plan (CPP) and other employment related benefits, if applicable. The division between EI sickness and CPP disability resembles industry practices used by employers who typically provide short and long term income protection to their sick or injured employees through separate plans.
The EI Commission annually monitors the adequacy of benefits paid to claimants. While it is recognized that 15 weeks may not be sufficient to cover those with a longer term illness, according to the 2003 Monitoring and Assessment Report, the average number of weeks for which sickness benefits were paid for the year 2003/04 remained stable at 9.4 weeks. In this context, for the majority of workers who turn to EI when they are unable to work due to illness or injury, 15 weeks is meeting the objective of providing temporary income support.
The Government of Canada recognizes the importance of supporting families in balancing work and family responsibilities, particularly in relation to children. In 2001, maternity and parental benefits were doubled from six months to one year to provide working parents with the choice to spend up to the first year at home with a newly born or adopted child. In 2004, a new Compassionate Care Benefit (CCB) was introduced to ensure that working Canadians would not be forced to choose between their jobs and providing care or support to a gravely ill parent, child or spouse at significant risk of death within six months.
When introducing the CCB, the government committed to reviewing the benefit after its first year of implementation with a view to considering potential improvements and changes to the program. A formative evaluation of the CCB has begun and preliminary results will be reported in the 2005 Monitoring and Assessment Report. Expanding CCB to provide income support to individuals who must travel with an ill child for treatment would represent a significant policy change and likely raise a number of challenging questions such as why such a benefit would be limited to ill children. The evaluation of CCB will provide an opportunity to examine the policy scope of the current CCB and to give consideration to whether an expansion would be appropriate. In addition, a policy review of preliminary data is now underway that will assess a number of issues, including the range of family relationships currently recognized under the benefit. The objective of this review is to identify opportunities to improve the CCB in the short-term, while the formative evaluation is being completed.
The Government recognizes the challenges that certain EI clients face and is working to examine the substance of issues raised by the Standing Committee.Supporting Workplace Skills Development
The Government recognizes that in the new knowledge-based economy and society, there is a premium on the skills of workers and their ability to innovate, learn, adapt and enhance their skills. The Government is committed to the development of a policy agenda that anticipates and addresses the key labour market challenges facing Canada. Our future prosperity depends on our nation’s productivity and competitiveness.
Activities funded under Part II of the EI Act represent important contributions towards enhancing the skills that Canadians need to prepare for, obtain, and maintain employment. Such activities include services provided by the National Employment Service (NES) and Employment Benefits and Support Measures (EBSMs). They also include similar benefits and measures where responsibilities have been transferred to provincial or territorial governments under Labour Market Development Agreements (LMDAs) and to Aboriginal groups under the Aboriginal Human Resources Development Strategy (AHRDS).
Annually, over $2.1 billion in EI funds are invested in active employment measures. Activities include, but are not limited to: providing unemployed Canadians with work experience while supporting a community’s development needs; encouraging employers to hire individuals whom they would not normally hire in the absence of a subsidy; providing a full range of self-help and assisted services such as counselling, job search techniques, action planning, job placement and labour market information; and, helping support research activities which identify improved methods of helping Canadians prepare for, obtain, and maintain employment.
The Standing Committee has recommended that mobility assistance be provided through employment benefits and support measures to individuals who move to accept a confirmed job. Research has shown that among EI claimants, mobility is considered to be high, with as many as 30% of claimants changing communities from one EI claim to the next. For workers who are less inclined to move, evidence suggests they may be reluctant to do so for a number of reasons: their established roots in a community; a fear of suffering financially on a house sale, especially in a small town or a one-industry community; and, moving allowances not covering all the costs. Providing mobility assistance at a level reflective of the actual costs of moving could have a considerable impact on the EI fund without a commensurate increase in the number of those willing to relocate. In this context, EBSMs will continue to focus on developing skills.
The Government of Canada recognizes that some unemployed older workers take longer to return to employment than their younger counterparts, particularly those older workers with low skills. As a means of addressing this issue and in light of the desire of many older workers to continue to participate in the labour market, since 1997, the Government has shifted investments from passive support to assist workers to leave the labour market to active labour market approaches to assist unemployed older workers to apply their experience and skills in new employment. Through Part II of the EI Act, in 2003/04, almost 91,000 workers aged 50 and over participated in employment programming towards this objective.
In recognition of the fact that some displaced older workers have particular difficulty becoming re-employed, the Government of Canada has also collaborated with provinces and territories on an Older Workers Pilot Projects Initiative since 1999. During that time Canada has invested $50 million for pilot projects to test approaches to help older workers return to work or those at risk of becoming unemployed, to remain working. These measures represent important steps towards addressing the underlying challenges the Standing Committee has identified in relation to older workers.
During 2003/04, skills development (including support for apprenticeship training) accounted for 73% of all employment program interventions, reflecting the importance placed on training by provinces/territories and HRSDC.
It is recognized that all levels of government need to work together to address the labour market challenges facing Canadians. Cooperation among governments leads to the enhancement of labour market programs and facilitates access to programs for all workers who need help in order to participate fully in the labour market. Ongoing policy analysis and discussions with provinces and territories are underway to ensure the effectiveness of these investments.
Goals for labour market development include promoting an inclusive labour market where the quantity of labour supply effectively meets the demand, promoting increased employer investment in workplace training, maximizing participation of employed and unemployed workers and creation of a coordinated system of labour market policies and programs designed to meet the needs of all Canadians.
The Standing Committee recommends a pilot project to assess the effectiveness of providing a premium refund to employers who:
provide training to alleviate skill shortages;
incur costs while replacing workers receiving maternal/paternal benefits;
provide training to seasonal and older workers; and,
provide workplace literacy training to their employees.
As noted earlier, the Government shares the Standing Committee’s interest in and support for skills development. Budget 2005 announced new funding for the Workplace Skills Strategy (WSS) underlining the Government’s commitment to developing skills that are responsive to the needs of Canada’s changing economy. More immediately, the WSS will stimulate and support innovative, demonstration projects addressing the needs of employers and employed Canadians and aimed at increasing workplace skills development. These initiatives will be designed and implemented in collaboration with key stakeholders, including business, labour, sector councils, educational institutions and Provinces and Territories. Results will help inform and influence further interventions as the Strategy evolves.
As phases of the WSS roll out over the coming months and years, focus will also be placed on examining the role of significant federal levers in providing incentives, or removing barriers, with regard to employer investment in skills, including the EI program. As the WSS proceeds, there will be further opportunities to address the Standing Committee’s recommendations over the medium to long term.
Since its inception over 60 years ago, the Employment Insurance program has played a significant role in Canada’s social safety net. The Government of Canada remains committed to continuing to review the EI program to ensure it remains well-suited to the needs of Canada’s workforce. This commitment was reaffirmed in the October 2004 Speech from the Throne.
The government has made a number of enhancements to the program in the last decade
EI program improvements have been made to reflect an ever-changing labour market and based on the annual monitoring and assessment of the program. Many of these improvements also took into consideration recommendations from parliamentarians and stakeholders, including worker and employer representatives. Enhancements to the program between 1996 and 2004, totalling over $2.5 billion per year, include:
extension of maternity and parental benefits to one full year – and reduction of the number of hours needed to qualify for all special benefits;
making the small weeks provision permanent, as well as raising the threshold to ensure that individuals can accept work with lower earnings without seeing their future EI benefits reduced;
elimination of the intensity rule, which reduced the benefit rate of frequent EI users;
removal of the experience-rated elements of the benefit repayment or “clawback” provision;
elimination of multiple waiting periods for apprenticeship training programs, to help Canadians acquire skills; and,
introduction of a new compassionate care benefit to allow workers to provide care or support to a gravely ill parent, child or spouse at significant risk of death within six months, without fear of income or job loss.
Further enhancements to EI were announced in February 2005
The following enhancements, representing over $300 million per year in new investments, demonstrate the Government’s ongoing commitment to ensuring the responsiveness of the program:
Three new pilot projects, expected to benefit more than 220,000 people per year, that will run for three years in regions of high unemployment (10% or more) to test the labour market effects of:
Enabling individuals new to the labour market or returning after an extended absence to access benefits after 840 hours of work when linked with EI employment programs;
Calculating EI benefits based on the “best 14 weeks” of earnings over the 52 weeks preceding a claim. This will mean that for individuals with sporadic work patterns, EI benefit levels will be more reflective of their full-time work patterns; and,
Increasing the “working while on claim” threshold to allow individuals to earn the greater of $75 or 40 percent of benefits, in an effort to encourage people to take work without a reduction in their benefits.
Continuation for a second year of a pilot project providing an additional five weeks of EI benefits in regions of high unemployment (10% or more). This pilot was designed to help address the annual income gap faced by workers with limited work alternatives; and
Extension of transitional boundary measures in New Brunswick and Quebec until October 2006, pending the 2005/06 boundary review.
The Government has also introduced important improvements to EI financing and governance
Through measures introduced in the Budget Implementation Act 2005, the Government has strengthened the transparency of the premium rate-setting process and increased independence of the EI Commission in EI rate-setting.
While moving ahead with numerous program enhancements, premium rates have been reduced for eleven consecutive years since 1994. As a result of these rate reductions, employers and employees will pay $10.5 billion less in premiums in 2005 than they would have paid under the 1994 rate.
Like the Standing Committee, the Government recognizes the importance of skills development to the effective functioning of the Canadian labour market, which is why it announced the Workplace Skills Strategy in Budget 2005. In addition, nearly 75% of annual spending on employment programs focuses on skills development.
The Government appreciates the work of the Standing Committee and its report has helped to inform thinking on the recently announced enhancements to the EI program which have significant policy and financial dimensions. When considering further changes to the program, it is important that the impacts of the recent enhancements be fully understood. The Government will continue to give serious consideration to the Standing Committee’s recommendations, while ensuring that any adjustments to the program have a sound policy and evidence-based rationale. Our ultimate goal remains to ensure that the EI program continues to be relevant and responsive to Canadians.
STANDING COMMITTEE RECOMMENDATIONS
The Committee recommends that, in 2005, legislation be tabled in Parliament that would create a new entity called the Employment Insurance Commission. The proposed Employment Insurance Commission would be given the statutory authority to manage and invest employment insurance revenues in the proposed Employment Insurance Fund Account and to transfer these revenues, as required by law, to the Consolidated Revenue Fund in order to cover the cost of employment insurance. This new Crown corporate entity should be governed by commissioners who broadly and equally represent employees and employers. The government should also be represented in the proposed Employment Insurance Commission. The Chair and Vice-chair of the Commission should rotate between employer and employee representatives after serving a two-year term. Commissioners would be appointed by the Governor in Council following consultations with groups representing employment insurance contributors. The operations of the Commission and the funds under its management must be fully accounted for and reported in accordance with generally accepted public sector accounting standards. The Commission should have the authority to make recommendations to the government.
The Committee recommends that, in conjunction with the legislation referred to in Recommendation 1, statutory authority be given to establish a new reserve, called the Employment Insurance Fund Account. The Employment Insurance Fund Account, perhaps modelled after the Exchange Fund Account, would exist outside of the Consolidated Revenue Fund and act as a depository for all employment insurance premiums and other transfers from the Consolidated Revenue Fund as required by law. Funds transferred from the Employment Insurance Fund Account to the Consolidated Revenue Fund would by law be used exclusively to cover employment insurance costs.
The Committee recommends that, beginning in 2005-2006, the federal government transfer amounts from the Consolidated Revenue Fund to the proposed Employment Insurance Fund Account. This transfer must occur over a period of time, taking into consideration the year-to-year fiscal position and expected outlook of the federal government. The minimum amount to be transferred to the Fund each year must be no less than one half of the amount remaining in the Contingency Reserve at year’s end. These transfers would continue until the cumulative balance that existed in the Employment Insurance Account as of 31 March 2004 has been fully transferred to the Employment Insurance Fund Account. When that cumulative balance in the Employment Insurance Account reaches zero, all references to this Account in the Employment Insurance Act should be repealed.
The Committee recommends that a premium rate stabilization reserve be created and maintained within the proposed Employment Insurance Fund Account. This reserve should be estimated by the Chief Actuary of the proposed Employment Insurance Commission and re-estimated every five years. It should be managed prudently, provide the required liquidity needed to maintain premium rate stability over a five-year period, and should never exceed 10% of the most recent estimated premium rate stabilization reserve requirement.
The Committee recommends that starting in 2005:
the Chief Actuary of the proposed Employment Insurance Commission utilize independent expert advice to estimate annually a break-even premium rate that would ensure program solvency and premium rate stability over a five-year, look-forward period;
the Chief Actuary utilize independent expert advice to estimate quinquennially the size of premium rate stabilization reserve that would insure program solvency and premium rate stability over a five-year period; and
the proposed Employment Insurance Commission publish its recommended break-even premium rate and underlying analysis by 30 September in the year prior to the year for which the recommended rate applies.
The Committee recommends that if the rate recommended by the proposed Employment Insurance Commission is, for some extraordinary reason, different from that which the Governor in Council wishes to approve, then the government must, in setting a different rate, amend the Employment Insurance Act by establishing a statutory premium rate for a period not exceeding one year. This proposed legislative change must be subject to a vote in the House of Commons.
The Committee recommends that the government implement a $3,000 yearly basic insurable earnings exemption to replace the premium refund for contributors with low earnings. This exemption threshold would be indexed upward according to growth in average weekly earnings in Canada. This new provision should be reviewed two years after its implementation to examine its impact on hours of work.
The Committee recommends that in 2005 the government devise and implement a method for refunding employment insurance premiums to employers corresponding to over-contributions to employment insurance from employees.
The Committee recommends that the current cost-sharing arrangement between employers and employees be maintained.
The Committee recommends that the government implement a uniform 360 hours qualification requirement, irrespective of regional unemployment rates or the type of benefit. This would establish a qualification requirement based on a 30-hour week over a 12-week period.
The Committee recommends that the maximum benefit entitlement for regular benefits be extended to 50 weeks, the same as that afforded special benefits.
The Committee recommends that following an assessment of the pilot project that extends benefit entitlement by five weeks in high unemployment areas of the country, the government, following consultations with the proposed Employment Insurance Commission, modify benefit entitlement so as to provide an additional incentive to work for a longer period of time than the minimum hours of work required to qualify for benefits.
The Committee recommends that the proposed Employment Insurance Commission consult program contributors and report to the government on the feasibility of providing a supplementary benefit beyond the proposed 50-week maximum period so as to help unemployed workers 50 years of age and over cope with extended periods of unemployment. The amount of the supplementary benefit and its duration should depend on lifetime contributions to employment insurance.
The Committee recommends that the government repeal the current method of calculating average weekly insurable earnings and in its place adopt a new rate calculation period equal to the qualifying period. Only those weeks with the highest earnings in the new rate calculation period would be included, and these earnings would be averaged over the best 12 weeks of insurable employment.
The Committee recommends that the government increase the benefit rate from 55% to 60% of average weekly insurable earnings.
The Committee recommends that the government, following consultations with the proposed Employment Insurance Commission, establish a nation-wide pilot project to assess the impact of a variable benefit rate that ranges from between 61% to 65% of average weekly insurable earnings, depending on the number of insurable hours worked in excess of the minimum hourly qualification requirement.
The Committee recommends that following the completion of the evaluation that is currently underway to assess the effectiveness of employment benefits and support measures, the federal government use this information, to the greatest extent possible, to ensure that spending under the next generation of labour market development agreements focuses exclusively on those measures that have achieved their intended results. (In addition, the federal government must negotiate with provincial and territorial governments to establish an appeal process for individuals who are denied access to employment benefits and support measures)
The Committee recommends that the Employment Insurance Act be amended to include mobility assistance in employment benefits and support measures. Mobility assistance would only be paid once a job is verified and confirmed. As with other employment benefits and support measures, this assistance would be based on voluntary participation. (The Bloc Québécois maintains that the federal government must respect the Quebec-Ottawa accords on labour market development)
The Committee recommends that the government amend section 78 of the Employment Insurance Act to require that at least 0.8% of estimated total insurable earnings be allocated to employment benefits and support measures and that the additional funding that results from this be used to provide meaningful training to those who qualify under a more inclusive definition of “insured participant” pursuant to section 58 of the Employment Insurance Act.
The Committee recommends that the government initiate a pilot project to assess the effectiveness of providing a premium refund to employers who: (1) provide training to alleviate skill shortages; (2) incur training costs while replacing workers receiving maternity/parental benefits; (3) provide training to seasonal and older workers; and (4) provide workplace literacy training to their employees. If the pilot project finds this training incentive to be effective then it should become a regular feature of the Employment Insurance program and its cost should not be included as part of the expenditure limit contained in section 78 of the Employment Insurance Act.
The Committee recommends that the government amend the Employment Insurance Act to exempt foreign agricultural workers and their employers from making contributions to employment insurance.
In view of the growing incidence of self-employment in the Canadian labour market, the Committee recommends that the government consider developing a framework for extending EI coverage, both in terms of regular and special benefits, to self-employed workers.
The Committee recommends that the government amend the Employment Insurance Regulations so as to not consider pension, severance and vacation income in the determination of earnings for benefit purposes.
The Committee recommends that the government amend subsection 5(3) (and if necessary, section 5(2)(i)) of the Employment Insurance Act with a view to remove the presumption of guilt if an employer and an employee are related.
The Committee recommends that the government ensure that every district office in the Department of Human Resources and Skills Development employ a claimant’s advocate.
The Committee recommends that the two-week waiting period be eliminated for those engaged in approved training.
The Committee recommends that the government study the possibility of extending sickness benefits by 35 weeks for those who suffer from a prolonged and serious illness.
The Committee recommends that the government study the possibility of extending compassionate care benefits for families whose children must receive medical attention outside of the locality in which they reside.