Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology

Issue 6 - Evidence - Afternoon


OTTAWA, Thursday, June 6, 1996

The Standing Senate Committee on Social Affairs, Science and Technology, to which was referred Bill C-12, respecting employment insurance in Canada, met this day at 2:30 p.m. to give consideration to the bill.

Senator Mabel M. DeWare (Chair) in the Chair.

[English]

The Chair: With us today from the Canadian Federation of Students is Brad Lavigne, as well as two of his colleagues.

Mr. Brad Lavigne, Chair, Canadian Federation of Students: I will not be reading the brief. It has been provided to give you background information. I will summarizing only, and then we can get right to questions.

The Chair: Please proceed.

Mr. Lavigne: I should like to briefly explain the organization that we are representing here today.

The Canadian Federation of Students is the national student organization here in Canada. It represents over 350,000 students from Victoria, British Columbia to St. John's, Newfoundland and towns and communities in between.

We advocate the creation of a high quality post-secondary education which is accessible to all. As well, we defend the rights of students in a number of ways, one of which is when they are in the workforce, as well as outside of work. We are here today to make a presentation and, hopefully, to offer some considerations for the social affairs committee.

I should like to start by thanking the members of the committee for inviting us to make our presentation today. I will briefly highlight some of the points contained within our written brief. I will then review the recommendations, followed by which we can proceed to questions and answers.

We have three recommendations today to help in your deliberations over Bill C-12. We make these recommendations within the context of believing that the legislation has not given top priority to two categories: the current labour market for youth and the earnings of youth.

There is no doubt that the labour market has become a national obsession, and there is widespread consensus that the labour market is undergoing significant transformation. No one disputes the obvious; namely, that there are not enough jobs, while at the same time positions are not being filled because of a lack of qualified people. Adding to the severity of these problems is the emergence of disturbing new trends, such as the rise of part-time work and short-term contracts. A lot of work remains to be done to fully comprehend these issues, but some work has already been done on that. This is what we should like to share with the committee today.

In a recent study published by the Industrial Relations Centre at Queen's University, authors have described Canada as a country characterized by low job tenure. As well, Canada is one of the only OECD countries where employment is the least stable. While the average duration for a new job has not changed significantly between 1981 and 1984, there is a substantial shift from jobs which have lasted one and five years and jobs which have lasted less than one year. Not surprisingly, Canadians now suffer from a high level of anxiety when it comes to job security. Nowhere is that more prevalent than among youth today.

When I am referring to youth, I am using the StatsCanada definition, which is those between the ages of 18 and 24.

I will now highlight five points and follow that up with our recommendations.

When called upon to explain the trends of part-time work, high youth unemployment and short-term contracts, we can cite a number of reasons. One is successive recessions and structural changes in the economy. Also, most employers have adopted a low commitment approach to human resources management as their dominant competitive strategy. Young people are often among the first casualties of this new process - at least that is what the studies have suggested to us. You will find the details in the document that we distributed to you.

For the purposes of this presentation, I should now like to highlight four findings.

Whichever way we look at it, getting a job is hard; getting a good job that lasts is even more difficult. The numbers are clear on this. Young people are discouraged and many of them have opted out of the labour market altogether. For instance, one statistic that is relevant in our discussions this afternoon is that between November 1989 and November 1993, the percentage of youth who have never held a job has increased significantly from 10 per cent to 16 per cent.

Historically, the unemployment rate for young people has been higher than the national unemployment rate, but up until the last recession, the gap was narrowing. That has changed again. Today, the unemployment rate among young people is six percentage points higher than unemployment rates across the board.

Part-time work is also rising among youth. What is even more important is the fact that the proportion of youths who would rather work full time who are currently working part time has increased dramatically. Underemployment is looming and it is a very large problem.

The perception that young workers are often stuck in dead-end jobs is accurate. Compared to older workers, young Canadians have lost ground over the last 10 years. They work fewer hours and are not paid adequately. Education does not provide the protection that one would expect. It still helps to get a job, but not necessarily a good one; nor is it an insurance policy that that job will be of long duration. Given this context, it will come as no surprise that the federation believes that unemployed and underemployed young workers need more protection, not less.

I will examine certain provisions in Bill C-12 which strike us as particularly unfair to the youth of Canada.

Our first point relates is under the category of usage penalty.

The proposed changes under Bill C-12 will penalize anyone who has, in the last five years, received unemployment benefits. From the statistics which are included in our document, 80 per cent of all new employees will be requiring unemployment insurance benefits to bridge the time between jobs.

The federation proposes that people who have left the work force to resume their studies in a recognized post-secondary education institution, who once held the status of regular claimant, not be reclassified as a re-entrant or a new entrant.

Our second point is that the federation opposes the inclusion of weeks in which zero hours were worked in the calculation of weekly earnings. This is fundamental. The federation proposes that the calculation of weekly benefits be different for students, and there is a reason behind this. We are also recommending that the zero hours worked in a week not be included in the calculation.

This exemption is necessary, we believe, because students need time to do their studies, and in most post-secondary institutions, two weeks' time is needed in both the fall and winter semesters for exams. We believe that students should be exempt, not because we are here as students and would like something different than the rest of Canadians, but because there is something structural happening currently that prohibits us from working the necessary hours in each week. By design, as students, we are going to have to take off work in order to do our exams.

Our next recommendation is with regards to the new entrants penalty. The new entrants will be required to work a total of 910 hours, as compared to 420 to 700 hours under the old system. Students, young and old, as well as people returning to the work force are going to be penalized by the mere fact they are starting or restarting their paid working life.

The federation opposes the differentiation between regular claimant and new claimant and the requirement that new claimants will have to work 910 hours as opposed to the 420 to 700 to be eligible to receive benefits. What this bill has basically done is put unemployment insurance benefits out of the reach of students by increasing the hours that are required to be worked.

The last recommendation is with respect to the collection of the employment insurance premiums from students. I am going to offer the committee a quick case study which shows the structural problem that currently exists. A slight alteration to the bill can provide more fairness of this legislation for students and young people.

If this legislation is passed as proposed, a graduating student in any province who works part time during the school year and who takes four weeks off to write exams, and who then works full time during the summer and receives minimum wage, which the bulk of our membership do receive, will only have worked 880 hours and will earn roughly $6,160. Even though that student is working as much possible, he or she would still be 30 hours short of the minimum hours required and $4,160 over the minimum in earnings for the EI premium rebate. From this meagre living wage, the student will have to pay $181.72 in unemployment insurance premiums, but will still not be eligible to collect should they not be hired full time after the summer months.

While $181 might not seem a lot to many Canadians, for students, under the current climate, with rising tuition fees and low minimum wages, which most of our membership receive, that can mean being able to eat for a couple of weeks, or being able to purchase textbooks for their programs, or it could mean a number of different things. Honourable senators can take it from the Canadian Federation of Students: $200 in an annual budget of a student, a very tight budget, is a significant amount of money.

In summary, the government's main complaint against the unemployment insurance program is that it creates a disincentive to work. However, the proposed changes will result in fewer people qualifying for benefits, with the duration and amount of the benefits being severely reduced. Furthermore, they will at best only force more people to accept lower- and minimum-wage jobs and likely force people onto welfare and into poverty. The changes reduce income support for Canadians who have had not only their jobs taken away, but also their opportunity to adjust to the changing labour market.

If the government is truly looking for a solution to high unemployment, it should focus on living up to its promise of job creation. What is needed is an active employment program funded by all Canadians through the taxation system.

Those are the three recommendations. If the Senate committee has any questions regarding these recommendations, or anything that we brought up in the brief, we would be happy to take them at this time.

[Translation]

Senator Losier-Cool: Madam Chair, my question is very technical. How many members approximately does the Canadian Federation of Students have? Do you have representation from each province? Do you have representation from French universities? Are your French-speaking members aware that you are presenting us with an English only brief?

Mr. Jocelyn Charron, Coordinator of Governmental Relations: The federation, at the present time, has members in eight or nine of the ten provinces, including Quebec. The number of French-speaking members is not very high since university and college students in Quebec are mainly represented by provincial associations.

As for the fact that our brief is written only in English, our practice is that the first draft of our document, the one we will not be sending out to members, is usually written in English. This draft - we just finished it - then goes to translation. As soon as the translation is ready, we send the English and French versions to our members. This is usually how things are done.

The federation, for an organization of its size, spends a lot of money on bilingualism, for simultaneous interpretation and translation. We are sorry if our document is not in French, but usually we do things well in this regard.

Senator Losier-Cool: Is the University of Moncton part of your federation?

Mr. Charron: Regrettably not. They used to be part of it, but they left us two or three years ago, I believe.

[English]

Senator Rompkey: I want to welcome our witnesses. I understand they speak for most Canadian students in universities. I remember when the organization was NFCUS, the National Federation of Canadian University Students. I am dating myself. I happened to be student president at Memorial in 1957. The organization has changed since then, but it is still a very valid organization.

I am curious about three things. You say that if you are in an institution, you should not be excluded from re-entering and claiming, that that should not prejudice your claim at all, and that we should recognize the fact that you have only so much work time available to you during the year.

I was curious about the zero hours because that was an amendment we were working on when I was in the House of Commons. The Atlantic caucus worked on it particularly because we have a lot of seasonal workers in the Atlantic. They work for a while and they are off for a while. We worked very hard to put that amendment forward; the minister was responsive, and we got it in there. I know the Atlantic people feel strongly about it and I would be very loath to change that. I do not know how we get around it, but I would like you to comment on that because there are conflicting claims there, I think, on the zero hours.

As to the new entry penalty, you say there should be no difference. I have to remind you that the 910 hours can be over a two-year period. You do not have to make the 910 in one year. You can do it over a two-year period; in a sense, it is almost the same as re-entry.

The thing that impresses me more is the premiums, the fact that you are penalized about $180, even if you work the maximum number of hours in the school session. I should tell you that two of my children just finished university. One graduated two years ago and the other one about four years ago. You are right, the budget is pretty tight and $200 makes a lot of difference.

I do not know what can be done about that. However, I take the point that if a student works the maximum amount possible, he or she will be over the threshold of 15 hours, but still do not have enough either to qualify or to have premiums refunded. Therefore, one is a catch-22 situation. I do not know what the answer to that is. It is a problem that we have to take seriously.

The last thing I wanted to mention is the first-hour insurance. We will hear later on this afternoon from the restaurant association. I want to have your views on the first hour of insurance. The claim is that this will make it quite difficult. There will be a cost involved in terms of more premiums to the employer. It will make a difference to the student as well.

I would like your position on the first hour of employment. I have been convinced that, overall, movement to an hourly basis is a good thing. We have had testimony from certain groups that it is a good thing, too. Even those people who have difficulty with the legislation say that the movement to an hourly basis is a good idea.

I would like your position on that from the point of view of students.

Mr. Lavigne: You have raised a number of issues, senator. You mentioned the issue of zero hours and calculating those zero hours into any past work experience. We could be creative. I do not know if we have to be so creative as to allow for some type of exemption within the form. Obviously, the employment insurance bureaucracy that administers the program could exempt students who have to take exams, if they have had a week or two weeks within a semester. They could merely check a box stating, "I was in exams. I am a full-time student. I work part time." We could assess from that point, then, as opposed to what you mentioned in regard to other or seasonal workers.

By nature, we will definitely have to take off roughly two weeks out of every semester to do that. How do we calculate that? We do not want to make it so complicated that the committee says, "This is too difficult to tackle". Would it be such a stretch for students to check off a box or to fill out an extra claim in which they state, "I was a full-time student. I had two weeks of exams. That is why I have zero hours in my calculation"?

That is just one suggestion.

Ms Denise Doherty-Delorme, Researcher, Canadian Federation of Students: The reason that was given for having a different amount for new entrants compared with other claimants was to discourage them from getting into the cycle of being on UI - living off that for a while and then taking a part-time job, after which they would repeat the cycle. There is a perception that students and young people are either beach bunnies or ski bunnies who work seasonally and then live off the government for a while.

If you look at the wage for part-time work, after the weekly benefits are calculated, you will see that it is not a living wage. Students, young people, after having reached a certain age, are trying to get into the workforce. Most people define themselves by their jobs. We find it discriminatory that there should be a differentiation between people who are under a certain age and people who have been out of the workforce for reasons of going back to school and trying to better themselves. For some people, this 910 figure is quite insurmountable.

Senator Rompkey: You have to make 490 in one year.

Ms Doherty-Delorme: The scenario we gave is one of a student who, at the end of their studies, has run out of money. Instead of concentrating full time on their studies, they have taken part-time employment during their last semesters at school. In the summer, they get a job which they hope will become a full-time job. At the end of the summer, though, through no fault of their own, their job is taken away from them. They will not have enough hours to qualify for employment insurance. However, they have also paid all those premiums. They have put away money in case they do not receive a full-time job.

We know that this is a single person scenario. However, we are looking out for the people who will be disadvantaged by the changes, which is why we are trying to point out the differentiation between the two.

Senator Rompkey: Can you put a percentage on that?

Ms Doherty-Delorme: In terms of number of students, no. There is a lack of statistics by Statistics Canada, or anyone else, concerning the student labour market and the ability of students to get a decent job after they graduate.

Senator Rompkey: I wanted you to comment on the first-hour insurance aspect of this measure.

Ms Doherty-Delorme: We agree that first-hour insurance is a good idea. Some students work several part-time jobs while attending school. Historically, they could not qualify for unemployment insurance. Some students will benefit from this. We see it as a good measure, with the exception of the gap between the $2,000 earned and getting the premiums rebated.

Senator Rompkey: We are looking at people who fall between the stools and we do not know what percentage that is.

Ms Doherty-Delorme: That is right. Of the population we represent, it would be a large percentage.

The Chair: If you were a student who worked all summer and then went back to school, you could not collect UI. Now, with the first dollar of insurance, you will be able to get on the UI roll, so to speak.

Ms Doherty-Delorme: That is right.

The Chair: As a student going back to school, you could not collect. The number of hours would build up and then the next summer, if you worked again, you could build up that number some more. You would then go back to school. You would not be considered a new entry by the third year when you came out of the system. Therefore, it would benefit you. You would not be a new entry; you would not need 910 hours. You have already that number of hours built up. Is that correct?

Ms Doherty-Delorme: That is correct. However, that would be a best-case scenario.

The Chair: If you went into school and had worked before, there is a three-year window in which they would not make you earn 910 hours, if you had worked some time in the three years prior. You have to have a lapse of three to five years before that new entry would kick in again.

Ms Doherty-Delorme: That is right.

The Chair: It does kick in at first.

Ms Doherty-Delorme: That would apply to students who are leaving a full-time job and returning to the school system.

Senator Phillips: My first question refers to your recommendation that the calculation of weekly benefits be different for students only.

I am not opposed to calculations being unique for students, but I would point out to you that if you look at the entire picture, there will be other classifications affected the same way. For instance, if a waitress is the mother of two or three children and one of them is sick, she must stay at home to look after that child. She has lost time. The same thing would apply to a worker in a fish plant with a limited number of hours available. If that mother has to stay home, she is adversely affected.

I think we should be looking at the way the hours are calculated rather than looking at them for a specific group. Would you agree with me that as a committee we should be looking at other groups in the same aspect?

Mr. Lavigne: Yes, I would agree with you. That is exactly our point. We are saying that for our sector, the student sector - and perhaps the restaurateurs, who are the next group, will also advocate for the server or the waitress that you mention. The point is that there must be some exemptions because institutionally, within our economy and for our people, we will be disadvantaged.

We are not saying that it should apply only to students, but if we are to allow exemptions or different mechanisms for calculations, students should be among that list. Let us create that list and take in all the parties. We are not opposed to other people being included.

Senator Phillips: My second question deals with page 10 of your brief, where you say:

The Federation opposes the use of Employment Insurance funds in any capacity other than EI benefits.

I have listened to one or two members of this committee tell us that the fact that funds can be made available for training is a tremendous advantage of this bill. I take it that you do not see the benefit that some senators see in the use of EI funds for - I like this terminology - permanent jobs from transitional funds.

I presume you that are opposed to both of those. Is that correct?

Mr. Charron: That would be accurate. There are several reasons for that.

The first is that the principle of social instruments in general should be that you have the contributors and then you have the benefits.

Training and the need for training is another issue. The funds that are put into unemployment insurance should not be used for training, which of course does not say anything about the kind of training and the necessity for training. We should not confuse the two issues.

The same debate is taking place with the Canadian Pension Plan, to a point. The fact is that it is a pay-as-you-go plan, and people put in money. The only difference is that there is not this age difference. With respect to UI, the contributors to the fund are also those who can benefit from the fund; CPP is a bit different. Broadly, those are the principles of social instruments, and I think they should remain.

The training question is a bit different. Once again, training is necessary, However, it must be said, and it is mentioned in our brief, that the private sector in Canada does a very poor job of training people, and it shirks its responsibilities in doing so. Why the government should invest massively to remedy that is, to me, an open question for debate, especially given the fact that we could debate the way that the tax system works at the corporate level.

Senator Phillips: I think you have left out a point here which concerns me. I mention this because I have two daughters who teach high school, and they often see students who drop out either for family reasons or because they just do not know what they want to do. They end up pumping gas or working at McDonald's or something and get along very well for a year or two. Then they say, "Well, I have found something I am interested in." These people are completely omitted from this bill and would not be eligible for training because they are presently working.

You make a good point when you say that the funds contributed for EI should be for that specific purpose. I agree very much with you on that.

Senator Bosa: Do you think there are advantages in moving to an hours-based entrance requirement? For instance, previously, an employer could plan a job that would be below the necessary entrance requirement. I note that there are also drawbacks in that under this system, you may have to work longer hours which may take more weeks to qualify. Is this an advantage, in your opinion, under this proposed program? How would you characterize these aspects of the proposed program?

Mr. Lavigne: The hourly calculation, in our opinion, protects, as you have already mentioned, part-time employees, and the bulk of our membership will be working part time.

Is it better to calculate on the basis of hours as opposed to weeks? In our opinion, it is. However, there are other things that we would want to look at. If you ask for a philosophical discussion on hours versus weeks, we would agree with hours.

Senator Bosa: You pointed out a flaw when you responded to questions put by Senator Rompkey about the rebate of the $181. Are you aware that under this program, for instance, some 500,000 Canadians would qualify who were excluded under the previous one and that three-quarters of them will have their premiums refunded, whereas before they did not?

Mr. Lavigne: I believe our presence here is to outline what is still required to ensure that the legislation is fair for all Canadians. Other groups can comment on other aspects with regard to qualifications and such. I see our job and that of the other witnesses as pointing out some structural flaws in the bill as they relate to us.

That is fixable without a massive change to the document. That drastically unfair window really does exist; that is, we will be putting into the system yet will be ineligible to take from it. I think we can change things now before it is too late.

Senator Bosa: There must be an awful lot of students who earn less than $2,000 annually who will have their premiums refunded under this program.

Mr. Lavigne: Yes. We are not debating that point. We are raising issues where we still see a need to tighten the nuts and bolts.

Senator Cohen: We are all in agreement here that you do have some concerns. We want to make the bill better. We want to include students. The focus of the government this year has been on how to help students to make it better for them and to create more opportunities.

Several of my questions were asked by others. I did want to draw your attention to page 16, under the heading "Impact on Students as Post-Secondary Education Workers", where it says:

...any scholarships which specify that monies are allocated for work performed, will have EI premiums deducted.

Could you elaborate on that? That just does not sit right with me.

Ms Doherty-Delorme: Presently, if you receive a scholarship, it is considered income, but not earned income.

Senator Cohen: Right.

Ms Doherty-Delorme: No deductions are taken off; you are not eligible for employment insurance. Some of the scholarships, as are set out, give a certain amount for an award and some are divided between an award and a portion for hours worked. Now, that hours-worked portion of the scholarship, as we understand it, will have premiums deducted from it.

Senator Cohen: I thought that is what it said. I have a real concern about that, too. I do not think that is fair. In view of how important education is today, in this global economy where you must be at the cutting edge of everything, if students win scholarships, there should be no tax on those scholarships.

I would recommend that the committee consider that when they sit down for deliberation.

Senator Rompkey: My understanding is that the discussion of the insurance on scholarships is still under discussion. The jury is still out. People are burning the midnight oil on that one.

I wanted to ask you about training. You said that funds for training should not come from a pure insurance plan but should come from other funds. Would you be agreeable to an increase in taxes in order to provide training funds out of the Consolidated Revenue Fund?

Mr. Lavigne: We would love to get into a discussion of the tax system. We are prepared to discuss that.

Senator Rompkey: The point is, can we have our cake and eat it too? We are trying to find a pot of money. Somewhere around this land called Parliament Hill, we find a pot of money. We can take some of that and put it towards training. In the meantime, as you know, funds are being cut to reduce the deficit. So less money is going to the provinces.

Of course, that would happen no matter which party were in power. Both parties, in that sense, have followed the same course of action with regard to education. These cuts did not start yesterday. They started some time ago.

If we see that amount of funding being continually reduced from the Consolidated Revenue Fund, and we know the reality there, is it not a little airy-fairy to demand that the funds come from somewhere other than the employment insurance fund? That does not seem to be a reasonable course of action.

Mr. Lavigne: I do not think it is airy-fairy. We recognize that these taxation decisions and the monetary and fiscal policies of the government of the day are based on political choices. It is a political choice to allow for deferred taxes of profitable corporations. It is a political choice to reduce the number of tax brackets, therefore making it less progressive. It is a political choice to implement increased sales tax, for example.

These are all political choices made by politicians here and next door. The question is: Where will the training funds come from? We have ample suggestions for the Minister of Revenue or the subcommittee on revenue. If you are asking within this legislation, yes, I could come up with answers. We have calculated that approximately $40 billion is outstanding in deferred corporate taxes owed to the people of Canada, while we protest against cuts to the Canada health and social transfer.

These are political choices. Those political choices are based on whom you hear and on whom you choose to represent.

This is not airy-fairy at all. We say that this government is making the wrong choice.

Senator Rompkey: You also said that business was not doing training. As I heard you, you said government should not do it either. You said that business was not doing a very good job at training and that government should not take up the slack, even though we know that training is key to productivity. Certain jurisdictions, like New Brunswick, for example, are giving it very high priority with great success.

Mr. Charron: Of course, training as a whole is a very complex issue. If we look at training, we must ask ourselves where it is most effectively done. Several studies will strongly suggest that it is most effectively done within the firms themselves, within corporations.

If we are to enter into a debate about training, we should look at how to do it most effectively. I would suggest that if the corporations are not doing it, we can create incentives for them to do it. If that is not enough, we can find ways to extract money in order for the government to do it even though we know it is less effective. That is the way we should look at training.

If we know that there are some effective forms of training done by government, then, surely, given the rewards, that is the case that we can present to Canadians in terms of taxes. Canadians are concerned about the way their taxes are spent. If you can make a good case for the way their taxes will be spent, if you can prove that the programs will be efficient and successful, then we will have a good political case to present. That is the way we see it.

The Chair: Thank you for coming here today.

We now call on our next witness, the Canadian Restaurant and Food Services Association.

Please proceed.

Mr. John Rothschild, President and CEO, Prime Restaurant Group, Canadian Restaurant and Food Services Association: The Canadian Restaurant and Food Services Association appreciates the opportunity to present our views of the nation's restaurant and food service industry on Bill C-12.

I am a director of the CRFA, Canada's largest hospitality association, with more than 12,000 members across the country. I am also President and Chief Executive Officer of Prime Restaurant Group, a company that has approximately 85 restaurants in Canada, principally in Ontario, Quebec and the maritimes. Our company employs approximately 8,000 people, of which approximately 25 per cent, or 2,000, are part-time employees.

The employment insurance program is very important to restaurant operators because of the employment-intensive nature of the food service industry. Labour accounts for close to 30 per cent of a restaurant's operating expenses, so any payroll tax increase has a significant impact on costs.

The CRFA initially supported the government's reform of this unemployment insurance system because there appeared to be a recognition of this growing burden of payroll taxes and their impact on the ability of labour-intensive business to retain and create jobs. However, we feel that the government has lost sight of this objective. Rather than reducing premiums, this bill increases UI costs for the food service industry by 17 per cent.

We still support many of the reform principles contained in the legislation. Proposals which tighten entry requirements and which encourage individuals to take more responsibility for themselves are necessary and should result in less expensive and more substantial programs. However, we are extremely concerned about one particular change which will jeopardize thousands of industry jobs. I would like to focus my remarks on the first-dollar coverage and the devastating impact this change will have on part-time employees, particularly students attempting to save for their education or put themselves through school. Before I do, I would like to tell you about the industry.

Canada's food service industry is a $29 billion business and one of the largest sectors in the Canadian economy. It represents, 3.7 per cent of GDP, and with over 670,000 Canadians on its payroll, it is one of Canada's largest private-sector employers.

For the last 25 years, our industry has grown dramatically, until this decade. Since 1991, we have seen stagnant growth and a dramatic decline in our market share. Our share of "stomach", as we call it, has declined from a high of 42 per cent every year in the 1990s to its present rate of 36 per cent. Bankruptcies were the highest ever recorded in 1995.

In 1991, we had lay-offs of 46,000 Canadians, or the equivalent of the entire workforce of General Motors Canada. Much of this was because of the GST. Our market-share decline is as a result of continued inequities hard-wired into this tax. It is also an industry with slim profit margins and high labour costs. Thirty cents of every dollar that comes in the door goes into my employees' pockets. There is no other industry where this happens.

Let me begin to explain why this bill will kill industry jobs. I mentioned that a third of the revenue taken in by operators in this business goes directly to employees. Only 5 per cent is netted before taxes. Most of a restaurant's operating costs are fixed. Passing costs onto consumers is not an option in today's tough, competitive market. Our industry has already lost 5 per cent of its share of the food dollar to grocery stores since 1991, and this leaves operators with no choice but to cut hours and staff. Our research indicates that profits before taxes in this industry will average 5 per cent. This may seem like an adequate return until you consider that the average restaurant's sales are $360,000. This means an $18,000 return before taxes.

In my operations, as I mentioned, we employ approximately 2,000 part-timers. Most of these students work less than 15 hours per week. They choose to do so because their priorities are families and school. As employers, we take seriously our responsibility to ensure that the academic interests of our student part-timers are not compromised by their workload. We take tremendous pride in offering student employees a flexible work schedule that allows them to concentrate on their first priority - their education. We operate in a very tough marketplace where an escalating level of competition is now resulting in negative sales in my business. First-dollar coverage will strike a serious blow to my business.

Our preference would have been for the government to abandon proposals to convert to a first-dollar coverage system. There are valid and defensible reasons for a maximum, weekly insurable earnings system. Employees are working under 15 hours a week in our sector, primarily students whose attachment to the labour force is limited. Their part-time job is not their first priority, nor should it be. Research shows that students who work a moderate number of part-time hours while attending school do better in terms of their grades than those who do not work or work over 20 hours a week.

School dropout rates increase when students work an excessive number of hours. Educators support industry efforts to limit student part-time hours so that there is a balance between their school, social, family and work activities. In fact, some educators would say that we do not do enough to limit our hours and we could be providing more students with an opportunity to acquire workplace experience.

We originally accepted the rationale that converting to an hours-based system would mean less administration for both government and business. However, modifications to the legislation introduced by the HRD standing committee will undo the only legitimate reason for converting to an hours-based system in the first place. We do not accept the rationale that first-dollar coverage will take away the incentive to hire part-time employees.

Employers in our industry do not schedule according to the EI program but according to the ebbs and flows of consumer demand and business volume. Peak periods occur over meal periods, and the busiest meal periods vary from restaurant to restaurant and by hours of the day, days of the week, and by weekday, weekends, local events, weather, holidays, et cetera.

Employers also schedule according to the needs of their part-time employees who wish to maximize their earnings in a minimum number of hours. You need to understand that flexibility in scheduling is one of the major attractions of part-time jobs in our industry.

Amendments to the legislation dealing with situations where there is a gap in employment for purposes of earnings calculations for benefits have major implications for the food service industry. The pattern of work of part-time employees is uneven because this is what employees desire. They have the ability to decline shifts when their school work gets too heavy. They often ask not to be scheduled during exam periods or because of other school or family obligations or circumstances. Tracking every gap in employment would be very costly and time-consuming for operators. In addition to totally negating any efficiencies that would be derived from first-dollar coverage, it would limit an operator's ability to provide the flexibility their employees require.

We see the proposals for a $2,000 earnings threshold and a small business rebate as acknowledgements of the cost impacts and unfairness of first-dollar coverage. Unfortunately, neither option will provide more than marginal relief for food service employees or full-time students. According to the most recent figures from departmental officials based on tax records, the $2,000 rebate will apply to only 34 per cent of full-time students working in Canada. Employers will not be eligible for the rebate.

The small business rebate is completely inadequate. First, it is only a temporary measure; and, secondly, it applies to selected companies. In two years' time, all Canadian businesses will be hit with the full cost impact of the change.

If the government is determined to proceed with first-dollar coverage, there is a way to mitigate the financial burden, save student jobs, and advance employment opportunities for youth by introducing a student premium exemption.

The Canadian Restaurants and Food Services Association worked with departmental officials to pare down the cost of this option. From the department's estimates of $1 billion, CFRA has been able to develop a proposal that would cost less than $200 million. This involves a $5,000 earnings exemption targeted at students. It would work the same as the basic exemption under CPP, but would only apply to full-time students and their employers. According to departmental figures, 76 per cent of full-time students earn less than $5,000 per year, compared to 34 per cent who earn under $2,000.

Student UI eligibility would begin the first hour after the student's earnings reached $5,000. The student exemption would complement the national priority of facilitating the creation of jobs for youth. It would reinforce the stay-in-school message and it would allow students to save for and contribute to their education at a time when governments are pulling back their support. The workplace experience students would accumulate while going to school would greatly enhance their opportunities for full-time employment upon graduation.

This bill will have the hardest impact on small entrepreneurs that offer the best job-creation potential and youth trying to acquire an education and a future. We ask the members of this Senate standing committee not to ignore the cost and job impacts of first-dollar coverage when so many jobs are at stake.

We do not believe it is the intention of this government to discourage youth employment. That is why we wanted to appear here today. We are here with the objective of proposing solutions which will help improve the bill and make it a job creator, not a job killer. For the future of our industry and the thousands of young people we employ, we urge to you recommend the introduction of a student exemption as an amendment to this bill. Thank you very much.

Senator Rompkey: I wish to thank the industry for coming here today. We have heard from them before. We heard from the students earlier. They think that first-hour coverage is a good thing for them in principle. We have now heard from the restaurant industry, which has given us the difficulties that it creates for them. I understand the dilemma, but how do we get around it?

With regard to the student exemption, first, how do we ensure that it does not displace other people such as single mothers? Is there some way of ensuring that?

The other question I had about the student exemption is: What is a student? How do you define a student? How do you prove you are a student? I am a senior citizen. I have reached 60. You do not have to clap or anything like that; I am just laying that out. It is a fact of life. All I have to prove is my age, which is easy. But how do I prove I am going to school? Am I going to a public school, a private school, a private college, or am I training in industry? Is an apprentice at General Motors a student? What is a student? How do you define a student? How do you prove you are a student? That is a difficulty I have, apart from the fact that the exemption may displace others, such as single mothers.

Ms Joyce Reynolds, Director of Human Resources, Canadian Restaurant and Food Services Association: We have a precedent in Saskatchewan in terms of the student exemption with regards to prorated benefits for part-time employees. In that province, students are exempted. "Student" is defined as "any student carrying a 60 per cent course load or higher". We have reviewed the education acts in most of the provinces. We do not think it would be too difficult to find a standard definition for a full-time student. It might be required that the student get an acknowledgement from their institution indicating that they are a student, which they would provide to their employer.

In terms of your first question regarding why employers would not hire students if there was a student exemption, the simple answer is: We have so many different meal periods and shifts that cannot be covered off by students when students are not available.

Senator Rompkey: With regard to the $2,000 threshold, today approximately 440,000 workers pay UI premiums but do not qualify for any benefits. Under employment insurance that number falls to 300,000. It seems to me that that is a step forward. I should like you to comment on that.

Ms Reynolds: It is interesting when you compare our presentation to the one which preceded ours. I think that we have essentially identified a similar problem; we have just come up with a different way to solve it.

There is a very strong link between payroll taxes and jobs. That is our key issue.

Senator Rompkey: Does the recent reduction in premiums help?

Ms Reynolds: We estimate that premiums would have to be reduced by 54 cents in order to mitigate the cost of first-dollar coverage to our sector. A 5-cent decrease in premiums is not all that helpful in terms of first-dollar coverage.

The last presenter stated that there are a high number of employees who are now in their mid-20's that have never held a single job. Our industry has traditionally provided first-dollar experience for one-third of the population. As Mr. Rothschild outlined, we have lost 46,000 jobs and we are not able to fulfil our traditional role of providing the first job experience. There are a lot more people in their mid-20s who do not have jobs. Part of the reason for that is that they did not get their first job experience in our industry or other similar industries that will be hit very hard by this.

Senator Bosa: What is the ratio of students who work in the restaurant business compared to full-time employees?

Ms Reynolds: The percentage of students in our industry, full and part time, is approximately 21 per cent. I can look it up for sure.

Mr. Rothschild: In a restaurant where there would be 100 staff, it would be typical to find 25 part-time employees. In other words, 75 per cent of the employees would be full-time employees.

Senator Bosa: I will try to be the devil's advocate here. There was a reduction in unemployment insurance premiums approximately one and one-half years ago. Did the reduction that you experienced of the 75 per cent of the workforce offset what will happen now if this legislation comes into force?

Would the fact that the premiums will be paid on a first-hour basis offset the penalty that you have described that is going to cause your business to increase its payroll by 17 per cent?

Mr. Rothschild: I think I understand that it is a mathematical equation you are searching for, and the answer is that it was not an appreciable offset.

Senator Bosa: You did not work it out that way?

Mr. Rothschild: It would be a mathematical calculation, 75 per cent full-time versus the increase. The answer is that it was not an appreciable difference.

Senator Bosa: It was not offset?

Ms Reynolds: Do you mean the premium decrease of 5 cents that went into effect?

Senator Bosa: No. Seventy-five per cent of your employees are full time, so you pay the full rate of unemployment insurance premiums. Under the present legislation, because you tailor your work so that the students do not work more than 15 hours a week, you are not penalized by having to pay unemployment premiums on them. However, under the proposed legislation, your premiums are going to increase because the number of hours that the students work are going to be calculated in a different manner from how they are now - an hourly as opposed to a weekly basis.

What I am trying to determine from you is whether the premium reduction that went into force a year and-a-half ago, which would apply to 75 per cent of your workforce, offsets the premiums that you are going to incur on 25 per cent of the students now?

Ms Reynolds: I think the answer to that question is that we would need a 54-cent premium reduction in order to offset the costs of first-dollar coverage. That was a 5-cent decrease; we need a 54-cent decrease to offset the cost. Those are the mathematical calculations that we have done.

Mr. Rothschild: Alternatively, you might look at the bottom line of a restaurant, the profit. If the premiums have declined, you might argue that the profit, therefore, should have increased in the restaurant. That has not been the case. There is no question that there are other factors that come into play.

Senator Bosa: Looking at the bottom line, you mentioned a specific figure of 17 per cent, but when you take into account that the premiums will be deductible, do you still maintain that you will be facing 17 per cent more costs in labour than previously.

Mr. Rothschild: For the labour line, 17 per cent, yes, and it will reduce our bottom lines.

Ms Reynolds: One of the alternatives that operators in our industry are considering involves some of the emerging technology, in terms of food preparation and order-taking. When the cost of labour becomes so high as a result of payroll taxes, they have to look at these alternatives, and that will only exacerbate the employment situation for youth in this country.

Senator Phillips: My question is to Ms Reynolds. It is about the hours lost by mothers having to care for their children. I must confess that when I started studying this bill, I thought the hours, instead of the weeks, was a good idea. Now I am beginning to question that. I know you have what you call lunch hour help. They are usually mothers who can work lunch hour while the children are in school, and then be free when the children arrive home from school. If a mother loses a week because one of the children is sick and cannot go to school, and she has to stay home and care for that child, is this method of hourly calculation, including every hour as opposed to weeks, going to affect her adversely?

Ms Reynolds: That would be the same whether they are full time or part time in any industry, I would imagine. The most compelling reason to move to first-dollar coverage was for administrative simplicity. Unfortunately, when you have to allow for every single situation, then you get right back to the weekly insurable earnings system again. For every problem it solves, it creates others. I understand that there are many people who work multiple part-time jobs and I understand the need to make sure that they are covered. That is the other compelling reason for first-dollar coverage. However, there are just as many holes that can be poked into an hours-based system as there are reasons to move towards that system.

Senator Cohen: Before I ask my question, I have a comment. I come from a small retail business background, and I know that the GST killed our business. I also know that the GST and the recession have been responsible for bankruptcies right across this country. The concern that I have as I listen to you is that Canada cannot afford to see food industries like yours close their doors. We have seen bankruptcies in every province in the service sectors that employee students, single mothers, and two-income families.

I am not an economist; I have just been in business. However, I think we have to take a very hard look at your industry because if you go under, along with the other types of businesses that have gone under, where will people find those badly needed jobs? I welcome your intervention and I think we have to take a very hard look at this. When the minister was here the other day, he said that this bill has a lot of merit; but he also said that from time to time over the next two years, they are going to have to take a look at this legislation and that adjustments will be made. I hope a few of the adjustments can be made in advance so that we will not have to re-examine it so often later.

Mr. Rothschild: Thank you very much.

The Chair: How many students do you feel the $5,000 exemption would affect?

Ms Reynolds: It would impact all students because, even if they made $7,000, you would get the exemption up to $5,000. Every full-time student would get some benefit from it, but 76 per cent, I believe, is the department figure.

The Chair: You said that 34 per cent of students earn less than $2,000, so they would get their premiums back if they filed.

Ms Reynolds: Correct.

The Chair: There is no figure there. It is just 76 per cent. Are there any other questions?

Senator Bosa: Are you making any representations to the various governments where the GST has not been harmonized with the provincial sales tax?

Ms Reynolds: We certainly have been working very hard on that issue. In certain provinces, such as Saskatchewan and B.C., there is no tax on food, so we want food to be treated equally. That is our position.

Mr. Rothschild: We have made representations; we do make representations; and we will continue to make them.

Senator Bosa: Thank you.

The Chair: I appreciate your presentation to the committee today.

Honourable senators, we have with us today representatives from the Canadian Coalition of Community-Based Training. Will you proceed, please.

Mr. Warren Gander, Co-Chair, Canadian Coalition of Community-Based Training: Madam Chair, on behalf of the Canadian Coalition of Community-Based Training, we thank the Senate committee for entertaining our presentation. With me today is Nicole Galarneau. She will share the duties of our presentation. She will paraphrase from our original presentation of February 1996 to the House of Commons Standing Committee on Human Resource Development when the bill which is before you today was known as Bill C-111.

At the end of Nicole's presentation, I will make some closing observations based on more recent observations, specifically HRD's offer to the provinces six days ago and a couple of rumours that are on the street as of this morning. With that, Nicole will start.

[Translation]

Ms. Nicole Galarneau, Co-Vice Chair, Canadian Coalition of Community-Based Training: I am the woman returning to work. I am the recent immigrant to Canada with no work experience. I am the ex-offender. I am the illiterate. I am the youth. I am the substance abuser. I have a disability. I am your neighbour. I am your mother. I am your son. I am a Canadian, but despite this, I am "ineligible".

Bill C-12: no claim... no check... no service.

The Canadian Coalition of Community-Based Training (CCCBT) is a national, non-profit organization. Its mission includes the development and promotion of community-based employment skills development across Canada.

The CCCBT represents approximately 450 organizations from every province and territory, with an estimated client base of some 250 000. Most of the people we serve experience social and economic disadvantages due to unemployment.

The proposed reforms are of direct relevance to the members of the CCCBT, both in terms of their specific mission and in terms of their clients.

Access to training and employment skills development services is an essential condition in effectively fighting unemployment. Bill C-12 replaces the National Training Act and the Unemployment Insurance Act.

Bill C-12 will exclude job seekers from employment benefits who are not Employment Insurance eligible. Thousands of unemployed people, who had access to training and employment skills development services prior to Bill C-12, will no longer have access to them.

This brief, compared to those you have received thus far, will analyze Part II of the Bill relating to the National Employment Service and employment benefits. In addition, this brief will recommend a strategy for maintaining employment skills development services for economically and socially disadvantaged job seekers who have been excluded.

We applaud the initiative to reform the Unemployment Insurance Act the applications of which no longer coincide with its original purpose.

However, the CCCBT believes in the principles of equality, fairness and accessibility. We believe that these principles are prerequisites for healthy communities, healthy provinces and a healthy country. They are not evident in the guidelines or language of Bill C-12.

We recommend that the structure and function of Bill C-12 be guided by principles of equality, fairness and accessibility.

Programs must be available to all of the unemployed, without restriction and regardless of their status. The basic assumption that everyone has a right to a job implies that everyone should be able to improve his or her skills in order to get that job.

By proposing that employment benefits be limited to insured participants, the bill seems to restrict the fundamental principle of accessibility. This will exclude some categories of the unemployed who will find it even more difficult to participate in the labour force.

Our experience indicates an increase in the number of individuals without any income - the "sans chèques" - who require support in their efforts to participate in the labour market. If the Employment Benefits restriction remains, the number of excluded individuals and those without income will increase across the country.

Some examples of people who will be excluded are: unemployed women who need to fight their family's impoverishment by entering the workforce; immigrants without a Canadian work history; ex-offenders; people with physical, mental or developmental disabilities; people with a history of substance abuse; hard to serve youth.

For people who have already been excluded from the labour market, this inequity further excludes them from employment skills development opportunities. The unintended outcome will be to create exclusion within exclusion.

Our second recommendation is that the federal government develop a national strategy to provide employment skills development opportunities to socially and economically disadvantaged job seekers and that this strategy include an income support capacity and be separate from Bill C-12.

Failing this, we recommend that clause 58 be eliminated and that clause 59 be amended by deleting the word "insured".

CCCBT members have a proven track record in developing programs for those who experience social and economic disadvantages.

Paragraph 57(1)(a)(c) speaks to local level decisions and gives communities credit for knowing what they need: problems are local and solutions should be local. Local decision-making, in theory, is a positive and empowering tool.

The only decisions that are supported by Bill C-12 are those that target employment benefits for EI eligible job seekers. If a community decides that the most-in-need job seeker is the one who is none EI eligible, then that decision is not supported by Bill C-12. The result is that local level decision-making is bound by the limited choices of the legislation.

In this area, we recommend that Developmental Uses money be used for the National Employment Service and allow for universality and that real local level decision-making be enhanced by broadening the choices and allowing universal access to the five tools.

The intent, set out in section 57(2), of committing to working together with provinces for the design, implementation and establishment of an accountability framework, is commendable.

There are nevertheless some weaknesses. There are no national standards to guide negotiations with the provinces even though they were called for by Canadians who responded to the Social Security Review consultations. The resulting programming may be so different in each province that it could very well contribute to the fragmentation of the social safety network of the country.

The basic assumption is that we can depend on each province to take care of its citizens. At least two of the provinces have already shown this to be an incorrect assumption.

Historically, we have seen that it takes a long time for federal-provincial agreements, of any kind, to be negotiated.

We have two recommendations pertaining to this section of the bill: that total devolution to provinces be guided by a set of national standards with a specific set of principles, to ensure that the people who need the programming will receive the programming and that there is a capacity to provide programs and services during the interim period of negotiations.

I will pass on our recommendations to section 58. Section 59(b) states that temporary earning supplements may contribute to the "levering down" of wages by employers, artificially depressing wages. The word "encourage" is a key word in that the interpretation, in practice, may relate more to "requiring" a job seeker to accept under-employment.

Section 59(e) recognizes that some job seekers need basic skills for employment. It implies a recognition by the government that there are people who have been in the workforce but still lack basic skills.

Funding the individual and not the infrastructure will mean that much of the non-institutional employment skills development programming will not remain. The non-institutional model, provided by the non-profit sector, has demonstrated its cost-effectiveness in HRDC's own evaluations. In addition, it has proven to be the most effective model for people lacking even the most basic skills.

Youth Services Canada is an example of programming that does not include administrative funding. Consequently, even with a youth unemployment rate of 30 per cent, the Youth Services Canada allocations across Canada were underspent. They were underspent because organizations did not have the financial resources to sponsor the programming without administrative support.

In this regard, we have a seventh recommendation: that infrastructure/administrative moneys be made available to ensure that job seekers have employment skills development choices which will address their particular needs.

Beyond Bill C-12, focusing on fiscal while ignoring social deficits will result in a greater negative impact on the future of our economy. The social and economic benefits of the non-profit sector are only just starting to be measured in Canada. Early studies indicate that this sector makes a significant contribution to people, communities, provinces and Canada.

CCCBT is part of the non-profit sector. Our sector is not, after all, simply a "special interest group", nor is it simply about philanthropy. It is about empowerment and participation. It is about engagement in the task of bettering human life. The goal should be to determine how to create an effective "civil society".

A healthy non-profit sector is an imperative for a healthy society. Behind the fiscal challenges facing the sector at the present time, however, is a much more serious and profound moral and political crisis. Bill C-12 will fund the client but none of the infrastructures to serve the client. How do we continue to serve the needs of the most disadvantaged people while being forced to turn even more to fees, service charges and other essentially commercial forms of income to finance our operations?

Bill C-12 and its market-driven focus will serve only "the strong". In addition, Bill C-12, and the resulting loss of services to the non-EI eligible clients, demonstrates that the federal will be neglecting its responsibilities to those Canadians who are most in need.

If the non-profit sector must make the decision to withdraw its services or to exist within a market-driven system, then it too will neglect its responsibilities to those Canadians who are not among "the strong".

If the non-profit sector and the federal government do not rally to support those most vulnerable, who else will?

If the non-profit sector and the federal government stand for anything, they must stand for this.

[English]

Mr. Gander: I should like to close with some comments regarding Minister Young's recent announcement offering the provinces and territories the responsibility for active employment measures.

The offer to the provinces includes a statement whereby the provinces are expected to assume some federal employees along with the assumption of training monies. I make the observation that community-based trainers have always been, in practice, employees of Canada.

The growth of the community-based sector in the past 25 years has resulted from a need on the part of Canada to provide quality training to the severely employment disadvantaged. Effective training for this sector of the population was not available from existing public institutions, nor from the for-profit private training sector. Canada thereby set up the not-for-profit private training infrastructure. It is both shortsighted and flawed economics not to ensure that this infrastructure survives until the provinces and Canada establish functioning partnerships under the new regime.

In the minister's release - and I am paraphrasing - some Government of Canada employees may see their work shift to another employer. We expect that the provinces and territories will want to take on most of these experienced employees. They are people who know their community and the regional labour market needs. The Government of Canada is committed to ensuring that the rights of its employees are fully respected.

Canada is attempting to maintain its own employee structure that has developed the not-for-profit project-based infrastructure, but not the programs that are delivered. By the time these employees reassemble under the provincial umbrella, the not-for-profit infrastructure could be all but non-existent. The for-profit and public training sectors will be eager to fill in the gap, but at much higher operating costs, not to mention set-up costs, and without the aid of decades of experience with the disadvantaged that is only offered by the community-based training sector.

The other training sectors, i.e. public school system, universities, community colleges, and private career colleges, could not provide effective training to this population in the past, and it is reasonable to assume that the same will apply in the future. Therefore, if the not-for-profit infrastructure disappears during the transition period, it will have to be resurrected sometime in the future. This must be a higher form of economics, because I certainly do not understand it.

Further, all the independent and in-house studies have shown that the not-for-profit sector is the most effective training sector with whom Canada is in partnership. With the absence of self-imposed time frames and no specific and definitive guidelines for the province, it is almost a sure bet that services will be interrupted during the transition. I have yet to see a swift partnership formed between Canada and any province.

No one argues with Canada's logic in transferring training to provincial jurisdiction, but without transitional security for the sector that provides Canada with its biggest bang for its buck, this transfer may go in the record books as the most expensive baby that Canada has ever thrown out with the bath water. We are talking billions of dollars to resurrect the not-for-profit training sector, not to mention the hundreds of thousands of Canadians who are most needy and who will get inferior or no training during the demise and resurrection period.

If I can use my program in Winnipeg as an example, Educare Business Centre Inc. is a registered charity. It is an academic upgrading and skill-training business and has been administered by a consortium of private-sector companies since 1972. For the first ten years, the Government of Canada and corporate contributions were our sole source of income. For the last 14 years, we have included the governments of Manitoba and the city of Winnipeg along with Canada and our corporate donations. For the last eight years, we added retail software training to the public. This year, we registered under the Private Vocational Schools Act. Countless programs developed income-generating activities so that we can continue to deliver project-based training to governments at or below cost.

Canada talks partnership: community-based trainers invented partnership. One of our strengths has been the ability to lever funds and expertise from other partners in the delivery of our training. We are not simply advocates for special interest groups; our role is to strengthen the social economy which results in job creation.

There must be a guaranteed continuation of funding for the transition period. We are not asking for a hand-out so that we can be around when the dust settles; we simply want to continue to provide services.

Canada is technically off the hook in that all of the literature has cautioned programs against dependence on funding from Canada. On the other hand, they created and fostered the dependence because it was a symbiotic relationship that served the clients well.

In any event, Canada knows what they have created and they know what programs work well and what programs do not. Those programs in the not-for-profit sector which do not work well have already disappeared. Human Resources Development Canada national headquarters must give regional directors-general specific guidelines for a transition period that includes the preservation of what is left of the not-for-profit training sector.

The recent HRD announcement states that during the transition period to the new agreements, the Government of Canada will maintain uninterrupted client services while working in concert with provinces and territories.

Uninterrupted service to Canada's most disadvantaged, service to Canada's citizens, must be included along with the interrupted service to EI recipients. It would be very naive of Canada to assume that none of her constituents will suffer during a transition period in the way it is now presented. In many ways, it could prove to be a very costly assumption.

I want to touch on two things that I heard this morning. The rumour is that insurable earnings will be re-instituted into the training scheme, much like in the old severely employment-disadvantaged-program days. These are things we argued against years ago. It looks like it is getting another audience.

Other discussions going on in Ottawa this morning are the shift from core funding to project funding for the disabled community over a three-year period. This concerns community-based trainers because it will surely erode the capacity of community-based trainers to serve that community. We are not prepared, at this moment, to address the effects of this particular information.

Senator Rompkey: I thank the witnesses for appearing. It is hard to know where to start. First, let us deal with their own particular situation. I understand they have been funded by a combination of federal funds and private-sector funds. The federal funds are now no longer there. Is that the case?

[Translation]

Ms Galarneau: For the most part, these organizations and projects are financed by federal funds. The private sector's share comes into play when it takes on trainees. I would say that 90 per cent of project funding comes from the federal government.

[English]

Senator Rompkey: I understand the importance of groups like this. Those of us who have had some experience, in our families or otherwise, with disabled people or challenged people know that it can make a world of difference to have an organization behind you, providing services for you. There is no question on that point.

The other reality faced by all of us, without getting into any constitutional argument, is the shift from federal to provincial responsibility. I am afraid that is a fait accompli. There may be those of us around the table who regret that; some of us may regret the lack of national standards in this country. I do. If we can speak in radical terms, I think that education should probably be a federal responsibility. I would be much happier if that were so. I have no hesitation in saying that.

The reality is that education is a provincial responsibility under the Constitution. The provinces have guarded that jealously. All of us who have gone through that debate know that.

The Chair: We cannot go back to pre-Confederation.

Senator Rompkey: The reality is that it has shifted to the provinces. They wanted it; they got it. They must deal with it, I am afraid. That may be a cold reality; but it is, nevertheless, a reality.

It seems, though, that local-level decision-making has improved. I know that in my own area of Labrador, for example, we never had a region before, but we do now. The bureaucrats there can make decisions that were formerly made in Halifax, St. John's or Ottawa. It seems to me that it is a step forward to have that kind of decision-making, with HRD, with the partners in the community. I would like you to comment on that.

You said that the infrastructure/administrative money must be made available. On the other hand, I see some merit in putting money in the hand of the student, of the person who is seeking training.

As I have said in other places, this has been recommended by the MacDonald Royal Commission, for example; by the Forget commission; by other commissions, federal and provincial. I see some merit in the supermarket approach, empowering the student by putting the money in his hand and letting him shop for the course he needs when and where he needs it. It seems to me that the marketplace will respond, whether it is public or whether it is private. Can you also comment on that?

Mr. Gander: There are about 40 responses required there. As far as the shift to the province goes, I do not think anyone really knows what the end result of that will be. Nationally, perhaps 90 per cent of our funds come from the federal government, but in Manitoba and Alberta, for instance, we have been jointly-funded by the province, the federal government, other governments and the private sector for some time. How it translates once it is taken over by the province is not really our issue.

Our issue is whether we will still be here when the better structure is in place. The federal government, regardless of whether they fund us at a level of 10 per cent or 90 per cent, can put us in a very precarious position if that money is withdrawn and nothing replaces it until such time as a new structure is in place.

It is not really a matter of whether local decisions are better or worse than national decisions. I cannot suggest that community-based trainers would ever argue against local decisions because, if we are community-directed, all of our decisions are at the local level. We respond to the local needs of our communities, so all of our decisions have historically been made at the local level.

I do not think we perceive any difficulty with being able to deal with provincial departments of education and training or with whatever government departments assume the responsibility. We are saying that no one will be around to serve the clients in the interim.

Right now, we are, in essence, federal employees. We are being laid off until the new structure is in place. That means that billions of dollars' worth of infrastructure will go down the tubes. It is as simple and straightforward as that. Even a casual freezing of training last fall, while waiting two months for the results of the Quebec referendum, took care of, in my estimation, 30 or 40 community-based programs in the country. They just do not have a bank account that will enable them to survive for two months without some kind of training happening.

Every little wrinkle is critical to a non-profit agency which should not have a big bank account or contingency funding. If we are talking about a six-month debate between the federal government and the provinces, then 90 per cent of us will not be here.

The Chair: The minister did say in his presentation to us that this was a three-year transition period. My interpretation of that was that things would not be cut off, that it would be done gradually over a three-year period, and that things would carry on until such time as the whole transition took place.

Mr. Gander: I agree that the minister said it; I know he said it. However, I am not sure that that statement is interpreted in the same manner by every regional director.

[Translation]

Ms Galarneau: I could give you the example of Quebec. Out of a total of 44 organizations whose contracts will expire on the 31st of August, 48 per cent of them have this threat hanging over their heads. There are no funds; even if we are talking transition period, it means that some 5,000 people will be without services. That also represents job losses.

This is paradoxical, but in this market, the players are helping people find work, and they themselves will be losing their jobs. As far as the transition period is concerned, we do not yet know under which conditions the federal government will be passing its responsibilities on to the provinces. We do not know how the provinces will greet those organizations that sport the Canadian flag. In this area, let there be no mistake: there are organizations that receive federal funding and organizations that receive provincial funding, but the client, when he or she comes knocking at the door, does not have one or the other of the flags on his or her forehead.

[English]

The Chair: I am quite aware of the training programs in the provinces. If the provinces feel they are not qualified or do not have the staff, or the community colleges do not carry that particular program, organizations such as yours run that program for them; is that correct?

Ms Galarneau: Yes.

The Chair: The provinces could hire you and receive funding from the federal government to pay for that training program. My question to you is this: Why do you feel that will not carry on after the money is transferred to the provinces? Why do you feel that your current relationship, vis-à-vis training, with the provincial governments will not continue?

Mr. Gander: I am not suggesting that it will not continue for those people who already have such a relationship. Our fear is that during the transition period, unless the federal government makes a definitive statement to the provinces or maintains the support where it now is, we will not be around.

A larger share of our funding comes from the provincial and civic governments in the Winnipeg program. It has shifted somewhat, given the exigencies of the funding to UI clients in the last couple of years. However, that is not necessarily the case with all programs in Manitoba, and it is certainly not the case with the majority of programs in Quebec and Ontario. They are doing quality work with their clients, but they do not have a provincial relationship. We are asking to continue business until such time as the matter is settled.

[Translation]

Ms Galarneau: There is also the whole matter of the type of clientele we are being asked to serve during the transition period. During this transition period, we are being asked to serve clients who are eligible for employment insurance. What happens to the "sans chèques" our organizations are working with?

It is an area we have invested a lot into. The government has invested a lot into it over the past 15 years. This expertise, that benefits these people, will be lost. These organizations have demonstrated that they are capable to adapt, and they will adapt to their new clientele. We will lose the expertise that they have developed as far as the "sans chèques" category of people is concerned. In Quebec, we call these people the most "poqués" of our society - the most lost, the most damaged. In essence, the government, even in this bill, is saying that we are going to abandon 15 per cent of the population because these people are not good enough for the labour market. Our experience and the results obtained by the various organizations nevertheless prove that these people find their way back into the labour market.

[English]

The Chair: That has been raised before, the notion that people could be on contract training, lose their job, and because they have no UI benefits, they cannot participate in this particular program.

[Translation]

Senator Losier-Cool: I have questions and comments, but I am a little confused. I would like to start off by thanking you for having come here. I found your presentation most interesting, in particular what you say on page 2 of your brief. I share the concerns of all the different categories of people listed there.

Are there really people who are "sans chèques", who have nothing? It seems to me that if someone does not get unemployment insurance, he or she gets something else. I would like you to have said at the end of your brief, "I want more cheques, I want more money or more compensation."

I believe that in Manitoba there are agencies that offer services to persons with physical or mental deficiencies, and these agencies will no longer be able to carry out their work as of the month of August. I believe that that is what the witness was trying to explain to us.

This morning's Globe and Mail states that the Human Resources Development Minister, Mr. Young, plans on compensating for this shortage by granting the provinces another way of collecting taxes and by setting up a task force or commission to study this issue. Are you aware of this? Are those your concerns when you talk about the 15 per cent who will not have anything?

[English]

Mr. Gander: Well, that is part of my concern, but I did not hear that particular thing this morning. I did not read The Globe and Mail this morning.

Senator Cohen: I read it, and a task force is looking into exactly what you raised.

Mr. Gander: I heard that Andy Scott was chairing it. There is a concern that if you remove the national focus, it will have a definite effect at the provincial level with respect to delivery to the disabled community. We have heard that only this morning, so we have no idea what the net result will be.

Senator Losier-Cool: Is that part of your concern?

Mr. Gander: As of this morning, yes, it is. I have not had time to think about it. There are a dozen and one other examples as well.

We at the community-based programs certainly deliver training to the physically and mentally challenged, as well as the working poor, the non-working poor, ex-inmates, alcoholics, and those who have failed in the public school system. The latter group is the one the senator was discussing. They are caught in limbo between wherever they come from and wherever they may or may not end up. I think we are the only sector to provide a bridge for them to get back on track and to take advantage of other things.

Success for a community-based program has always been measured with respect to employment and nothing else. Employment is the final word. If you have a good employment rate at the end, it does not matter whether you start with a 30-year veteran of social allowances or someone who is on unemployment insurance. At the end of your program, employment is the measure of success. We have always done extremely well. We are the only sector to work well with that particular population.

We are not asking you to listen to us because obviously our opinion is biased. We are asking you to listen to your own studies. HRD has dozens of studies to support the cost efficiency of community-based programs. As well, the recent Human Resource Development Canada Employability Improvement Program of July 1995 shows the cost effectiveness in terms of return on dollars spent.

Senator Losier-Cool: You do not have to ask us to listen to you; it is part of our job here. The purpose of being here is for us to listen to you, and it is very interesting to do so.

Following that, and following what you mentioned - namely, the success of your community work - as a general objective, would you favour a UI program that is more decentralized or more towards provinces? You mentioned the regional situations.

[Translation]

Senator Losier-Cool: On page 7 of your brief, you make a recommendation. In principle, would you like to see the Unemployment Insurance Program decentralized?

Ms Galarneau: We have always said that the solutions were always to be found close to the problems. We believe that the transfer to provinces of training programs will avoid duplication. What is important for us is that we be able to maintain services to our clients, be it at the provincial or at the federal level.

The federal government was always alone in worrying about the most disadvantaged. In Quebec, for example, the programs offered were mostly aimed at people on social assistance, with very few geared to the needs of the "sans chèques". The federal government was always the only one to offer services to the "sans chèques". This is why we are worried that once these responsibilities are transferred to the provinces, these people, the "sans chèques", will perhaps not continue to receive these services.

This is not a matter of centralization or decentralization. For us, it is a matter of services that must be offered to the "sans chèques". Up until now, we had that assurance with the federal government. With this bill, it is clear in our minds that the "sans chèques" will no longer have their place. We are hoping that the provinces will take up the slack.

Senator Losier-Cool: I am having some difficulty with the definition of the "sans chèques".

Ms Galarneau: You do not agree with our definition of "sans chèques". We could give you several examples. There is the woman who re-enters the workplace and there is the woman who has two children and who is going through a divorce.

Senator Losier-Cool: Would she not be entitled to social assistance ?

Ms Galarneau: If she is in the midst of a divorce, she has not necessarily moved out yet. She still depends on her husband. There is also the case of the young person who is still living at home: he or she is not necessarily on social assistance and is not necessarily unemployed, either. These are the people who come to see our members. It is always hard to believe that there are "sans chèques" in our midst, but it is the case, and there are more of them than we might believe.

Senator Losier-Cool: I understand. I agree that there are people who are poor and who have needs. Perhaps we simply have not yet found the right word.

Ms Galarneau: There will be more and more of these people following the changes to Unemployment Insurance Benefits. Once recipients are no longer entitled to their Unemployment Insurance Benefits, those who own too much to be entitled to social assistance will have to live off their savings. These people belong to the category of the "sans chèques".

[English]

Mr. Gander: Historically, governments - and rightfully so - always want to train those people who are on their particular rolls. If the city is sending a cheque to a social allowance recipient or the province is remitting a cheque to a welfare recipient or the federal government is supporting an unemployment recipient, they want to get those people off their system - that is, the person who is being paid money with no return to the economy. Basically, all those who are not on one of those systems are being missed. There are countless examples. It is right to train the people to get them off the system, but there are several systems and there are several examples.

Senator Phillips: The witness stated that he worked with people who had been recipients of unemployment insurance. I think you said you also worked with a 30-year veteran of welfare. In your retraining, do you find any difference between those who are drawing UI for awhile and those who have been drawing welfare? What is your success rate with each group?

Mr. Gander: I would say that the success rate works out to be about the same in our program and probably slightly less for social allowance recipients. Our programs are designed to be much shorter for unemployment insurance recipients and longer for social allowance recipients. The end product is the same: They are all academically capable, and they are all skill-trained. The unemployment insurance recipient is probably - and, I do not know how to say this - infinitely easier to work with because of the motivation. Generally speaking, the difference between UI recipients and social allowance recipients is like night and day. UI recipients generally have recently lost employment and they are eager to gather up skills and get back to work. They are a very easy population with which to work.

The Chair: We appreciate your coming here today and bringing this particular problem to our attention. We spoke with the minister about people who were not on UI, but he gave us the impression that, because he was negotiating with the provinces, he would not be able to commit himself until the negotiations were completed. We appreciate your presentation today.

Honourable senators, we welcome, from the Canadian Federation of Independent Business, Catherine Swift, the President, and Garth Whyte, the Executive Director, National Affairs, who are with us to discuss Bill C-12. Please proceed.

Ms Catherine Swift, President, Canadian Federation of Independent Business: Thank you. We appreciate the opportunity to appear before you today to present the position of small business on this bill.

I do not know if you are familiar with our organization and with what we do. We represent the interests of small- and medium-sized businesses across Canada. We currently have 87,000 members in every part of the country and in every sector of the economy. As a business organization, we are somewhat unique, in that we form our policy positions on issues exclusively by collecting the views of our members via surveys, personal visits and other means.

As a result, a lot of the information that we will be presenting to you today on Bill C-12 is based on a variety of surveys and other forms of feedback we have had from our members.

We have provided you today with a brief three-page statement, as well as the submission we made to the House of Commons committee in March on this issue. That submission addresses the issues in much more detail. It was distributed to all MPs and, of course, relevant senior government officials. In the submission, what we attempted to do was establish what we believed, and what our small business members certainly believed, to be the important principles for reform of the unemployment insurance system and also to identify what our members have told us are the conditions necessary to create jobs.

We consider much of Bill C-12 to be positive and we believe it will be helpful in repairing a lot of the problems with our current system. We would also like to make some suggestions as to how the bill could be improved.

I guess what we always focus on, as human nature would have it, is what we do not like and what our members have told us would cause them major problems in these proposals.

The two notable issues are: the movement of UI to an hours-of-work basis, also referred to as first-dollar coverage; and the level of the surplus in the UI account and how that should be managed. Both of these are seen by our members as, effectively, hidden taxes.

Finally, we have a few recommendations that we would like to make today regarding significantly reducing UI premiums, which all of our information suggests would contribute to increasing job creation.

In terms of the current UI system, the real problems with it are in two different categories: financial issues and structural issues. Our objectives, we believe, should be to work toward a system that is fair to everyone involved - unemployed, employers and employees - at the same time as being financially affordable.

Small businesses, as you probably know, are currently creating virtually all of the new jobs that are out there, and our members feel that future reforms of the system should lead to lower UI costs, not higher costs, both for employers and employees. The federal government, throughout this reform process, has strongly indicated that the focus has to be job creation. Otherwise, why would any of us be bothering with this? As a result, the outcome of this reform process at a minimum cannot impede job creation but will, ideally, promote it.

Any change to the system must not have a negative impact on the small business community, for obvious reasons, since it is the hub of job creation activity in Canada currently.

Something our members have identified increasingly to us over the years is the whole area of payroll taxes generally, of which UI is one; also, of course, the regulatory and legislative burdens which exist. There are significant opportunities via this reform to affect positively both of these elements. We think those have to be significant targets.

In our larger report on page 5, you will see Figure 1. This was a survey we did last fall. We asked our members, in their view, what conditions were necessary for them to hire more employees in 1996. Naturally, the most important condition was a basic improvement in their sales prospects, which, not surprisingly, is just a euphemism for improved economic conditions, and something over which we have but limited control.

What was interesting was that the second most important issue over which governments collectively have a very high degree of control is the whole area of payroll taxes. In other words, the second most important condition, and the first one that we can effect as policy-makers, was payroll taxes. This has been supported categorically in our research. We have done research for years, as has everyone from C.D. Howe, StatsCanada, Bank of Canada, et cetera. There is a good body of literature which suggests that we need some payroll tax deductions in this country.

Generally speaking, we found that our small business employers are supportive of the purpose of the bill, which is to help unemployed Canadians obtain meaningful employment. Unfortunately, in the past, the system has been more encouraging of people to remain unemployed than encouraging of them to get back into the workforce. Many of the changes we recommended in our response to the green paper have been carried out in Bill C-12.

However, the benefits of what many people would argue are the bare minimum changes that are required to improve UI may well be wiped out. If the bill passes, it will increase significantly UI costs for many small business owners because of the proposed move to an hour-based system. We are quite concerned that many of the positive elements could be negated or more than offset negatively by this move.

We cannot support the current proposal in this bill to expand coverage to the first-hour worked since so many small business owners will see their UI costs increase. In fact, a survey of our members found that fully 83 per cent of small businesses did not support extending UI to include more part-time workers.

Our concern with this change is described in detail in our brief. We will not elaborate too much more on it. Generally, it shows that moving to an hour-based system without accompanying measures, such as reducing UI premiums in a significant way, will amount to a very unfair tax grab. Unfortunately, not only will it hurt part-time workers in general, especially students, but it will, of course, hurt job creation in the economy as well.

Interestingly enough, we found that HRD's analysis of this move to first-dollar coverage showed that through the change contemplated in the bill, about 235,000 businesses, which amounts to over 90 per cent of small businesses in our economy, will end up paying more in unemployment insurance premiums. About 400,000 businesses would break even; and about 65,000 businesses would pay less. In other words, a significant number of small firms would experience increases in UI costs; very few firms would experience decreases, if this were not accompanied by other measures.

Even though the government included a premium-refund provision as somewhat of an offset, this was temporary and was foreseen to last for only a couple of years. After that time, of course, those payroll tax increases would hit with full force.

We would also like to note that the $500 threshold included in the bill is simply not a reasonable one from a small-business standpoint.

I would like to ask Garth to continue with some of our recommendations.

Mr. Garth Whyte, Executive Director, National Affairs, Canadian Federation of Independent Business: The Canadian Federation of Independent Business is supportive of many of the proposed legislative changes on both the insurance benefits side and the employment benefits side. However, small business owners will not support these changes because moving to an hours-based system will increase the costs for many of our members. If that is the case, and if it hurts them, it will not only hurt their business, but also it will hurt job creation.

We therefore propose four recommendations which we feel do not change the bill in any way but which make it more flexible. They also give the government some options to reduce costs overall on small business owners and employers generally, something which should help the economy.

The first recommendation is a voluntary student premium exemption. This gets back to the hours-based system. Looking at the rationale for moving to an hours-based system, people talk about the fact that people have to have multiple part-time jobs; therefore, it is not fair that they are not covered under UI. We feel that it should be voluntary; make it the option of the person who is being employed on a part-time basis.

In Figure 5 on page 13 of our report, you will the result of a survey. Each one of the graphs has a report to back it up. I direct your attention to the graph entitled, "Reasons for hiring employees on a part-time basis." Contrary to what the department states, it is not to exploit the employee; the overriding reason is not to dodge payroll taxes. Much of the reason has to deal with peak periods; another is that cash flow is uncertain; another is that one out of four stated that the employee is only available on a part-time basis. One out of five stated that it is at the request of the employee that this is so. There are employees who want to work on a part-time basis. If that is the case, then why can we not put some provision in this bill which would allow us to have our cake and eat it too? It would protect those people who may have multiple jobs. It would not blind side employers or employees who work on a part-time basis for legitimate reasons.

We have recommended a voluntary employer-employee exclusion from paying UI premiums when the employee declares they do not want UI coverage and they expect to work less than 15 hours per week. There are some examples of this. A student may not want to pay UI. We think this would alleviate significantly the cost burden and still be fair to part-time employers and employees.

Our second recommendation is a UI premium holiday for new hires and expanded payroll. This measure, which eliminates UI premiums for expanded payroll, was widely supported by the small business community when the government implemented it in 1993. When we surveyed over 18,000 business owners on the impacts of this measure on their business, 80 per cent said that it would have a positive impact; 3 per cent said that it would have a negative impact; and 17 per cent said that there would be no impact.

The employment insurance proposal recognizes that this is a positive measure by offering a premium refund for small business. However, as Ms Swift pointed out earlier, this proposal is not generous enough, since it is only offered after a $500 increase in premiums and it terminates after two years.

The third recommendation, which, perhaps, is beyond the scope of this bill but which still could be attached to it, is a significant reduction in UI premiums. UI premiums should be significantly reduced in 1997 for several reasons. First, it will reduce the overall tax burden, which, in turn, will spur job creation and consumer spending. Second, it will offset the anticipated Canada Pension Plan premium increases. Third, it will ensure that the employment insurance bill will not increase UI costs.

During our discussions with the UI Commission and the Human Resources Development Department we have found that there is an opportunity for significant UI premium reductions in the range of 60 to 70 cents. A 10-cent reduction in premiums equals approximately $700 million. Since the government is anticipating another $4.5 billion to $5 billion surplus, there is ample room for a reduction of this magnitude while still maintaining the $5 billion surplus which will be built up in 1996. Again, this is another example where everyone wins. Employees would have a reduction; employers would have a reduction. It would help the economy and job creation.

We are trying to make recommendations which do not hurt those who are unemployed. We do not wish to undermine the bill and many of its positive recommendations. We recommend a 50-50 premium split between employers and employees.

There is no rationale at this time, especially as benefits to employees - training benefits, another $800 million; the developmental uses, which can be as high as $2 billion; the fisheries benefits. Instead of a 60-40 split, why should it not be a 50-50 split? Under the current premium structure where employers pay 1.4 times the employee premium, it is not equitable, especially since the proposed bill will ensure that about $4 billion will be allocated exclusively to employees for training and other programs.

On top of that, employees who make less than $2,000 will have their UI premiums refunded, but their employers will not. The vast majority of our members, 87 per cent of those surveyed, feel there should be equal cost sharing of premiums. We are not saying this should be done immediately and in a dramatic fashion, but there should be a gradual move to a 50-50 split, accomplished not by increasing employee premiums, but by decreasing them at a slower rate than that of the employers. You could reduce employers' premiums a little faster, but still reduce the employees' premiums, and bring it up gradually. We think this would promote greater equity in the system while providing a modest decrease for employees. Remember that the OECD job study and government studies have shown that decreases in payroll taxes equals job creation.

In conclusion, the challenge facing the UI reform process is to create a financially sustainable system which assists those people who are in need without impeding job creation. A healthy small business sector in which new business formation and business expansion is encouraged will not only result in further job creation and economic growth, but also will relieve pressure on the EI system and the social safety net.

CFIB has made some constructive suggestions for changes to improve this bill. We have also made four recommendations to significantly reduce UI costs. These recommendations can be achieved without significantly altering the structural changes proposed and can be funded without significant cuts to the system. Without these changes, the employment insurance bill will be seen as contributing to job losses instead of contributing to job creation.

The Chair: I thank you for your proposal. You are one of the few groups that have come before the committee to give positive rather than negative recommendations, and we appreciate that.

I should like you to ask you about this volunteer exclusion. You agree with the first dollar, but there should be a voluntary exclusion as well. How would your small businesses implement that? Would it be difficult for them to implement?

Mr. Whyte: Many of these things are done in the name of simplification, but if it is a trade-off between paying a dollar more versus simplification, they will work on not paying a dollar more.

As far as doing it, we have not worked this out. We were trying to float the concept and work with the department, but we believe the concept is solid.

The Chair: To do both.

Mr. Whyte: Yes. We said voluntary not just student exemptions because we wanted to deal with students who are part time but also senior citizens who are part time. We did not want to discriminate one group from another. There are legitimate circumstances where the employee would say, "Yes, I would like to be exempt from this."

Right now, there is an option to be exempt, but it is retroactive, so you do not get your money up front, and employers are not included in that. It is like a windfall to the government treasury. We do not think that helps employment. That creates uncertainty, and we believe that it will hurt part-time employment.

We are trying to find a method to develop this. Since there are so many other items on the agenda, we did not have time to really work this solution through, but we feel that this should be pursued.

Senator Phillips: My question is on your reference to the deductions. After you sit in this committee so many hours a day in a week, you begin to forget the figures. The legislation provided for a reduction on the amount on which premiums were collected. It reduced it considerably. Have you taken that into consideration?

Mr. Whyte: Yes. There is another bill which reduced premiums. Is this what you are referring to?

Ms Swift: Maximum insurable earnings?

Senator Phillips: Yes.

Mr. Whyte: We are very supportive of that.

Senator Phillips: How much will that save your organization?

Mr. Whyte: It was announced last year. The 10-cent premium reduction meant that all of our members had a premium reduction. The year before, when they announced a UI premium reduction and the maximum insurable earnings increased, 30 per cent of our members had an actual net increase because of the maximum insurable earnings. We have always maintained that that formula was crazy. It was like a 10-year formula. It was not appropriate.

At the current premium level, the 1996 premium level which took into account the maximum weekly insurable earnings cap, the department's statistics showed that the majority of businesses will either break even or lose money. The maximum weekly insurable earnings, as it is being capped, does not offset moving to an hours-of-work system.

Senator Phillips: I read some criticism from previous witness - I think the CLC was one of them - which stated that the reduction in the maximum insurable earnings would create a tendency to encourage overtime rather than hire new employees. Do you share that view?

Mr. Whyte: As our study shows on that graph, the number one reason for hiring people on a part-time basis was to deal with peak periods. Moving to an hours-based system as it stands will be a disincentive for people to hire on a part-time basis because it will cost them more. That is our concern. It is not the maximum weekly insurable earnings that will force people to work overtime; it is the moving to an hours-based system.

The way a small business works is that if you have five employees, you do not hire someone full time and then get more work. You get work and then you work overtime or you hire someone part time before you hire someone full time. One member was running a shoe store and said that no one walked through his store in the entire day. He said, "I am not going to jeopardize my current employees, my business, my livelihood, my mortgage, by hiring someone full time. I will wait until I get the business. As I get it, I will work those extra hours, and my employees will work those extra hours, and I will hire someone part time."

The maximum weekly insurable earnings cap will not be an incentive, at least in the small business sector, for making people work overtime. I would disagree with the CLC statement.

Senator Phillips: I should be fair and say that I am counting on my memory when I said that.

We also heard testimony from the minister and various officials who said that the so-called reinvestment in training in various areas will provide job opportunities and stimulate the economy. Do you share that view, or do you find some difficulty with it?

Ms Swift: For a number of years now, we have done quite a lot of work on this whole issue of payroll taxes in general, UI only being one of a number, as we know, federally and provincially. The research is pretty compelling that high levels of payroll taxes are consistent with very low or no job creation. Europe is a great example. They have had virtually zero net job creation for a few decades, and of course they have some of the highest payroll taxes in the world.

In Canada, we went from an economy with relatively low levels of payroll taxes in the early 1980s to a radical increase over the last 15 or 16 years. It changed the tax mix a lot. All businesses feel it, but small businesses are more labour intensive as a subset of the economy. They do not replace people with machines quite as readily. Many are in the service sector.

The whole increase in payroll taxes had a disproportionately negative impact on small business, although it did impact negatively the entire business sector. We are seeing now, as we have over the past 15 years, that the small business sector is the more dynamic sector. New businesses and existing small businesses are doing most of the net job creation.

That combination of payroll tax burden and job creation is logically discouraging of our best potential for job creation. It is also hard not to link the EI changes to the CPP problems. We expect increases there. Many provincial jurisdictions are increasing payroll taxes for things like Workers' Compensation. That is not directly your problem, but it is a problem for everyone in a real sense and we look for headway in any area.

UI is a classic case because it has been brought back into some fiscally sensible shape. We see growing surpluses in the fund. Job creation then is not only a good idea, but also it is doable. Perhaps UI premium decreases can offset the CPP increases with a neutral affect to workers.

Our members have told us repeatedly that payroll taxes are a principal target. They do not vary in times of recession as do corporate income taxes and so have an overly punitive effect in business cycles. We discuss this with all levels of government.

Mr. Whyte: We believe that the Prime Minister had it right when he said that governments do not create jobs; business, small businesses, particularly, create jobs. The Minister of Finance says that small business is holding up their end.

We prefer to see the premiums in the pocket of the small business owner rather than paying it to the government and then have the government turn around and try to create jobs.

Senator Phillips: You mentioned that your members were concerned with the CPP; I agree that small business will be hit there in the near future. You also said that provincial payroll taxes are a concern. It is outside the context of this bill, but have there been many increases in provincial payroll taxes because of federal cutbacks for health grants and educational grants? I would like to get the whole picture.

Ms Swift: In some provinces, there have been increases. For the most part, those payroll taxes that do exist are paid into the health care system. Workers' Compensation is another payroll tax of sorts. Different jurisdictions have been doing different things.

We have done a fair amount of research, which we can provide if you are interested. We sampled some firms and added up what they are paying in payroll taxes now versus what they paid years ago. This may be outside of your purview, but we should not be blind to what is going on in other areas. Otherwise, our work can be nullified by something else.

Our research shows significant increases in payroll and even property taxes over the past 15 years. The impact is that taxes which respond least to the business cycle have increased dramatically over the past 15 years. We often hear about business not paying fair taxes. Of course, corporate income taxes fall when corporate incomes fall.

The last recession brought an inordinate number of bankruptcies and horrible levels of unemployment. From my background as an economist, I think that that was caused by what happened to our tax system in the 1980s. There was no built-in flexibility. The property and payroll taxes are fixed. Employees were fired to keep businesses from going bankrupt.

Senator Phillips: Please provide us with the study that you mentioned.

Senator Cohen: I feel you are talking directly to me because I filled out that survey. Little did I know that I would be sitting here listening to the results.

Thank you for a succinct presentation. In your second recommendation, you speak about the premium refund for small business. You say that a $500 increase is not enough and two years is not enough. What, in your estimation, would be enough? What would be fair?

Mr. Whyte: We look for the mix in all four of those recommendations to reduce overall costs significantly.

On this particular one, in 1993, it was done for additional hires. It was seen as a way to entice businesses to expand their payroll.

The current option is set out in the bill in such a way that many firms will never make that $500 threshold. Once they do, beyond that $500, they only get back 50 per cent in the first year and 25 per cent in the next year.

We would prefer to follow the model from 1993, which was retroactive over the entire payroll. It was linked to total payroll to ensure that there was no abuse of the program. It prevented game-playing, such as removing workers from the payroll and then re-instating them and calling them new hires. It acts as a very positive incentive.

When we surveyed our members across Canada, this model had its highest support by far in Atlantic Canada.

Senator Cohen: In a perfect world, the government might accept four amendments. However, if it chose to consider only one, which would be the most popular according to your survey?

Mr. Whyte: To dodge that question a little bit, our members do not care which recommendation is accepted. Our members want to see an overall decrease in premiums and a significant decrease in UI costs; some certainty that those costs are going down, rather than the reverse. They do not want to see new recommendations or proposals which slide in there in the name of structural changes to improve the overall UI system, and then turn around and increase costs because of moving to an hours-based system, for example.

Senator Cohen: Small businesses are struggling desperately to stay alive. This is a vital recommendation.

Senator Bosa: I am pleased that the witnesses have made some positive comments about the present legislation.

You were silent on some issues. I presume that you approve, for instance, of the clawback of benefits at a certain level. Some other clauses to which you did not make reference are, I suppose, positive ones.

You were quite negative about the first-dollar premium charge. You think that the number of part-time workers will diminish or that employers will not hire part-time workers because of this. You consider this to be a disincentive for employers to hire part-time workers.

Given the fact that businesses will increase their products and that there will be a greater demand for their products, do you not think that they will have to turn to part-time workers the same as they do now? As a business association, do you not believe in a level playing field for all businesses?

Ms Swift: This is why it is hard to single out one recommendation. We all want more job creation in this economy. That objective benefits everyone. Small businesses are creating jobs right now.

First-dollar coverage is a huge amount of money, as you can imagine. It is one of the biggest ticket items in this bill. If it passes without some of the mitigating circumstances and measures we have suggested to reduce its impact, then this bill will be a job destroyer as opposed to a job creator, whether it be part time or full time.

Our surveys have shown that the main motivations for part-time hire have to do with business conditions usually. Of course, until one is sure that this trend of increased sales will continue, a full-time person will not be hired. That will continue to be a motivator with or without first-dollar coverage, for example. However, there is no doubt that if one of our member businesses is paying more when margins generally are not fat, that business will have to cut somewhere. That business will cut, we think, with a bias toward part-time employees. The cuts will not hit them exclusively, but it is less money in the pot.

We have suggested a few measures which we think will work to mitigate the impact of the cost increase of going to first-dollar coverage. These measure have to be contemplated or this bill will have a reverse effect of what is intended.

Mr. Whyte: This bill may discriminate against young people. It is similar to the argument you make with respect to minimum wage. If the minimum wage is too high, there is a disincentive to hire inexperienced young people. Many times, employers hire students. There is a current thrust by the government to look at youth employment. We believe that this goes in the opposite direction. Without a voluntary exemption or a student exemption, this will actually hurt that initiative. All parties - business groups and everyone else - are focusing on youth employment, yet this bill may hurt youth employment. A discriminatory part of this bill may influence employers with respect to the type of part-time workers they hire.

Senator Bosa: How do you think students will feel about this proposition? For instance, right now a student who works or a part-time worker who works 14 hours will have $3 deducted from his or her pay. That may enable that person in the period of two years to qualify for the required 910 hours in order to draw benefits. This is a very important aspect of the bill for part-time workers.

Mr. Whyte: We agree. That is why we are saying that it should be at the option of the employee, but many students will say, "I want the money up front; I do not want to pay and then have to apply for it retroactively." This bill recognizes that people will want their UI premiums back. Why should just the employee get their premiums back?

Senator Landry: If I understood correctly, you are opposed to the hours-based system.

Mr. Whyte: We are making proposals. We understand some of the unfairness to employees who may work multiple part-time jobs. We are attempting to put forth proposals that will deal with those legitimate concerns at the same time as they offset some of the other legitimate concerns that may create additional costs on small employers especially. At the current premium level, and given 1996 circumstances, the department's studies show that 235,000 firms will actually have increased costs. Ninety per cent of those firms will be small businesses. Given that the vast majority of net job creation comes from small firms, this hits job creation.

Senator Landry: I think the situation is vice versa. Someone might work three hours here, three hours there, and three hours here for a total of nine hours. He can get three hours of credit at three different places.

Mr. Whyte: We agree. If the employee opts for coverage, that is fine.

Ms Swift: It is a question of fairness.

The Chair: I do not think Senator Landry heard the first proposal about the volunteer exemption. You might want to explain it to him.

Ms Swift: One of our recommendations is that there be an option for the employee to trigger a voluntary exemption to deal with the student's situation. This has been referred to sometimes as a student exemption.

Senator Landry: Would they have two different options?

Ms Swift: I am sorry, but I do not understand what you mean by "two different options".

Senator Landry: It would not be uniform.

The Chair: It would not be uniform; it would be a volunteer exemption.

Ms Swift: That is right. However, goodness knows there are many precedents for that kind of thing.

Senator Landry: Is a volunteer exemption in the law now?

Ms Swift: No, but it is not an issue now because we have this 15-hour week requirement to be covered. It is not germane under the current law. However, we feel that if it is at the option of the employee, you are putting the decision in the right hands. Of course, the bill contains a proposal to permit employees to get their premiums back, if they so choose, under a certain amount, but the employer does not get their money back. I do not know how one can argue that that is equitable. I find that unconscionable on any grounds.

Senator Landry: It cannot be that bad.

Senator Losier-Cool: I would like to know the CFIB position with respect to when you come to the assistance of the government in helping Canadians with self-employment. I heard somewhere that the CFIB thinks that this bill will subsidize the underground economy, what they call in Quebec the "le travails au noir". When you see that this program will force the employee to report all hours of work and to report all earnings, and given that the program is an incentive to have many benefits, do you still agree that it helps the underground economy?

Mr. Whyte: We feel that many recommendations in the bill actually improve the system. It becomes more of a disincentive to be unemployed; therefore, there is more of an incentive for people to be employed. In that regard, we think the bill improves those circumstances.

The Chair: We realize what busy people you are, and we appreciate you taking the time to appear before us. It was a very good presentation and we will take it under consideration.

Honourable senators, our next witness is Mr. Crowley, President of Atlantic Institute for Market Studies. We thank you for coming and we look forward to your presentation.

Mr. Brian Crowley, President, Atlantic Institute for Market Studies: Thank you very much. I am most appreciative of your invitation to submit a brief and to appear before you today to discuss what we at the institute think is a vital but much misunderstood topic, namely, unemployment insurance reform.

For those of you who may not be familiar with our institute, I will take a moment to introduce us. We are a non-political, non-partisan social and economic policy think tank whose members and supporters include many prominent leaders of the business, professional and university communities both regionally in Atlantic Canada as well as nationally. I suspect that some of the members of board of directors will be known to members of this committee. Cedric Ritchie, who has recently retired as Chairman of the Board of the Bank of Nova Scotia, chairs our board. Purdy Crawford, the former chairman of Imasco, is also a board member. Those of you who are from Atlantic Canada will no doubt know some of other board members who are perhaps not so well-known nationally: Vic Young from FPI in St. John's; Jacquelyn Thayer-Scott, President of UCCB in Sydney; and Denis Losier, President of Assumption Life in Moncton.

I also want to clarify that our research effort - I said that we are a social and economic policy think tank - is governed not by our board of directors but by an independent board of research advisers that is composed of leading authorities in economics in our universities. Examples are Bill Milne, the volunteer chair of regional economics at the University of New Brunswick; and Ed West, Professor Emeritus of economics at Carleton University here in Ottawa.

Our institute is two years old. The founders of the institute share three major preoccupations. First, we saw in Atlantic Canada a region that had become more reliant on government spending than any other part of the country.

Second, we saw a public-sector fiscal crisis that meant that that strategy of reliance on government, whatever its merits had been in the past, simply did not have much of a future.

Third, we felt that there was a real lack of ideas as to the new strategies that might arise to allow our region - that is, Atlantic Canada - not merely to survive but to prosper. It was to fill that gap that our institute was created to ensure that the full range of realistic options for the development of the Atlantic economy is examined thoroughly and comprehensively. That brings us to the matter at hand today: reform of Canada's unemployment insurance system.

I wish that I had something as exciting and innovative to say as: "UI reform will cause more Westray disasters." In fact, if I put my mind to it, I am sure that I could claim that UI reform will lead to the breakup of the country, or the end of Medicare, or something else. Unfortunately, we made the no doubt timid decision to base our brief on demonstrable and measurable facts about unemployment insurance. I apologize in advance if that makes our brief rather less interesting than it might have been.

You have before you our brief, which summarizes many of the conclusions of a major piece of research undertaken for our institute by two nationally renowned economists and experts in unemployment insurance. That paper is entitled, "Towards Sustainable Development in Atlantic Canada A Case for UI Reform". One of the authors of that study was Doug May, who is well known to anyone who is interested in unemployment insurance reform. He was a co-author of last year's study by the C.D. Howe Institute entitled, "The Rock in a Hard Place", and is a member of our research advisory board at the institute. The other author of our brief is Morley Gunderson, who is a Professor of Economics at the University of Toronto and Director of the Centre for Industrial relations at that university. Dr. May and I collaborated on the brief that our institute has prepared, which you have before you.

We have relatively little time. I will dive straight into a brief outline of what it is that we at the institute want to say about unemployment insurance reform. I will try to hold my comments to about 10 to 12 minutes in order to leave the maximum time for exchanges with members of the committee.

We believe that there is very wide agreement in Canada that there is something very wrong with the current unemployment insurance system. That is true certainly amongst professional economists, where there is wide agreement that unemployment insurance in Canada drives up the national unemployment rate by around 2 percentage points. This has been the conclusion of the MacDonald royal commission and a number of experts. It has been recently borne out by some modelling at the federal Department of Finance, where it has been estimated that a fully experience rated unemployment insurance system would not only cut our national unemployment rate by 2 per cent, but also would increase our GDP in a like proportion.

The consensus that there is something wrong with unemployment insurance is shared by public opinion - that was referred to a bit by the previous presenters - and polling results show this to be just as true in Atlantic Canada as elsewhere. That is to say, Atlantic Canadians, if you poll them as a group, believe very strongly that there is something very wrong with unemployment insurance.

We want to make the argument that there are three key problems contained within unemployment insurance. We further want to say that the original reforms proposed by the government represent only the tiniest, most hesitant baby steps in the direction of real, durable, sustainable unemployment insurance reform, and that much touted amendments introduced by the House of Commons do almost nothing to change that judgment.

I will deal in turn with each of the three problems that I have suggested are inherent in unemployment insurance.

First, the incentives contained within unemployment insurance are perverse from both an economic and a social point of view. Indeed, I could go on and make the argument that they are morally perverse, but we will save that argument for another day. Economists believe - rightly in my view - that incentives matter because they make certain courses of action more attractive than others and people will naturally move towards those courses of action which are likely to leave them better off.

Incentives are important, and workers, employers and governments, especially in Atlantic Canada, react to these incentives in ways that are harmful to the economy and particularly devastating to older populations in rural areas. Yet, these same incentives create enticements for rising generations to get on the treadmill of unemployment insurance dependency. Once on, the obstacles to getting off that treadmill can seem daunting and insurmountable.

To what incentives are we referring? The list is an exceedingly long one, but let me choose just a few examples.

In our rural communities - and I am talking here particularly about Atlantic Canada - where at least in the short run there is a shortage of work, unemployment insurance encourages the creation of seasonal work because unemployment insurance is, in its current form and with the reforms proposed in the employment insurance bill, a subsidy to seasonal work. Anyone who has studied economics will tell you that if you subsidize something, you will get more of it. If you subsidize seasonal work, you will get more of it.

This helps to perpetuate a cycle of dependency where job skills deteriorate and where capital investment is underutilized compared to other parts of the country. It also creates - and this is a terrible problem that is very little understood - enormous pressure on employers to share out jobs among all the members of the community so as to maximize community income even when, as is usually the case, such behaviour reduces productivity and profitability, which makes many of these businesses much more economically precarious than they need to be.

A much neglected side of this is that the existence of unemployment insurance distracts people's energies from creating goods and services of value that can be sold in the market place. Instead, people very quickly see that their economic wellbeing can be most quickly and most effectively improved by lobbying government for increased or improved benefits.

Thus, in the fishery, for example, fish are frequently seen as merely a means to obtaining unemployment insurance. That helps to explain, among other things, why we have such a low level of value-added in the fishery in Atlantic Canada, especially in the now-closed ground-fish fishery. In those areas of Atlantic Canada that were most dependent on the ground-fish fishery before the moratorium, over 50 per cent of fishers' income derived not from fishing but from unemployment insurance. If this course had not been open to them, they would have been obliged to wring more value out of the natural resource, as is done in many other fishing nations, such as Iceland and Norway, where fishing really is the principal source of income.

For provincial governments now, unemployment insurance creates an incentive to waste tax dollars on meaningless make-work projects simply to qualify people for unemployment insurance rather than to have them fall on the provincial welfare rolls, creating a phenomenon that is well known and that Tom Courchene has quite rightly dubbed "intergovernmental gaming", where one level of government adopts a strategy to pass the costs of a dependent population on to another level of government.

Remember, we are going through a list of the perverse incentives within unemployment insurance. For the unemployed, regionally extended benefits offer a large incentive to move from areas of low unemployment to areas of high unemployment, because the program of unemployment insurance, to use the fancy technical term, is horizontally inequitable. That is just a fancy way of saying that it treats people in like circumstances in unlike ways. Someone in Sydney or the Great Northern Peninsula in Newfoundland may, after 12 weeks of work, be entitled to around 38 weeks of benefit. Someone in exactly the same position in Calgary or Vancouver or Toronto, with the same number of weeks of work, would be entitled to nothing, even if they lost their job. That explains much of the movement that we see across the country to the west when times are good and back to high unemployment regions of the country when things turn sour.

For young people, unemployment insurance creates an artificial world in which a choice can be made between a life of dependency on unemployment insurance and seasonal work, or a lifetime of development of knowledge and skills appropriate to our human-capital-intensive economy. If one is on unemployment insurance, with the exception of very few circumstances, one cannot go to university because then one is a student and ineligible.

Doug May, my colleague, who helped write this UI brief, has many stories to tell of his students at Memorial University in Newfoundland in tears in his office because, back in the outports where they come from, their colleagues who did not complete high school, went into make-work projects, got onto unemployment insurance, did a little bit of seasonal fishing, and are living very well. They have pick-up trucks and girlfriends, are staying with their families and are laughing at the people who go down to Memorial University, get themselves in debt up to their neck and take a risk that they will be able to get a job in the kind of economy in which we want to encourage them to work.

Now that we have talked a little about some of the incentives, the second key problem with unemployment insurance is that it tries to integrate two very different beasts within a single program. It is both an unemployment insurance program, from a technical point of view, and a social welfare program. It is both. Yet, the objectives of an unemployment insurance program and a social welfare program are quite different, and it is the tension between those different objectives which is ripping the unemployment insurance system apart.

The insurance program implicit within UI contains few insurance principles, and therefore it distributes its benefits in ways that are both capricious and economically devastating; for example, to pick up an earlier example I used, when it subsidizes low-tech, low-skill, highly-seasonal work at the expense of well-paid, full-time, full-year work, which is precisely the way unemployment insurance works. That economic mischief is financed by a payroll tax which, as you heard from the previous presenters, is a proven job killer, the burden of which, contrary to what the previous witnesses said, falls chiefly on workers. It does not fall chiefly on employers. There is a great deal of research which shows that the real burden of unemployment insurance premiums falls 80 per cent on workers and only 20 per cent on employers. That, of course, is because much of the money that goes to pay the employers' premiums would be available for wages were that money not taken to pay unemployment insurance premiums.

For a program that is a thinly disguised social welfare scheme, a payroll tax is a singularly perverse and regressive method of financing because it falls only on wages and not on other forms of income or wealth. If we want to run a social welfare program, as opposed to an employment or unemployment insurance program, it is most inappropriate to have the burden of that fall on a payroll tax.

The third key problem of unemployment insurance is that it is profoundly unfair. That, of course, is linked to the problem I just identified: its dual nature as both an insurance program and social welfare scheme. However, I want to be very clear about this: There are no grounds, contrary to what you have heard from a number of witnesses, on which unemployment insurance can be defended as a program promoting social equity. Anyone who thinks this way has not looked at the distribution of UI benefits across income groups.

In Nova Scotia, unemployment insurance channelled $100 million into households with incomes over $60,000, but only $30 million into households with incomes below $10,000. In Newfoundland, 40 per cent of the households with income over $70,000 drew unemployment insurance while only a quarter of the households earning less than $10,000 drew benefits.

It seems that the question now before us is this: Do the government's proposed employment insurance changes meet the challenge of reform, the challenge of putting in place a UI system that looks after the genuine unemployed, but does so inexpensively and without creating the kind of perverse incentives I have already touched on? The answer, on balance, in our view, is no, it does not.

That is not to say, and I want to underline this, that there are not improvements, because there clearly are improvements in the employment insurance system compared to the current UI system. Where we think there are such improvements, we have indicated them and praised them, in both the brief and the research paper that I have mentioned.

However, it is our analysis that nothing fundamental has changed in the EI system as opposed to the UI system.

The proposed reforms are a mere tinkering on the margins of a system which is vicious, regressive, and crying out for a fundamental overhaul. I could go into some considerable detail about it, but let me just say that employment insurance, according to our analysis, slightly reduces some of the most perverse incentives, but the effects are really quite marginal. The employment insurance system, before the amendments passed by the Commons, actually increased measurably the inequitable distribution of benefits, which already disproportionately favours the well-off. The Commons amendments seem to moderate this somewhat, but do not make it disappear.

Employment insurance will continue to subsidize seasonal, low-skill industries and will even place regionally extended benefits for high employment areas. This will continue to suppress the reallocation of resources and employment from declining, low-skill industries to growth industries in areas of the country and it will continue to discourage skill building.

To conclude, I want to recognize that many people who accept that unemployment insurance is a bad system will nevertheless say that this is not the right time for reform. They are wrong. They are not wrong because unemployment insurance reform will not be painful; it will be painful. There is no way to fix 25 years of the abuse such as has been inflicted on the Atlantic economy without it being painful. They are wrong precisely because there will never be a right time. There will never be a time when it will not be painful.

The longer we delay, the more painful and the more costly reform will be, not only in economic terms, but also in human terms, the terms that must loom largest in our minds - the dislocation, the loss of income, the anxiety and the uncertainty. Those are the things which should weigh most heavily with us.

Yet we know that the benefits of real unemployment insurance reform, of reform that grasps that nettle of economic restructuring, of the disappearance of many old-style jobs, and the appearance of a whole new kind of economy based on our intelligence and skills - such reform would make more jobs. As I indicated at the outset, it would reduce unemployment by 2 per cent, and it would make all Canadians wealthier to boot, increasing our gross domestic product by about 2 or 2.2 per cent. There is no reason to temporize, no reason other than political timidity and catering to a vocal minority.

The Senate, I am glad to say, has recently shown in its report on regional economic development, for example, that it is capable of speaking the truth and of facing down special interests that want to profit at the expense of taxpayers and workers. Now is the time, I would suggest, for you to call on that courage again and to tell the government and the Commons that their reform is too timid, too limited, too tied to the past.

We at the institute, on behalf of all the Atlantic Canadians who have been so ill served by unemployment insurance, ask you and urge you - and I would go so far to say that we implore you - not to abandon our region once again to the clutches of a well-intentioned but deeply distorting and damaging system of unemployment insurance or employment insurance. Grasp that nettle of reform now.

The authors of our brief and of our research paper believe that with proper management and the willingness to take political risks, we can make the transition to long-term sustainable economic and employment growth in Atlantic Canada. We believe that the chief beneficiaries will be a group which has never had a UI cheque. That will be my children and, I suspect, your grandchildren, and the generations that will follow. I thank you for listening to me so patiently.

Senator Bosa: Thank you for pointing out the flaws that are, in your opinion, in the unemployment insurance legislation.

You went into a lot of detail to sustain your thesis that unemployment insurance is no good for the economy and no good for Canadians; that it encourages dependency both of the individual and of the community and at the provincial level.

Do you agree that the present legislation which is before us, setting out certain reforms in the employment insurance program, is at least moving in the right direction? Are we on target on certain things, although not going as far as you would like?

Mr. Crowley: This is a very important question. There is no doubt that the EI reforms on the whole move in the right direction. I could quibble about some aspects of it.

Many of the problems that I have described, the absence of experience rating, disincentives to education, the perverse or bizarre distribution of benefits, these at least receive a sort of nodding acknowledgment in the legislation. We welcome that. However, to be quite honest, senator, we have been trying to reform unemployment insurance in Canada for 15 years.

A number of the previous attempts have gone a little further in the directions which I would favour. This bill puts in place some levers which can be used to inch employment insurance along in the right direction, but it puts almost no pressure on those levers. That would be my view.

Senator Bosa: You did bring the example of a family in Nova Scotia earning $60,000; yet the unemployment insurance benefits which are paid in that province amount to $100 million. Then you quoted a similar example in Newfoundland. You seem to approve of the clawback of benefits contained in the amendments to the present unemployment insurance legislation.

Mr. Crowley: That is a very complex question. Let me take a moment to explain why I think it is complex. In one sense, it should be very simple to say, yes, we approve of it because we disapprove of the inequity of the distribution of benefits. We feel very strongly about that. There is clear support amongst Canadians for a system which gives benefits to the people who need them.

One of the problems with unemployment insurance is that it does precisely the reverse. Your question brings us back to the dual nature of unemployment insurance. It is both an insurance program and a social welfare program.

If it were purely an insurance program, I would have no objection to someone whose income is $70,000 getting, if they lose that income for whatever reason, a very large amount of money. However, because we do not experience-rate the system - in other words, we do not make a family that earns $70,000 pay a premium commensurate with the realizeable benefits - the whole thing is, to use a word I have already used several times, rather perverse.

The clawback runs counter to insurance principles. Therefore, if we want an employment insurance system, it does not seem to make sense. From the equity point of view, I am all in favour of it; but as long as we try to run these two programs as if they were one, we will never get out of that fundamental contradiction.

Senator Phillips: I do not think it will come as any surprise to members of the committee if I tell the witness that I have a great deal of difficulty accepting his brief.

You emphasize that the unemployment insurance program that developed in the last 25 years was a major factor in holding back the development of Atlantic Canada. Atlantic Canada was lagging behind the rest of Canada 25 years ago, before the unemployment insurance program started. What was the cause then?

Mr. Crowley: You are absolutely right that Atlantic Canada lagged behind the rest of the country 25 years ago. We can have a discussion about the reasons for that, but I think that it would distract us from the main issue, which is what has been the effect of unemployment insurance.

Let me start by observing that the unemployment insurance rate in Canada, and we will get to Atlantic Canada in a second, tracked that of the United States very closely right up until 1971. There was a consistent gap of about 1.5 to 2 per cent between the Canadian and the American unemployment rates.

In 1971, which is when we liberalized the unemployment insurance system, the two unemployment rates, Canadian and American, began to diverge. I have the graph here somewhere, and I can show it to you. The Canadian rate has diverged quite markedly from the American rate since 1971.

A similar phenomenon is observable in Atlantic Canada. Since 1971, the unemployment rate in Atlantic Canada has diverged. In other words, it has gone up more than the national rate of employment in Canada.

There is also considerable unemployment insurance research done by independent academics with very fine reputations which demonstrates very clearly that a large share of the differential in unemployment between Atlantic Canada and the rest of Canada is explicable in terms of regionally extended benefits. I am not simply offering you an opinion pulled out of the air, senator; this is something that is backed up by much empirical research.

Senator Phillips: You mentioned the American experience, and I will just reply to that briefly. I spent a good many hours in this room listening to people explain to me the change in the Canadian and in the American rates. If you take a very careful look at that matter, sir, you will find that a great deal of that change is due to the fact that the Americans changed their method of counting unemployment and we did not. That accounts for at least 2 to 3 percentage points.

You spent a great deal of time emphasizing that too many people stayed in the fisheries longer than they should have. What alternative did you have for them? Were they supposed to stay there and starve, or did you have some form of employment or some capital investment to go in place to replace their employment?

Mr. Crowley: First, you are quite right that we count unemployment in different ways in Canada and in the United States. Every country has its own unique system.

I think what is important to bear in mind is that once you accept that there are different ways of measuring, there are nonetheless trends. What is important is the trend, not the absolute number. The trend in unemployment in Canada is up relative to the United States. Even if they count it a different way, it does not disguise the trend, and the trend is what I am worried about. It is not the absolute numbers, although I think the absolute numbers do not hide the fundamental reality.

Second, let me come back to you, senator, with a counter example, because I think the way your question is framed belies precisely one of the problems we have in dealing with the distortions created by unemployment insurance. The assumption underlying the question is that it is somehow someone's responsibility to supply work to every Canadian, and if we do not supply them with work, that we are somehow obliged to supply them with is unemployment insurance. Let me use a counter example.

At the turn of the century, something like over 80 per cent of the Canadian population lived and worked on farms. They were farm labourers. As we introduced a higher degree of mechanization and made agriculture more efficient, many of those people lost their jobs. No government came along and said, "You are losing your jobs. Well, stay put and we will compensate you for some of your loss of income. Just work part-time until we figure out what the alternative is." If we had done that, we would now have hundreds of thousands of people still living in rural areas of Ontario, Manitoba and Saskatchewan in jobs of ever-declining productivity with falling incomes and an ever greater degree of dependence on unemployment insurance. We were able to make the transition very successfully from an economy heavily dependent on agriculture to one that was heavily dependent on industry without some government walking up and saying, "By God, here's the answer."

I do not think governments have the answer. The answer is in the intelligence and inventiveness and entrepreneurial capacity of Canadians, including Atlantic Canadians. I often hear people say, "But if you stop paying unemployment insurance or reform the system fundamentally, Atlantic Canadians will not have anything to do. They will die of starvation." I think this is a gross calumny on the people of Atlantic Canada.

I must say that I think that Atlantic Canadians are the most entrepreneurial people I have ever met. It is just that we have created a system where they devote their entrepreneurial energies to getting various kinds of benefits and programs out of government. Any part of the country that can get heavy water plants, cucumber greenhouses and Bricklin plants, and I could go on, does not lack for entrepreneurial skill.

Senator Phillips: I think we could keep this up for a long time and not change one another's viewpoints.

[Translation]

Senator Losier-Cool: Thank you, Madam Chair. When you talk about equity, the two dimensions of equity, vertical and horizontal, and about dependence on unemployment insurance, this is nothing new for members of this committee. We know that. We also know about the inequitable distribution of the 100 million dollars paid to families in Nova Scotia. I believe this is the reason for this reform. Do you agree that within the framework of unemployment insurance, or rather employment insurance, this program marks a rather significant improvement?

Mr. Crowley: What aspect precisely, Senator Losier-Cool?

Senator Losier-Cool: Some aspects of the program, for example the first hour basis. Would they not be an incentive to work more and to get a job?

Mr. Crowley: I fully agree with this aspect. We fully support a system based on hours worked rather than on weeks. Under our present system, one of the perverse effects I did not mention is that it creates two systems or two labour markets side by side: on the one hand, a labour market where workers are covered by unemployment insurance and, on the other hand, a labour market for part-time workers who are not covered.

We believe this is wrong. All workers should be treated equally, be subject to the same premiums and benefits. It would be an incentive to work more. As I said earlier, these are not giant steps, but rather baby steps, towards the ultimate goal.

Senator Losier-Cool: How about the increased benefits for low-income people?

Mr. Crowley: There again, Senator Losier-Cool, this goes right to the issue of the dual nature of the system, of the two programs integrated into one, an income support program and an unemployment insurance program.

We are obviously fully supportive of any increase in benefits for low-income families. But we have to be careful because we are tinkering with a system which is fundamentally flawed.

In this case, we chose arbitrarily to help low-income households who happen to have both children and an unemployed parent.

This program will benefit low-income workers. This is how we see it. We would prefer the government to be very honest and open and to say: we want to provide more support for low-income families and individuals, regardless of factors like unemployment or whether they have children or not.

If you live below the poverty line and you do not have children, this does not change anything to your situation. You are still living in poverty, even if your neighbour who has children gets more social benefits. These small adjustments made in a haphazard way end up producing a system that does not make sense.

Senator Losier-Cool: If you were a member of this committee, what kind of a system would you establish to put an end to this dependence? We all want all Canadians to have their place in the sun, including Atlantic Canada or especially Atlantic Canada.

Mr. Crowley: There are at least two changes which would be fundamental and, we believe, absolutely necessary.

First, separating the income support program from the unemployment insurance program, in order to restructure the latter on the basis of insurance principles and experience-rating; secondly, integrating the support program for low-income families to the tax system, in other words finance it through income tax.

These changes are absolutely essential if we want a system that is both economically efficient and socially equitable. In this way, if we want to provide income support to the poorest people, the benefits go directly to those in need. This has been proven very clearly by the tax system.

The economy would be supported through the unemployment insurance program because both employers and workers would have an incentive within the system to create a maximum number of jobs and to maintain this employment base rather than going through the ups and downs of a seasonal labour market like the one we presently have in our region.

[English]

The Chair: I thank you for your presentation and for bringing to us your analysis of the unemployment insurance situation in Atlantic Canada. Not all of our members are here tonight, because there are other committees meeting at the same time, but seven on our committee are from Atlantic Canada. We enjoyed your presentation very much.

The committee recessed until 6:45 p.m.


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