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HUMA Committee Report

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Government Response to the Second Report 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

Context

On February 15, 2005, the Standing Committee on Human Resources, Skills Development, Social Development and the Status of Persons with Disabilities (HUMA) tabled a report entitled “Restoring Financial Governance and Accessibility in the Employment Insurance Program” containing 28 recommendations related to the Employment Insurance (EI) program. The Standing Committee’s recommendations addressed issues in two main areas: EI financing and governance, and benefit enhancements. A comprehensive Government Response to the Standing Committee report was tabled in the House of Commons on May 13, 2005 that included a thorough discussion of the HUMA Report and its recommendations.

On May 30, 2006, the Standing Committee voted to re-adopt its February 2005 report without any changes. This Government Response will focus on the Government’s recent labour market and Employment Insurance program initiatives that are relevant to the Standing Committee’s recommendations.

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Labour market developments

Since the Standing Committee’s recommendations were first tabled in February 2005, Canada has continued to experience consistent and steady job growth. Employment grew by a further 1.4% (+223,000) in 2005, with nearly all employment gains occurring in full-time employment.

From January to June 2006, employment increased by more than double the growth experienced in the first half of 2005. In fact, Canada’s June 2006 unemployment rate reached a 32-year low of 6.1%. Furthermore, the proportion of long-term unemployed (people unemployed a year or more) has also continued to decrease — representing only 9.6% of all unemployed in 2005. This decline reduced Canada’s long-term unemployment proportion to the lowest level in the G7. According to Statistics Canada, Canada ranked first among ten countries [1] in employment growth from 1996-2004, and had the highest employment rate in 2004 for a second year in a row.

Canada’s strong labour market has also been reflected in the demand for EI income support in all regions of the country which has decreased along with the number of unemployed. Nevertheless, evidence in the Employment Insurance Commission’s 2005 EI Monitoring and Assessment Report continues to demonstrate that, overall, income support and employment assistance is there for Canadians who experience periods of temporary unemployment.

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Labour Market Priorities

The Government is committed to promoting a higher standard of living and long-term prosperity for all Canadians through improvements in productivity and international competitiveness. Addressing important labour market challenges such as growing skills and labour shortages, population aging and the changing nature of work and labour force participation is a central element to achieving this goal. The government supports Canadian workers and employers in addressing labour market challenges through investments in a number of areas, including:

  • encouraging apprenticeships and supporting employers and apprentices in their training to help address the serious shortages of tradespeople in Canada;
  • working towards assisting new Canadians by complementing provincial and territorial efforts to have foreign credentials of skilled immigrants recognized, so they may fully participate and utilize their skills in the labour market;
  • encouraging Canadians to pursue post-secondary education by fostering excellence and accessibility in our colleges and universities;
  • encouraging older workers to keep contributing their talent and experience to the economy; and
  • helping parents balance work and family life by supporting their child care choices through the Universal Child Care Benefit and moving towards designing a system to create additional child care spaces that meet the needs of Canadian families.

In this context, the EI program continues to play an important role in enabling Canadian workers to better adjust to labour market changes. Over the last year alone, the EI program has provided temporary income replacement to 1.86 million Canadians. As one of several federal and provincial programs supporting the needs of the Canadian labour force, the EI program helps to ensure an adaptable and qualified labour force through variations in unemployment that relate to the economic cycle.

In addition to continuing as the main income security program for workers, the EI program has built upon its role in insuring against job loss by providing important supports to help individuals balance work and family responsibilities. These supports include: benefits for workers who take time away from their jobs to care for a newborn or a newly adopted child; benefits for workers caring for a gravely-ill person; and support for workers that take time off work due to personal sickness.

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Standing Committee Recommendations on EI Financing and Governance

The Standing Committee recommendations concerning EI financing and governance addressed a range of issues, including the premium rate-setting process, the EI Account structure, as well as the role of the Chief Actuary and the Employment Insurance Commission. The Government recognizes the importance of these issues.

The 2005 budget established a new EI premium rate-setting mechanism, which addressed a number of important issues raised by the Standing Committee, including increased independence of the EI Commission in matters relating to rate-setting and increased transparency in the process.

Under the new legislation, the EI Commission is required to set a premium rate, taking into account the principle that the rate should generate just enough premium revenue to cover the expected payments to be made during the year for which it is set, the report of the Chief Actuary and any public input.

Acting according to its new legislative authority, on November 9, 2005 the Commission set the 2006 employee rate at $1.87, a reduction of eight cents from the previous year. The 2006 EI rate represented a 4.1 percent decline from the 2005 rate and the twelfth consecutive rate reduction since 1994, when the employee rate was $3.07.

Taking note of the Committee’s recommendations in this area, the Government intends to monitor the results of the new rate-setting process over the coming years, to determine its effectiveness.

With respect to the Standing Committee recommendations concerning the structure and management of the EI Account, the Government recognizes that since the May 2005 Government response to the Committee’s report, there have been further discussions concerning the potential fiscal and policy impacts of the Committee’s recommendations in this area, given that the EI Account is consolidated with the Accounts of Canada.

The Government may consider possible alternative approaches to the management of EI financing in the context of its future priorities.

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Standing Committee Recommendations on EI Benefit Enhancements

The Standing Committee report proposed a series of changes to EI program parameters that, taken together, would significantly expand the program and increase its cost, largely as a result of lower entrance requirements, longer benefit entitlements, and higher benefit rates.

Recent Actions

The Government is committed to providing opportunities for all Canadians to participate and succeed in Canada’s growing economy. The Government believes that progress and results can most effectively be achieved through a variety of mechanisms including, but not limited to, the Employment Insurance program. Some specific examples of recent actions that address issues of priority to the Standing Committee include:

Extended EI Benefits (EI Pilot Project No. 10)

In June 2006, the Government announced an Extended EI Benefits pilot project that increases EI income support by providing access to five additional weeks of benefits to EI claimants in high unemployment regions, up to a maximum of 45 weeks. The Extended EI Benefits pilot project will run until December 2007 in 21 EI economic regions. It will test whether providing additional weeks would help address the annual income gap faced by a group of EI claimants known as seasonal “gappers”; maintain current incentives to work; and, have any adverse labour market effects on other EI claimants.

Compassionate Care Benefit

On June 15, 2006, the Government announced regulatory changes to increase the number of people who can access the Compassionate Care Benefit, by expanding the list of eligible caregivers. As a result of the regulatory changes, those who provide care to a brother, sister, grandparent, grandchild, in-law, aunt, uncle, niece, nephew, foster parent, ward, guardian, or a gravely ill person who considers the claimant to be like a family member, are able to claim the benefit. The benefit remains available to those caring for a parent, child or spouse. This change allows all eligible working Canadians who take time away from work to care for a gravely ill family member to be eligible for the benefit.

Apprenticeship

In order to help address skills shortages, Budget 2006 included concrete measures to support the skilled trades. A new Apprenticeship Job Creation Tax Credit will encourage employers to hire new apprentices. Eligible employers will receive a tax credit equal to 10 per cent of the wages paid to qualifying apprentices in the first two years of their contract, to a maximum credit of $2000 per apprentice per year. In addition, an Apprenticeship Incentive Grant will assist new apprentices in the Red Seal trades with managing the high costs of apprenticeship. The Grant will provide $1,000 cash per year in the first two years of a Red Seal Trade apprenticeship program. Finally, a new $500 Tools Tax Deduction will help to offset the cost of tools for apprentices and trades people, whether they are employees or self-employed.

Foreign Credential Recognition

Further to the Budget 2006 commitment, the Minister of HRSDC is working to complement the efforts of the provinces and territories in recognizing the foreign credentials of skilled immigrants in order to ensure a greater pool of skilled labour for the Canadian labour market, increase labour mobility, and promote economic development within Canada.

Child-care

Budget 2006 set out the two main elements of Canada’s Universal Child Care Plan:

  • The Universal Child Care Benefit took effect on July 1, 2006 and provides all families with $100 per month for each child under six, taxable in the hands of the lower income spouse. The benefit puts choice for child care in the hands of parents and allows them to choose the kind of care that best suits their family’s needs.
  • Beginning in 2007-08, $250M has been set aside to support the creation of child care spaces. The Government will continue to consult with provincial governments, business, community organizations and others to ensure the assistance is effective in creating additional child care spaces, responsive to the needs of parents and administered in an efficient and accountable manner.
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Moving forward based on sound evidence

The Government is also committed to ensuring that its programs evolve to respond to the realities of the Canadian labour market. In this regard, it is important that program changes, including those to the EI program, be founded on sound analysis of the evidence and that careful consideration be given to labour market impacts and the costs of individual measures.

To make informed decisions on any potential EI changes, the Government will draw upon extensive monitoring, assessment, and evaluation of the program. Evidence in the Employment Insurance Commission’s 2005 EI Monitoring and Assessment Report, tabled in Parliament on April 28, 2006, indicates that overall the program continues to meet the needs of employees and employers and that access to Employment Insurance benefits remains very high among those persons for whom the program is designed. In 2005, over 80% of the unemployed who were in insurable employment and had lost their job through no fault of their own were eligible to receive benefits.

In addition, EI pilot projects are provided for under Section 109 of the EI Act, and allow the Government to assess the labour market impacts of new approaches before permanent changes to the program are considered.

EI Pilot Projects

The Government will complete three existing EI pilot projects in regions of high unemployment addressing Standing Committee priorities, which entail increased EI expenditures of approximately $300 million annually. The impact of each pilot project will be carefully evaluated.

  • Calculating Benefit Rates based on a Claimant’s 14 Highest Weeks of Insurable Earnings (Pilot Project No. 7)

    The “Best 14 Weeks” pilot project is testing whether calculating EI benefits based on a claimant’s 14 weeks of highest earnings during the 52 weeks preceding a claim for benefits, or since the beginning of the last claim, provides an incentive for individuals to accept all available work, including work that would have previously lowered their benefits. It is also meant to test whether employers facing labour shortages would be better able to find the labour they need.

  • Increasing Allowable Earnings from Employment While Claimant is Receiving Benefits (Pilot Project No. 8)

    The “Working While on Claim” pilot project examines whether increasing the amount of allowable earnings from employment during an employment insurance claim would encourage more individuals to accept employment while on claim, by allowing claimants to earn from employment the greater of $75 or 40% of their weekly benefits (current limits are $50 or 25%). This measure is designed to encourage individuals receiving EI benefits to accept part-time work, by not reducing their EI benefits as much, in order to strengthen their attachment to the work force.

  • Providing Increased Access to Employment and Unemployment Benefits for New Entrants and Re-entrants (Pilot Project No. 9)

    The “New Entrant /Re-Entrant” pilot project tests the labour market 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 with employment programs.

Older Workers

As committed in Budget 2006, the Government will be undertaking a feasibility study to evaluate current and potential measures to address the challenges faced by unemployed older workers, including the need for improved training and enhanced income support, such as early retirement benefits. In the meantime, work to address the challenges of unemployed older workers in the short-term is in progress.

EI Sickness Benefits

The EI Commission’s Monitoring and Assessment Report, which tracks the use of EI sickness benefits indicates that, in general, the current 15 weeks of benefits is adequate for the majority of work absences for illness, injury, or quarantine. On average, claimants of sickness benefits collect 9.5 weeks of benefits, or 63% of the maximum entitlement. A recent Statistics Canada study confirms that, since 1993, the average duration of work absences due to illness or disability has remained at 10 weeks.

Although the EI Monitoring and Assessment Report indicates that, each year, a certain proportion of the claimants for EI sickness benefits use all of the 15 weeks available, the duration of sickness and the needs of these claimants are not well understood. At this point, it is not clear as to whether EI is the appropriate mechanism for responding to these longer-term absences from the labour market. Currently, EI sickness benefits are specifically designed as a short-term income replacement measure for temporary work absences. EI sickness benefits are intended to complement a range of other supports that are available for longer-term illness and disability, including benefits offered through employer-sponsored group insurance plans, private coverage held by individuals and long-term disability benefits available under the Canada Pension Plan. Any changes to EI sickness benefits would have important impacts and careful consideration and extensive analysis would be needed to determine the potential effects on other supports and the implications for the employer-employee relationship.

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Conclusion

The Government intends to continue to monitor and assess the EI program to ensure the effectiveness of its various benefits and to identify opportunities to ensure it responds to the realities of today’s labour market. With respect to benefit enhancements, the Government will place priority on evidence-based assessments of the current pilot projects and on assessing areas where regular and special benefits could be improved, before contemplating broader expansions on the basic parameters of the program.

[1]
Canada, Netherlands, Australia, France, Italy, United States, United Kingdom, Sweden, Germany and Japan.