Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology
Issue No. 8 - Evidence - May 19, 2016
OTTAWA, Thursday, May 19, 2016
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 10:30 a.m. to study the subject matter of those elements contained in Division 12 of Part 4 of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures.
Senator Kelvin Kenneth Ogilvie (Chair) in the chair.
[Translation]
The Chair: Welcome to the Standing Senate Committee on Social Affairs, Science and Technology.
[English]
The Chair: I'm Kelvin Ogilvie from Nova Scotia, chair of the committee. I will ask my colleagues to introduce themselves, starting on my right.
Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.
Senator Seidman: Judith Seidman, Montreal, Quebec.
Senator Nancy Ruth: Senator Nancy Ruth, Toronto, Ontario.
[Translation]
Senator Petitclerc: Good morning. Chantal Petitclerc, senator from Quebec.
[English]
Senator Raine: Nancy Greene Raine, British Columbia.
Senator Eggleton: Art Eggleton, senator from Toronto and deputy chair of the committee.
The Chair: Thank you, colleagues.
This meeting is dealing with the subject matter of those elements contained in Division 12 of Part 4 of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures.
This session of our meeting this morning will end no later than 11:30 a.m.
With that, I will invite our witnesses to present, and by agreement we will start with Mr. Mendelson.
Michael Mendelson, Senior Scholar, Caledon Institute of Social Policy: Thank you very much, senators, for the invitation to be here. I'm delighted to be able to speak to you about the topic of EI. I'm going to speak only about one aspect of the bill before you, and that is the concept of EI regions.
As we all know, just about the only controversial element of the recent bill was the provision to include 12 regions with additional benefits and, thereby, exclude some of the bordering regions that felt themselves equally or reasonably entitled to benefit from improved provisions.
Three regions have been added, possibly in response to the criticisms, but possibly also in response to the terrible events going on now in Alberta.
Whenever there are regions with different rules, there will always be borders. Across the border will always be someone who is in a very similar, perhaps identical, or even worse situation than the person on the other side of the border. There will always be a consequent sense and in fact a reality of unfairness.
If you have 15 or 12 regions, then what about the 3 or 4 regions now on the other side of the border? Do we instead have 19 regions, 20 regions? What about all 58? So from my perspective, the problem does not stem from the addition of the particular changes in rules that are made in this budget bill; rather, they stem from the regional organization of the EI system. So I want to speak today to the root of the problem rather than to the particular manifestation we found in the budget bill.
In the 1940s and 1950s, it might have made sense to have a regional system of Unemployment Insurance, as it was then called. Most of the labour force was, compared to today, somewhat low-skilled. Those fewer workers who were highly skilled or had highly differential skills were probably much less likely to become unemployed, even if they were in a high unemployment region.
In the 1940s and 1950s, I also imagine that the residence of most workers was much more likely to be close to their employment. My family got a car in 1954. I'm not sure when yours did. It shows you my age. Most workers wouldn't have had an automobile or other kind of transportation to take them 60, 70, 80 or more miles a day to commute to a job. So the labour force was a lot more likely to be experiencing unemployment in the region in which they lived and it would be confined to that region.
Today it is a different labour force. There is much more specialization, many more highly skilled jobs. There is much more commuting back and forth, and over quite long distances, sometimes from Newfoundland, where the residence is, to Alberta, but that might be an exceptional distance. When I worked in government many years ago, one of my employees commuted every day from Hamilton to downtown Toronto on a GO bus, and that would have put her in a different EI region.
If you're in a very low unemployment region in EI and you work 1,500 hours, at the maximum insurable earnings rate, your total benefits will be around $13,000. If you are in the highest unemployment region and work the same 1,500 hours, your total benefits will be about $22,000 or $23,000. So there's quite a bit of differentiation.
In the 1940s, if you were highly skilled, you weren't likely to be laid off in the first place. Today if you're a highly skilled worker in a high unemployment region and happen lose a job, most likely you'll find another one quite quickly. The general unemployment rate, whether it's 10 per cent, 8 per cent or 12 or 13 per cent, might not be that important to you, depending upon the particular skill that you have. That's the consequence of having a highly differentiated and a highly specialized labour force.
The question really is, why do we have a distinction based upon the level of unemployment in the resident area of a worker as a way of entitling a worker to higher benefits or if you happen to be in a low unemployment region to lesser benefits? Is it fair? Does it actually represent what people assume, which is: How difficult is it to get a new job?
If you were able to do an analysis where the dependent variable in an equation was how hard is it to find a job, and you did that multifactorial equation, you would find that the level of unemployment in the region in which the person was resident would be a factor; but it would probably be one of the lesser factors that would affect the difficulty of finding a job.
Probably a more important factor would be the type of specialty you have, your level of education, your age — which is probably one of the predominant factors, unfortunately — and other kinds of issues that are relevant to the individual.
Now it might be possible but perhaps not desirable to design a new algorithm, if we had data, that would differentiate the kind of benefits an individual would be entitled to based on their individual circumstances, those kinds of factors that I outlined. I'm not sure if that would be the best way to go.
Instead, I would argue that the best way to go would be to do away with the concept of having different rules for different regions and have one set of rules for all of Canada. The only exception, I would argue, would be in the rare case of a very significant emergency, which may happen from time to time.
I'm conscious of the time. I was going to talk about what some of the solutions might be, but perhaps I should stop there.
The Chair: Perhaps that will be a question to you, sir.
I should inform committee members that Mr. Mendelson is a senior scholar at the Caledon Institute of Social Policy.
Now I am very pleased to welcome Dr. Trevor Tombe, assistant professor in the Department of Economics at the University of Calgary, and he's appearing as an individual.
Trevor Tombe, Assistant Professor, Department of Economics, University of Calgary, as an individual: Thank you for the opportunity to speak with you today. In my comments, I'll focus on a small segment of the bill, in particular the provisions that extend EI benefits to certain regions.
The principle behind this extension is pretty clear: to provide additional benefits to households or regions that are hard hit by low commodity prices. But it falls short of that goal in a number of important ways, so I'll organize my comments into a few broader concerns and then offer a couple of narrow, specific, more practical comments for you at the end.
First, tying eligibility for these extensions to a region's unemployment rate is a blunt approach. Not all workers, even within a region, are in similar situations. Expanding opportunities in one sector can mask declines in another, even though workers can't easily move between them. Edmonton is a good example of this, where expanding public sector employment limits the extent to which the unemployment rate has grown in that region, and so it doesn't accurately reflect the labour market prospects of laid off oil workers, for example.
Second, treating different regions differently, as Mr. Mendelson mentioned, inhibits worker mobility. The need to give up more generous benefits in your home region to move to another will make you less likely to do so. The extensions make that existing problem a little worse.
The bill proposes to use a worker's ordinary residence when deciding if they can claim extended benefits or not. As a consequence, many workers in Alberta who live in another province may be missed. Roughly speaking, about 10 per cent of oil and gas employment in the province of Alberta and about 10 per cent of construction in the province are workers that actually live outside Alberta. It's an even more severe problem than just commuting from Hamilton to Toronto, which is a very long distance to commute for some of these workers.
My third and final broad concern relates to timing. To qualify, a region's unemployment rate must rise by a certain amount in a certain period of time, so there's a lag. Workers laid off at the beginning of a recession who are going into a worsening labour market are out of luck, while a worker laid off near the end as the labour market might start to improve receives greater benefits.
These are just broader concerns. I'm not sure they would be all that helpful for your deliberations, so I'll provide two narrower, more practical comments that maybe you can tackle.
The first is that the bill lacks transparency and objectivity in how it selects the regions. It includes an explicit list of regions instead of defining precise criteria. Not surprisingly, this has led to some confusion about exactly how the government arrived at the original list of 12. In fact, it was not until last week that we knew what the government's specific criteria were, and that's only because of a freedom of information request by a Canadian Press reporter, Jordan Press. Based on his reporting, plus new data, it became clear that three other regions should be included on the list, and on Friday the government did just that.
What happens when more data are released? Perhaps — maybe likely — Thunder Bay and Yellowknife will meet the government's criteria in next month's LFS release. Another month after that it might be Regina's turn. That's where the trends are looking in those regions.
Not defining clear criteria for inclusion is a problem, but I wouldn't suggest we just codify the government's criteria. The formula that they used has a little-noticed but highly unfortunate quirk in it. Specifically, the government defines "benchmark unemployment rate'' as the lowest rate between December 2014 and February 2015. This matters a lot.
Consider Thunder Bay. They have experienced a 2.6 percentage point increase in their unemployment rate between March 2015 and March 2016, and they've remained 2 percentage points above that March 2015 level in both April and May. Had the benchmark period been shifted by one month, they would have qualified; but they're not on the list.
Thunder Bay's normal level of unemployment around the period of the benchmark months is about 4.5 per cent. If you look before December, it's around 4.5 per cent, and after February it's a little over 4.5 per cent. As luck would have it, during the benchmark period they were experiencing a temporary spike in their unemployment rate, bringing it up to about 5.5 per cent just for a month or two. That blip prevented them from being included on the list.
Odd blips can work in a region's favour as well. In northern Ontario, the typical unemployment rate is around 12 per cent to 12.5 per cent. Today it's about 12.5 per cent. In every month, in fact, since summer of 2014, even as far back as January 2014, their unemployment rate has varied within a tight, narrow band around 12 per cent to 12.5 per cent, except December 2014 and January 2015. In those months they experienced a temporary dip in their unemployment to 10 per cent; thus their benchmark was set low and so they qualify for extended benefits.
These are just two examples to illustrate that some regions that may not need extra benefits qualify and others that do need them don't qualify.
I'll end here with a quick recap. I completely agree that regional differentiation in EI is far from ideal, but conditional on doing it, it's best to be objective and clear in the selection criteria. Let the data speak for itself and let the chips fall where they may, but you need to be careful in ensuring that such criteria avoid missing regions like Thunder Bay.
Thank you.
The Chair: Thank you both very much. That's a clear summary.
I'll turn to my colleagues, starting with Senator Eggleton to be followed by Senator Stewart Olsen and Senator Seidman.
Senator Eggleton: You've both indicated flaws in this regional system. I might add to that in talking about the oil workers in Alberta. The oil industry spends a lot of time trying to show the rest of the country the benefits from the oil industry and how they flow out the jobs in every province. They'll give you a lot of statistics in that regard.
Presumably, if the oil industry is suffering in Alberta, some of those subcontractors and other industries are also suffering. Of course, the people who work in them might not be in the regions that are designated. I just add that to all the other things that both of you have mentioned.
Mr. Mendelson, do you have solutions?
Mr. Mendelson: The problem we have is that if you want to move to a homogeneous system, a uniform system of rules, and essentially do away with regionalization at least to the extent that you use it for differential rules, do you go to the most difficult entry requirements and the least length of benefits, i.e., the rules that pertain to areas with under 6 per cent employment or under the lowest level, or do you go to the highest, such as for areas that are 13 per cent or more?
If you go to the highest, it will be extremely expensive, and in my view it may introduce distortionary effects into economies that we ought to try to avoid.
If you go to the lowest level, you'll have a deep sense of "aggrievement'' in many regions of Canada, although it will result in a lot less money being spent on the EI program. The process of change is very difficult and probably one that governments have tried to deal with for many years.
I would argue that we ought to approach doing away with and reducing the differential rules in careful stages over time but that it should be combined with needed improvements in EI. Right now, EI insures earnings up to 55 per cent. Maximum insurable earnings are 55 per cent of average wages, which is about $51,000, if I recall correctly. The result is that your maximum weekly replacement is not sufficient.
I would argue that we should move to 75 or 80 per cent replacement wage, up to 75 or 80 per cent of average wages. If we increase the benefits in that way, we could use that as an opportunity to reduce some of the special treatment of what are now very high unemployment regions and perhaps also increase some of the eligibility in some of the low unemployment regions.
But the offset would be that if we went to 75 or 80 per cent replacement, it would result, first of all, in a significant amount of additional revenue in the EI system, which would, I think, more than pay for the increase in insurable earnings.
The Chair: Mr. Mendelson, I'm going to interject here. We have to focus on this bill, and what you're dealing with is a tremendously interesting analysis of the system as a whole. I'm going to have to restrict us, given the time, to the actual bill before us and whether it should it go forward or should not. Do you have a final comment to Senator Eggleton with regard to your analysis as to whether this division should succeed or not?
Mr. Mendelson: Well, the reason that the bill contained a specific list of regions and not the formula is precisely because of the kind of issues that my fellow witness pointed out. If a formula were included in the bill, it would result in new regions coming in and out, as emergency regions, in fairly unpredictable ways. So the rule was designed, in my view in a very narrow and prescriptive way, to ensure that it was initially only these 12 regions. I think that we have probably gotten to a place now, with the addition of three regions, that is acceptable and not unreasonable, but we are going to face this kind of issue again in the near future, I'm sure.
Senator Eggleton: Mr. Tombe, you've taken a little bit of a different approach here. You stated that "regional differentiation in EI benefits is far from ideal, but conditional on doing it, it's best to be objective and clear in the selection criteria.'' Is that possible? How would you come to clear objectives and criteria?
Mr. Tombe: The government did use clear and objective criteria in selecting the list. They just never made it public until the freedom of information request forced them to do so. So the criteria are that you set a benchmark level of unemployment, as the lowest level between December 2014 and February 2015, and then look to see, between July and the subsequent March, whether unemployment grew by more than 2 percentage points relative to the benchmark and maintained it for about three months and didn't fall back down a sufficient amount, the sufficient amount being 1 percentage point within the benchmarks. That's fine. I have no particular problem with that general formula, other than the way in which the benchmark period was set.
My recommendation would be to simply adopt the government criteria but change the benchmark so that instead of the lowest level in the period, make it an average and extend the period. Maybe set the benchmark as the average for all of 2014.
But a 2 percentage point increase in an economic region's unemployment rate is historically a very large change, so that does represent the kind of threshold in a change in unemployment rate that might warrant differential treatment.
If the criteria were to be built into the bill, it could be delegated to the ministry to select the set of regions that match that criteria and that list could be updated periodically. There are already separate periods outlined within the bill. Proposed subsection (2.3) brings us through to October 29 in setting the 25 weeks additional benefits for long-term or long-tenured workers. Proposed subsection (2.5) brings us from October through to February of 2017. Proposed subsection (2.7) brings us from February of 2017 through to July. We could simply add that in those periods we update the list of regions that would qualify for the extended benefits, according to the latest data provided by Statistics Canada.
Senator Eggleton: Thank you.
Senator Stewart Olsen: Thank you for dealing with this. EI is always an extremely difficult and complicated subject for me because it's become this over-weaning bureaucracy that tries to fix little tiny things.
I like what you're saying, Mr. Tombe, on making it for all of the regions. So if you had the criteria in the bill, it wouldn't just be these specific bills, but supposing something happened three months from now, then it could be dealt with in a fair way.
Could you briefly tell me what you think of the EI changes for fishermen and the new entrant portion? Do you have an opinion on that?
Mr. Tombe: Yes. Making it easier for new entrants to access EI does prevent a situation from happening where young people who have been paying in, who have worked part time as a student for a number of years and have never accumulated sufficient qualifying hours, but who then, if they are laid off from their initial job, can't access EI. I think that may be quite a sensible change, although I have no strong view of it one way or the other.
Mr. Mendelson: It's not as big as we think it might be. I think it will be another 55,000 to 60,000 new EI recipients annually as a consequence, but many of those would be in the larger cities, would have been paying in and would have otherwise been ineligible, despite their making contributions. I think it's a very good change and was called for and will result in a fairer system. In fact, it gets closer to my prescription, which is that unless you can distinguish a real reason for having differences in the rules, keep the rules the same for everyone.
Senator Seidman: Thank you both very much.
I would like to go back to the specifics of the bill and be sure I understand. The bill uses the 2 per cent or more increase, and you've referred to that, Mr. Tombe. As to the 2 per cent used to determine at-risk regions, is that based on some kind of standard? How does that 2 per cent come about?
Mr. Tombe: I'm not sure why the government selected 2 per cent. If you look historically since 2000 and ask how many regions have experienced a 2 percentage point increase in their unemployment rate within the span of a year, it's a rare occurrence. In the vast majority of months, all the way back to 2000, zero or maybe just one or two regions ever go through that experience. We saw a big jump in the number of regions who went through that during the financial crisis, and we're seeing an increase in the number of regions going through it right now.
So it's a threshold that only is triggered during periods of what I think is particularly severe economic stress. It's not a threshold that would capture a lot of regions during normal times, and so I think 2 percentage points is a pretty good level.
Senator Seidman: Is that based, though, on science or evidence or international standards?
Mr. Tombe: Not that I'm aware of.
Senator Seidman: The other language used is "without showing significant signs of recovery.'' Is a formula attached to that? Is there some mathematical equation?
Mr. Tombe: Yes, and it was not publicly disclosed until the freedom of information request last week. So what they mean by "significant signs of recovery'' is that the unemployment rate has not fallen back down to within 1 percentage point of the baseline period's unemployment rate. So you need to shoot up from a benchmark level of at least 2 percentage points. You need to stay there for three months. You can come down a little bit, but you can't come down so far that you get within 1 percentage point of that benchmark level.
Senator Seidman: Given everything you know, is this based on international experience? Have other countries used similar approaches?
Mr. Tombe: I believe we're the only country that has regionalization built into the EI system.
To give perspective on your last comment about 2 per cent versus 1 per cent versus being booted off, unemployment rates are measured with error. It's a survey-based data set, so even at the provincial level the standard error on a monthly unemployment rate is typically 0.2 percentage points or 0.3 percentage points. For smaller provinces it can be about half a percentage point. You wouldn't want a situation like we've seen in the southern Saskatchewan economic region where they jump 2 percentage points and then in the last month say they're now 1.9 percentage points above the benchmark. You wouldn't want to disqualify them from the extended benefits for just a 0.1 percentage point change. You need some threshold in excess of 0.1 percentage point to avoid the measurement error issue.
Senator Seidman: That's important to know. We're dealing small numbers here. As a result, it becomes quite simple to have errors that then have a huge impact on whether a city qualifies or doesn't.
Mr. Tombe: We see that in the qualifying period, as it's set to equal the minimum observed unemployment rate during that period, even if it is just a blip that might not be real. I gave the two exams of northern Ontario and Thunder Bay.
Mr. Mendelson: From my perspective, 2 per cent isn't an unreasonable measure if you're going to have a measure. You're thinking that the rule was set and then they looked at it to see what the regions would be. It's probably the other way around. I see you've got people coming from the department next.
A pretty good EI model is maintained by the department. I suspect there was a reiterative process of deciding which regions ought to get additional EI and then adjusting the formula and readjusting the formula until they found the 12 that they wanted. I worked in government for many years, and that's the way you do it. The process is not quite as clean as one might imagine.
Senator Seidman: Somehow I thought you might have been implying that; but I didn't quite want to say. You're saying that the reiterative process is backward.
Mr. Mendelson: "Reiterative'' is the polite term.
Senator Raine: One thing concerns me. Do you know how or have you been able to find out how they selected December 2014 to February 2015 as the magic period for setting the benchmark? We live in a country that's very seasonal, and there are certain parts of the country where the seasonality is obviously part of it too. Do you have any idea why they chose that?
Mr. Tombe: Seasonally adjusted rates are used to set the eligibility, but I don't know why those particular three months. As I pointed out, those three months are a problematic period to choose.
Senator Raine: I also think that any time you have regions, it really does distort what's happening, although I recognize there are regions in the country that have unique employment and unemployment trends and needs. But those aren't necessarily defined by a boundary; they're defined by the available work, the type of place it is and whether it's industrial, rural or urban. So having a geographic region doesn't make sense to me. It obviously causes some of the problems that we see here.
Mr. Tombe: To achieve the goal of particular regional development programs or things to deal with special circumstances in Atlantic Canada or the fishing industry, in particular, it would be best to take a direct approach and have programs just to achieve those goals rather than try to piggyback through the EI system.
Roughly less than half of all the money collected in EI is paid out as regular income benefits. The rest are all sorts of supplementary payments meant to achieve broader social policy or regional development goals.
Mr. Mendelson: I agree. To come back to the original question, the explanation of those three months is that it resulted in those 12 regions.
Senator Frum: On this topic of saying the thing that can't be said, I will ask: Is the lack of transparency in this bill about the criteria usual? If so or if not, what remedy can there be? Obviously it would be preferable to have transparency, but the transparency would then be part of the cure for this thing that can't be said, which is that the outcome is preordained and you work backwards from there.
Mr. Mendelson: I'm coming across a lot more critical than I like to be. I will just say again that the real problem here stems from the regional nature of EI, which goes back to the origins of the program. You weren't here in the beginning, so you didn't hear me say that.
As long as we have a regional system and we have differential rules, there will be somebody standing on the other side of the border saying, "What happened to me? I'm in worse shape.'' That's the nature of the problem.
I don't fault the government for exercising reiterative processes of this kind. The alternative would be to make a rule and put it in a bill, rather than the list. It might seem to be fair, but we have too much of that in the EI program right now, in my view. There are special rules, the so-called pilot programs that never end, special benefits here and new maternity benefits there for people who are self-employed. As my fellow witness pointed out, only about half of the benefits are regular benefits.
I'm not faulting the government for using a reiterative method, although I suppose I'm somewhat jaded about it all. It's a position that you end up in. It would be difficult if we now had a switch that turned on and off every month depending on whether you went up 0.1 per cent in your unemployment rate.
Mr. Tombe: Here we are with a list of regions. If in the bill it were to be changed to a slightly different formula with a longer baseline period, then northern Ontario wouldn't be included, and that would be a big problem. We're kind of stuck.
One small step would be to simply adopt the government's criteria. It would result in a list of 15 regions that qualify, but it would allow other regions, as I mentioned the three subsequent periods outlined in the bill, to be included if they meet the same criteria. Thunder Bay was left off the original list, but probably shouldn't have been. Next month, the new Labour Force Survey in next two weeks may show that they meet the same criteria.
Adding to the list in an objective way will at the very least eliminate the perception that it's politics rather than economic reality on the ground that determines qualifying criteria for EI.
Senator Frum: I appreciate the difficulty in locking in criteria that may not be responsive or appropriate. In terms of revealing the criteria, is it normal for there to be such secrecy around that?
Mr. Tombe: Every other provision of EI is determined by formula.
Senator Frum: That's public. Where would that be stated? It's not necessarily in the bill.
Mr. Tombe: In some bill.
Senator Frum: There are criteria in some bill, somewhere.
Mr. Tombe: There are more generous benefits and easier qualifying periods for regions with high levels of unemployment. This is simply a change that's being introduced to make benefit periods a function not just of levels but in changes in unemployment, and that doesn't have a formula around it, but other aspects make differential regional treatment formula-based.
Senator Frum: In an ideal world, the bill would contain criteria that are part of the bill?
Mr. Tombe: Yes.
Senator Eggleton: We're talking about high unemployment change versus just high unemployment. The report I have here from the Globe and Mail from about six weeks ago suggests that Montreal has a higher unemployment rate than Calgary. I don't know if that's still true today because these numbers change, but at that point in time when they were designating the 12, Montreal had a higher unemployment rate than Calgary, but Montreal is not in.
If we were going to use any factor here for regional justification, wouldn't it be better to use the current state of unemployment versus the unemployment change over this 2 per cent period of time in effect?
Mr. Tombe: That's already a feature of the Employment Insurance program. Regions that have higher levels of unemployment have a lower number of hours required to qualify and longer benefit payments. I think it kicks in at 6 per cent and gradually ramps up to about 13. So higher levels of unemployment already provide longer benefits and easier qualifying periods.
Senator Eggleton: Even though Montreal isn't part of the 12, they are part of these additional benefits?
Mr. Tombe: That's right.
Senator Eggleton: Mr. Mendelson, you mentioned that if somebody had 1,500 hours, they would get benefits of around $13,000 regularly but $23,000 if they're in one of the high unemployment regions, which is a fair difference. The first figure is clearly below the poverty line for anyone; the second figure is below the poverty line certainly if there's more than one person in the family. But you also pointed out that eligibility generally brings about benefits of 55 per cent, which you suggested should go up to 75 per cent. I'm trying to reconcile the 55 per cent to those numbers, the $13,000 and the $23,000.
Mr. Mendelson: Just to explain, the $13,000 and $23,000 is the total amount of Employment Insurance benefits that you could receive if you had earned 1,500 hours in a region that had under 6 per cent unemployment and you collected for your total eligibility period, which is 14 weeks. I have it here somewhere. The $23,000 roughly — it's not an exact number — is the total amount you would collect over your total eligibility period, which is 45 weeks if you're in an area over 13 per cent unemployment. I think it's about $237 a week or something like that. I had all the numbers here, but I don't have Wi-Fi so I can't find them.
That's the differentiation. It's not really an annual amount per se; it's really the total amount. But it does show, for the same level of contributions, the different benefits that are available. If a nurse is unemployed in a high unemployment region, say in Thunder Bay, is he or she less likely to get a job than a nurse that's unemployed in Winnipeg? Does the general level of unemployment affect somebody with that particular specialization? The answer, to me, is obviously no. What might affect it is if the nurse happens to be 60 years old. That would probably have a bigger effect on the person than the level of unemployment.
Senator Raine: I just wanted you to clarify, if you don't mind, because I might not have understood it. If you're a worker from the Maritimes, where back home the unemployment rate is high, and you're working out West and get laid off, when you go home to the Maritimes, are you applying for Employment Insurance there?
Mr. Tombe: Yes.
Senator Raine: With the income from your job out West impacting what you receive?
Mr. Tombe: Yes.
Senator Raine: I know that in some areas the cost of living is very high because the incomes being earned are high and there is lots of competition for houses. I think of the Vancouver housing market versus St. John's. How does that compute?
Mr. Tombe: It doesn't, and this is one of the inherent problems with a regionalized EI system generally. Benefits are based on your ordinary place of residence. The bill here doubles down on that in also providing the extended benefits based on your ordinary place of residence.
Senator Raine: So if you're a construction or oil and gas worker whose ordinary residence is in the Maritimes with a low cost of living, even if you're laid off, you're living like a king.
Senator Nancy Ruth: Two people in New Brunswick have very different EI.
Senator Raine: I meant relative to if you were the same worker laid off and have a mortgage, et cetera, out West.
The Chair: Let's come back to the answer that was given. I'm not sure that was the clear explanation, Senator Raine.
Let's go back to the question she asked at the outset, which was you're laid off at Fort McMurray and you return to Nova Scotia. What location is your EI rate based on, Fort McMurray or Nova Scotia?
Mr. Mendelson: Ordinary place of residence.
Mr. Tombe: Yes. It's based on your ordinary place of residence, which in this example would be Nova Scotia.
The Chair: Right. So there are no sudden riches being generated.
Mr. Mendelson: All of the workers are going to be at the maximum anyway, regardless of where they live, in terms of the weekly benefit. The difference would be the number of hours of work needed in order to become eligible.
In the case of oil workers, they're all going to be eligible in terms of numbers of hours worked. It's really the length of the benefit period that would be different if they were ordinarily resident — ignoring the change in this bill — in Calgary versus ordinarily resident in Newfoundland. It's really the length of benefits that would be different, not the amount per week.
Mr. Tombe: To throw another wrench into the works, the data used to generate unemployment rates by economic region is from the Labour Force Survey, which calculates the unemployment rate based on residence, not place of work. So as an interprovincial worker from another province working in Fort Mac, you would not count in Alberta's employment or unemployment rate anyway.
The Chair: Let's be absolutely clear on this. The worker who has been working in Fort Mac, that person's usual place of residence — suppose they came from Nova Scotia and they flew back every so many weeks. Where is the normal place of residence with regard to this current calculation?
Mr. Tombe: Nova Scotia.
The Chair: So the fact that they've been laid off in Fort Mac does not change the number of hours they would normally be eligible for in Nova Scotia, except based on their normal employment record; is that correct?
Mr. Tombe: And Nova Scotia's particular economic situation.
The Chair: Thank you.
Senator Stewart Olsen: One more point of clarification. In the Maritimes or New Brunswick, I think Mr. Mendelson was saying because it's an economically depressed area, the rate of unemployment is higher.
Essentially what Senator Raine was saying is correct, is it not, that someone in Nova Scotia would get a higher rate of unemployment than someone who lost his job — let's say that they both lose their jobs in Fort Mac. One is from Calgary and one is from Nova Scotia. The Calgary person would get less money than the person in Nova Scotia; is that correct?
Mr. Mendelson: They would get less money in total if they collected benefits for the whole benefit period, but they wouldn't get fewer benefits per week assuming they both had the same earnings. The weekly amount they would get from EI is the same, but the person in Calgary might get it only for 14 weeks, whatever the number is, and the person from Newfoundland would be eligible for 45 weeks.
The Chair: So that's the issue.
Senator Stewart Olsen: That's the issue, yes.
The Chair: The issue is the rates haven't changed. It is the period of time for which they are eligible, one week earlier in terms of payment and a certain length of time available for two different categories, those who are considered to have long-term employment over time and those who didn't fall into that category. Is that roughly the situation?
Mr. Mendelson: Yes.
Mr. Tombe: Yes.
The Chair: I think it's important for the senators to understand that the rate per week does not change.
Senator Raine: And that's because they're earning at a maximum level and the maximum is the same.
Mr. Tombe: Yes.
Senator Raine: There is a dislocation, though, in that the people are working in Alberta, but statistically they are considered to be employed in Nova Scotia. That's putting the Nova Scotia rate a little out of whack, if you think of the available workforce. Anyway, that's a whole other discussion.
The Chair: It would be nice to have things putting the Nova Scotia rate of unemployment out of whack because that would be getting it down. The Maritimes, unfortunately, are in a very high unemployment area.
I'm going to bring this to an end, but I'd like to make sure with regard to this division that I've heard certain observations correctly.
My sense is that, over all, you have reasonable acceptance of this particular division within the overall budget bill. I didn't hear any major criticism from you of this specific division.
Mr. Mendelson: I think it's not unreasonable. Unfortunately, I think it's grounded —
The Chair: I'm going to come to those other things, but I didn't hear an overall damning of the issue.
But I did hear that you would prefer that clear criteria be clearly enunciated at the beginning of any new change in the application of the EI system; is that correct?
Mr. Mendelson: By the way, we never met before we walked in here, believe it or not, and we didn't know what the other was going to say. The only area we might disagree on is I'm not sure I'd like to see the criteria in the bill. I'd like to see it made public. There are too many notes. I'm not sure if the right way to do it would be to make it legal criteria.
The Chair: I take that point. I didn't say in the bill. I said clearly established and clearly enunciated, whether it is a public statement, through the minister's right to do, but you would like to see it in the public domain.
Mr. Tombe: Yes. I would like to see it in the bill.
The Chair: And you would like to see it in the bill. Thank you both for that.
I heard particularly from you, Professor Tombe, that you would prefer as a reference point an average unemployment rate over some longer period of time. What do you think is a reasonable period of time? Would it be the entire reference period? In this case it's roughly two years.
Mr. Tombe: I'd say a good measure would be the average over the year of 2014.
The Chair: Over a year.
Mr. Tombe: But an average over some longer period, certainly not a single data point, the minimum, within the three-month period.
The Chair: Professor Mendelson, do you agree or disagree with the idea of a longer period for an average reference point?
Mr. Mendelson: I think it would be fair to have an average reference point. The point of adding these special provisions is the point that Professor Tombe made early on in his comments, which is very important, that it is at the front end of a rising unemployment rate when people will find the most difficulty in getting re-employment. At the back end, it will become part of the system; it will already be embedded in the economy and people will start becoming re-employed.
For those of you who remember your calculus, what counts in the unemployment rate is the first derivative; the rate of change is probably as important as the actual level of unemployment. This long answer is to say I'm not 100 per cent sure what the average would be, but it seems to me on the face of it to be not unreasonable and perhaps fairer.
The Chair: And you both support idea of reducing the waiting period from two weeks to one week.
Mr. Mendelson: Totally, I do.
Mr. Tombe: Yes.
The Chair: I think we've had a very good discussion from your perspectives, which are very helpful to us. I want to thank you both for appearing before us.
With that, we have our next witnesses. I remind you that we continue to look at the subject matter of those elements contained in Division 12 of Part 4 of Bill C-15.
In this session, we have the officials to help us with this document. We have two groups. I'm going to invite them in the order in which they're listed on the agenda. From Employment and Social Development Canada, we have Ms. Annette Ryan, Director General, Employment Insurance Policy, Skills and Employment Branch; and her colleague Janique Venne, Director, Policy Analysis and Initiatives, Skills and Employment Branch.
I understand, Ms. Ryan, that you will be making a presentation. Please proceed.
Annette Ryan, Director General, Employment Insurance Policy, Skills and Employment Branch, Employment and Social Development Canada: Thank you, senator. We are here to describe the three measures in the budget implementation bill that relate to Employment Insurance. I'll speak to each of them briefly in turn.
The first measure I will describe is the extra weeks of benefits for workers in regions affected by the downturn in commodity prices. The Employment Insurance program provides temporary financial assistance to unemployed workers who have lost their job through no fault of their own while they look for employment and upgrade their skills.
Dramatic declines in global commodity prices since late 2014 have produced sharp and sustained unemployment shocks in commodity-based regions. Budget 2016 provides that eligible unemployed workers in 12 regions hardest hit by the downturn in commodity prices may receive additional weeks of EI regular benefits.
Five additional weeks of EI regular benefits will be available for all eligible unemployed workers in specified regions up to a maximum of 50 weeks, and up to an additional 20 weeks will be available to eligible unemployed long-tenured workers in the specified regions up to a maximum of 70 weeks.
Extended benefits will be available for a period of one year starting in July 2016, with the measure applying to all eligible claims as of January 4, 2015. That's the first measure.
The second measure in the bill is the elimination of new entrant and re-entrant requirements. The government is seeking to make amendments to the Employment Insurance Act and to amend the Employment Insurance Regulations and the Employment Insurance (Fishing) Regulations to eliminate the new entrants and re-entrants requirements established for regular claimants and self-employed fishers. The amendments will eliminate the new entrant and re- entrant provisions introduced in 1978 and instead require claimants to meet their regional variable entrance requirements, which vary between 420 and 700 hours, to be eligible for EI regular benefits. Self-employed fishers will need to reach their regional insurable earnings entrance requirements, which vary between $2,500 and $4,200, in order to qualify for EI fishing benefits. This replaces the current rules under which new entrants and re-entrants who have had an absence of two years are required to accumulate 910 hours of insurable employment in the year preceding their claim to be eligible for EI regular benefits.
There will also be provisions in the act that prevent workers from gaining access to EI-funded training supports delivered through Labour Market Development Agreements with provinces and territories. That will be removed, as workers must qualify for EI Part I before qualifying for Part II and therefore the LMDA-funded programs.
The third measure that is before Parliament is the reversal of a requirement that claimants must serve a waiting period of two weeks prior to benefits being payable. It provides that this may be deferred or waived in specific circumstances.
The waiting period has been set at two weeks since 1971. These amendments to the EI Act will reduce the waiting period from two weeks to one week. All claimants whose benefit period commences before the coming into force of these amendments will be subject to the existing two-week waiting period.
Those are my opening remarks, Mr. Chair. I'm happy to take questions.
The Chair: Thank you very much.
I'll now turn to the Canada Employment Insurance Commission. We have with us Judith Andrew, Commissioner (Employers); and Charles Côté, Advisor of the Commissioner (Employers).
I understand, Ms. Andrews, that you will be making the presentation. Please go ahead.
Judith Andrew, Commissioner (Employers), Canada Employment Insurance Commission: Mr. Chair, members of the committee, good morning.
As Commissioner for Employers of the Canada Employment Insurance Commission — and I'm actually not an official; I'm an appointee on the recommendation of employer groups — I appreciate this first opportunity to appear before the Standing Senate Committee on Social Affairs, Science and Technology on your present study of the Employment Insurance measures in budget Bill C-15.
The Canada Employment Insurance Commission is actually marking its seventy-fifth year of tripartite oversight of the Employment Insurance system. I'm proud to serve as a non-partisan representative of employer interests on the commission, alongside my counterparts representing labour, Commissioner Mary-Lou Donnelly; and government, Louise Levonian, Chair of CEIC and also Deputy Minister of ESDC.
A synopsis of the mandate of the commission and the independent commissioner's role in it is included in the information kit provided to you. Although the commission isn't a household name, mainly because EI operations have been delegated to the department, the CEIC retains important direct responsibilities, including making regulations under the EI Act with the approval of the Governor-in-Council. The commission continues to oversee the EI system in several ways, including by preparing an annual report to Parliament that is bolstered by commission-led research on the functioning of the system.
Today I will address the Budget 2016 measures on EI. I will then turn to the so-called low rates of access to EI and their causes, and then finally a word on EI finances and financial accountability of the EI program with reference to the government's campaign commitments.
To begin with, I want to draw your attention to the guiding principles for Employment Insurance from employers, which is also in your kit. This principles document was developed with employer groups at the outset of my term as commissioner, and they continue to guide my work in their role.
Summarizing now, employers support EI as a key program to protect their employees from the full financial impact of the loss of their jobs through no fault of their own. At its core, EI is an insurance program that provides temporary income support to individuals who involuntarily lose their jobs.
Employers see three key objectives for EI: first, encourage employees to forge a strong attachment to work; second, make the labour market function optimally; and third, fairness and financing.
Turning now to the Budget 2016 measures on EI, I have two documents in the kit. I hope you will read at your leisure a budget bulletin that goes through all of the announcements in the budget, as well as some financial information, and so forth, related to those announcements.
As well, there's a summary document, and I'd like to speak to that briefly. It's a table entitled "Summary of Proposed 2016 Budget Measures on Employment Insurance.'' I have a comment on pretty much all of them, but first of all, with regard to the new entrant and re-entrant measure, while the estimated cost of over half a billion dollars is substantial, employers actually do not countenance basic unfairness in the system. We understand that originally this measure was brought into force to help new entrants and re-entrants increase their attachment to the workforce, but the research shows that NERE status is not the determining factor in EI usage patterns.
Finally, I think it's important to note that eliminating this measure will simplify internal administration in EI, a welcome change in this complex system.
The next one is reducing the EI waiting period from two weeks to one week. This is the change that I have the most concern about. The budget said it would be close to a cost $950 million. I think the intention was to help reduce the period of time that claimants go without income. When you get into it, however, you realize this change is very complicated and certainly costly, and I think it actually risks higher claim volumes, which will further slow processing. If a person only has to wait a week and they are changing jobs and they might have an interval between, many more people could apply for benefits who might otherwise not have done so.
It also has change implications for existing employer top-up plans, and this is where it gets really complicated. There are a couple of different types of top-ups, such as maternity and parental top-ups, where employers add to the EI benefit. Those aren't registered with the department, so we don't know much about those. I think there's a StatsCan study on that. But there are also top-up plans that are officially registered with the department where they don't count as income and affect people's benefits.
One key thing that employers tell me is that they need regulation 19(3.1) on the record of employment reporting to continue to respect their pay cycles. Many employers have automated pay cycles, and if that regulation disappears in the course of trying to implement this two weeks to one week period, that would be a disaster for employers.
I would speak briefly about the others. Extending the Working While on Claim Pilot Project will be an interesting extension. These pilots are intended to study measures that might ultimately become permanent in the legislation. I think we've got a two-pronged pilot now. People can choose the existing formulation or revert to the previous formulation, and I think we'll see employer and employee wishes demonstrated here. Either fewer people will find more work while on claim, or more people will obtain smaller amounts of work while on claim. So it will be interesting.
On simplifying the job search responsibilities for EI claimants, those measures, I think, were terribly misunderstood and much hated. The basic thrust of them was to require claimants to actively look for work and to expand their job search parameters. This was based on their claimant category, whether they were frequent, occasional or long-tenured. As time elapsed, they needed to enlarge their job search.
They also had to become more flexible about accepting a position, carrying lower wages. So, initially, they could look at 90 per cent, but then it would reduce to 80 and then 70 per cent of their previous wages.
Also, a commute time of maximum one hour was included in the definition of suitable work. I'm from Toronto. Lots of people would kill for a commute time of one hour, but that was also considered quite horrid.
Taking into account the vocal opposition to the 2012 changes, particularly from Quebec and east and from seasonal employees — and sometimes their employers — who typically rely on EI to supplement incomes between seasons, it is expected that returning to the former rules regarding the type of work and wage will be well-received.
I do worry, though, that making job search requirements less specific could potentially send the wrong message on the need to look for work while unemployed on EI. If people think of EI as an income supplement system and that they don't have to bother looking for work, that would not bode well for the future.
I won't say much about extending to the EI regions. You can see my comment there in the table. Extending work sharing agreements: I actually did receive representation, particularly from Alberta, around how that would be a very important thing to do, to extend work sharing agreements and allow employers to retain their workers and effectively recover from tough times.
I'm going to return to simplifying the job search responsibilities in order to put what we do here in Canada into an international context. I draw your attention to another document from the kit. It's an excerpt from a recent OECD study. I didn't put the whole study in there. There's just the title page and a key chart. As you will see in the chart, Canada is at the low end of the stringency spectrum on job search responsibilities under EI. So we were already at the low end of the stringency spectrum. Lifting the specifics puts us further down that spectrum.
Typically, countries that have easy access to a generous EI system rely on active return-to-work measures to keep things in balance. I actually hear from employer groups who hear from their members about employees actually asking to be laid off. I know of one employer group that has member data on that. When you consider that situation, with employers having employees asking to be laid off, it does put a different complexion on the job of ensuring that laid off EI claimants are actually looking for work.
Another point I would bring to bear is that employers are puzzled as to why it remains optional for claimants to register their job search parameters with Job Bank. Job Bank is the national employment service, also paid for from EI, and under the oversight of the commission. Certainly employers who are facing shortages of qualified labour now, as well as worsening challenges owing to the demographic trends, find it inexplicable that the EI ratepayer-funded Job Bank is not required.
Job Bank has had some marvellous new upgrades. Jobseekers enjoy the benefit of electronic notification of possibly interesting matches with the positions on offer. So it's not like it's an unfortunate thing. I really do believe that people should be encouraged and actually required, if they're collecting benefits, to register with Job Bank.
I'd like to talk a little bit now about something that's been not directly related to the bill but in the press a bit and discussed by members of the government, the so-called low rates of access to EI and their causes. I'd like to commend to your attention some relevant analysis from the Employment Insurance Monitoring and Assessment Report. This comes from Chapter 2, page 39, of that report. It's about the size of a phonebook, if we still had phonebooks.
For 2014, the most recent year available, StatsCan's EI coverage survey shows 1.26 million unemployed people, of which 482,600, or 38 per cent, were eligible for benefits. So that 38 per cent has been quoted as a castigation of the EI system, but before jumping to conclusions, we need to look at why it's that number.
The difference between the total unemployed and the number eligible for benefits is accounted for, first, by people not having insurable employment. There are about 55,000 of those. It's 4 per cent, and they're the self-employed and unpaid family members.
The Chair: How does this relate to the division?
Ms. Andrew: Not directly. Would you like me to pass over that?
The Chair: We are required to stick to this division. This is not a general discussion of the EI system today.
Ms. Andrew: All right.
My last point is on EI finances. Would you like to hear a little bit about that?
The Chair: If it relates directly to whether this division is sound or not.
Ms. Andrew: Well, this division has a potential cost of —
The Chair: So far you've said $1.9 billion.
Ms. Andrew: — $2.5 billion.
The Chair: So it's $2.5 billion altogether?
Ms. Andrew: That's what the budget said. It could potentially be more if more regions are added to the extra weeks of benefits.
I think the financing of EI is important. I know one of your colleagues, senator, was asking me before about the financing. The system is entirely paid for by employees and employers. Government does not contribute. Employers pay seven-twelfths. Employees pay five-twelfths, and government pays zero in a tripartite system. So the financing is important in the sense that things have happened in the past with the monies. It's not separated from general government revenues. It's intermingled, and surpluses that developed in the past were redirected elsewhere and not even used for this program. That's something that employers in particular, but also labour, is very concerned about, and the government's election commitment to spend EI monies on EI programs is very important.
There are some issues around the burden of these payroll taxes, because it's not as if these things are benign. When you lay heavy-duty payroll taxes on smaller businesses, that adds very much to the cost of creating jobs. It's quite related to the need to create employment and opportunity in the economy for unemployed people and young people and everyone. So I think the finances are integral to it. There's quite a lot of information in the deck here about that, but I would be glad to take questions from the committee.
The Chair: I'm going to remind us all, especially the committee members, that this session will end no later than 12:30 and that the committee will stay behind to briefly discuss in camera what we have heard today. The room will need to be cleared immediately following gavelling the in public portion to a conclusion.
With that, I will start questions from colleagues, beginning with Senator Eggleton to be followed by Senator Stewart Olsen and Senator Seidman.
Senator Eggleton: I want to clarify one thing. We have the department here and we have Ms. Andrew, who is from the Canada Employment Insurance Commission which is outside the department, which represents employers.
Ms. Andrew: It's a departmental corporation, and I'm an independent appointee.
Senator Eggleton: You represent employers, so somebody else in the commission represents employees, but they're not here.
Ms. Andrew: I believe she was invited today, but she was holding a major forum of her stakeholders.
Senator Eggleton: Let me ask my question to the department. The previous witnesses said there were a lot of flaws in this regional system. Mr. Tombe indicated that there need to be more objective and clear selection criteria made public. Mr. Mendelson suggested that the whole thing is kind of outdated given today where the skills are different from the times when this was first created — more specialization and more mobility. As I think we discovered in our conversations, people can live in one area that is not part of the 12 regions and be employed in one of the 12 regions, or vice versa. Of course industry, whether it's commodities or the oil industry, as I pointed out previously, has particularly noted all of the jobs that it creates in many different parts of the country, whether they're in the same zone of the major impact or not. A lot of people could be impacted "non-regional.'' Does it make sense in this day and age? Should it be examined further as to whether this regional concept should continue?
Ms. Ryan: To take those questions in turn, I'll start with the issue that the criteria were not made transparent. I would refer you to the budget, which reads:
Budget 2016 proposes to make legislative changes to extend the duration of EI regular benefits by 5 weeks . . . for all eligible claimants in the 12 EI economic regions that have experienced the sharpest and most severe increases in unemployment.
It goes on to describe the regions. Subsequently the text reads:
In these regions, the unemployment rate increased by two percentage points or more for a sustained period between March 2015 and February 2016, compared to its lowest point between December 2014 and February 2015, without showing significant signs of recovery.
So I would put to the committee that the criteria we used for selecting the regions was embedded from the start in the budget document. We have answered numerous technical questions from the public since then. The minister, as you know, spoke about this publicly as well. That aspect of being on record is well covered. I'm happy to take further questions.
Senator Eggleton: I guess part of his request with respect to clarity on the matter of the criteria is why 2 per cent and why the period of time?
Ms. Ryan: I'm happy to speak to that, senator.
As part of our normal monitoring of the program, we were quite seized with the decrease in commodity prices and began to monitor even more closely our new claims intake across the country. We were clearly getting signals that this was a major disruption to particular parts of the economy that were dependent on commodity activity.
We did very careful monitoring, as I say, of where the new claims were coming in and watched that through 2015. Essentially, we saw a very localized increase in EI benefit take-up that started quite sharply the week after Christmas of 2014. We saw claim volumes increase markedly, particularly in Alberta and to a secondary extent in Saskatchewan. We monitored these claims through that period.
We also monitored additional criteria, like exhaustion of benefit rates. These are informative in the EI context because they indicate the extent to which people are returning to the labour force. To summarize some of that work, there was a marked increase in exhaustion of EI benefits in the regions that saw the large increases in take-up of our program in the fall of 2015. Putting that in the context of eligibility for benefits, it emphasized to us that people were experiencing significant difficulty in these parts of the country.
We did an additional analysis to understand who these people were and what we might know about them. They were predominantly at the higher end of our benefit rate distribution — closer to the larger claims that we see, long- tenured workers and clearly in occupations related to the oil and gas sector.
I could speak a bit more generally to economic research that we've been following for some time of the changing labour market to the extent that these workers are finding it increasingly difficult to return to the labour force. I would be happy to speak to different research in that regard.
Senator Eggleton: We also learned that you apply for Employment Insurance where you live. We know that a lot of oil patch workers have come from Atlantic Canada. How does that show up in the statistics for the 12 regions if, in fact, the claimant is back in Nova Scotia or another part of the Maritimes?
Ms. Ryan: That is very much a feature of the patterns of labour force attachment that we see. We monitored all 62 regions closely and saw a marked increase in unemployment rates that related to claims in Newfoundland, outside St. John's, but not the same increases in other parts of the country that have this pattern of commuting to work across the country.
We were aware of that concern. We watched it carefully. We didn't see the same stress that was very evident in the selected regions.
Senator Eggleton: Ms. Andrew, you commented on a number of things relevant to Employment Insurance in some aspects of this division of the bill. I don't recall you saying anything about the 12 regions and the additional 3 that were added. Do you have any thoughts about that?
Ms. Andrew: Yes. It's summarized in the bulletin.
Senator Eggleton: We just got these, so I haven't had a chance to read them.
Ms. Andrew: I think from the employer standpoint, the notion of extending benefits in hard-hit regions is similar to what was done in the last recession. It will be received as welcome news in the 12 regions where the extensions apply, and the employers support that. In my office, we are also keeping an eye on the fact that the government is carefully monitoring whether additional regions meet the criteria.
There need to be some criteria as we can't extend the extra weeks of benefits to everyone. It would be prohibitively expensive.
Senator Eggleton: You think the criteria still aren't clear enough?
Ms. Andrew: The criteria are a good idea. I've heard academics say that it's important that there are specific criteria for the worsening of conditions in a particular region. It's been done as carefully as it could be done in a system like this.
Senator Stewart Olsen: Ms. Ryan, I'm just going to ask you about the change from two weeks to one week and the waiting period. How much consultation is actually done with employers? This is a huge change. How much consultation do you actually do with employers before this kind of change is made?
Ms. Ryan: We do a considerable amount of consultation in the first instance via Commissioner Andrew, who represents employers, knows the program exceptionally well and is well placed to serve that role of liaison between what can be quite a complex program and employers who have quite complex payroll requirements. That's an ongoing dialogue that helps us understand how programs will have an effect on employers.
Additionally, we hold a regular stakeholder engagement with employers, particularly those knowledgeable in payroll and HR issues, twice a year. It's a national table. It draws from a variety of employers and specialists, large and small, across industries. In particular, this fall, after the election in October, we convened that group to review the incoming government's platform commitments, and we spent quite a lot of time on the one-week waiting period. It seems on its face that it's a relatively simple measure, but to the extent that payroll systems, HR and collective bargaining agreements have taken account of our program, especially in terms of things like maternity, parental benefits and training, it involves a high degree of complexity for employers and we have been reaching out to them.
We have, in particular, committed to respect the payroll cycles of employers, which takes form in this section 19(3.1), which was very important to them, and we reflected that. We continue that engagement and we'll work through a lot of technical nitty-gritty so that we get the best package possible.
Senator Stewart Olsen: You do understand that any change like that impacts small business probably the most. They don't have the people to do the paperwork. Would this be effective immediately once the budget is passed?
Ms. Ryan: This measure, senator, is to be effective January 1, 2017.
Senator Stewart Olsen: So they have some time.
Ms. Ryan: They will have that time to adjust. We are mindful of using that time to engage with the different communities as best we can, and I commend Commissioner Andrew for taking that dialogue to her stakeholders in an accessible way.
Senator Stewart Olsen: The other thing that I'm looking at is the waiting time. I know that you've decreased the application time, but how are you going to handle the waiting time for people who are going to think they can apply for this? You're going to have to hire a lot of extra staff to get this going.
Ms. Ryan: It is a measure that is deeply embedded in how we automate our claims. We have started our work to update systems so that it will be automated change and in that way have less impact for Canadians and Canadian employers.
In terms of the speed of pay, that's really at the heart of integrating with the employer payroll systems. The ability to get accurate payroll information from employers on a timely basis is the basis for generating quick speed of pay. There is a balance to be struck there in terms of how quickly employers can generate that information to inform quick automated quality claims and the desire of claimants to get that cheque right away.
We're emphasizing that this measure will reduce the gap in income for our claimants at the start of a claim, but depending on how quickly we can get that payroll information, that speed will be probably closer to current pay cycles than in the past.
I would note that the government has recently struck a service quality review of the program to specifically improve speed of pay.
Senator Stewart Olsen: That will do it for sure.
Senator Seidman: Ms. Ryan, when Professor Tombe testified, he suggested that the reference point should be the average over the year of 2014 as opposed to the single data point, meaning the lowest point in the unemployment rate between December 2014 and February 2015. He said that could lead to a kind of arbitrariness or missing something significant in the screen that's created. Would you explain why you chose the lowest in that period?
Ms. Ryan: Absolutely. It essentially relates to the monitoring that we were doing of our claim loads, specifically the spike in claims we saw that started in December 2015. Inasmuch as the timing of commodity softness gathered speed in the last half of 2014 and then began to significantly impact workers in that December-January-February period, that was the motivation for choosing that period.
I would note this is explicitly a temporary measure. It is intended to inform more permanent changes to the program in the future, but by its nature it is not a solution to all cases in all circumstances.
Senator Seidman: Will there be an updating and inclusion of new regions on the list?
Ms. Ryan: As of the Friday announcement by the Prime Minister, three additional regions are to be added to the list. I could speak to the legislative mechanics that we have in mind.
Senator Seidman: I mean following this.
Ms. Ryan: That announcement indicated that no further regions would be added to this list.
Senator Seidman: Ms. Andrew, because you mentioned the financial burden to the system, I would like to ask about that. What consequences or inequities might arise in the system as a result of this that could have longer term implications? How many new entrant or re-entrant applications do you see under these proposed changes? Will it create a backlog and would that have any long-term consequences? Will it impact EI benefits in terms of what we pay in? In other words, will it change the amount employees need to pay into the system?
Ms. Andrew: Thank you for the questions.
The costs of all measures were included in the budget. The new entrant/re-entrant one is over half a billion dollars — in total, about $2.5 billion. This all plays out in rate setting. At the back of my budget bulletin, you will see a chart that came from the budget looking at the Employment Insurance Operating Account projections as of the March budget.
The government has been producing charts like this in previous fall economic statements, budgets and so forth. The forecasted rate for 2017-18 at $1.61 is quite higher than what the rates used to read. They used to read at $1.53. That rate is quoted in employee terms. Employers pay 1.4 times that, so it does amount to a hefty increase, effectively. The rates are supposed to fall a lot more than they're going to.
I know there is controversy over the effect of payroll taxes and whether they get passed on to employees in terms of lower wages or to customers in the form of higher prices. But certainly small businesses — my own background is in small business — don't have that kind of market power on either the labour side or on the pricing. So this is a direct budget hit on them, and it restrains the resources they have to hire people, to train and so forth.
Senator Frum: On your budget summary page, it seems that your chief concern is around the change in the waiting period from two weeks to one. If I look at your comments, that really is the one measure that you had the most concern with.
I have two questions. You mention here, and you referred to it in your comments, that this measure has change implications for existing employer top-up plans. I wonder if you could speak more about that.
Also, you mentioned the $950 million budgeted for this increase. It's on this chart as well. You seem to express some skepticism that that is actually the real cost amount of that measure.
Could you discuss those two things?
Ms. Andrew: With regard to the change implications for employers, one of the issues is that employers, either by practice or by agreement with their union, if they have one, have sometimes negotiated payments, say, for those first two weeks and then top-ups beyond that. Some do it around maternity; and, actually, the department has no information on that precisely. So a lot of those arrangements will have to be rejigged in light of this change.
I think even on the labour side there's some concern that if an employer has agreed to pay the first two weeks of a waiting period and then it's only going to be one week, they may not pay the second week. Or will they add it to the end of the 52? It's hard to say. I think even labour is looking at that.
There's a lot of complexity here, but absolutely the bottom line for employers is that it does have to respect their pay cycles. The record of employment forms are effectively the same as they've been for a long time. I've been in the business world over 30 years. That was the number one red tape problem for small businesses. It's been put online, but effectively it's still the same form. It asks for employer information on a pay basis that they don't have in their pay system. It asks for weekly pay, Sunday to Saturday, and nobody pays their people that way, so they have to impute, effectively.
There are all kinds of issues around payroll reporting. In the department, happily there's discussion about maybe some completely new, better system that would work, but we're not there yet.
This particular change is fraught with difficulty, and I actually do worry that the good thing that the government was intending, which was to put money in people's hands faster, may not work out that way because it may get bogged down in the system.
Senator Nancy Ruth: Ms. Ryan, Ms. Andrew has talked about the extra monies coming in, but at one point she said something about excess funds and that there's no segregated fund for the EI monies. She supposed that perhaps it had been used to cover other government expenses. Has there been any discussion, since you're collecting new monies, as to having a segregated fund? Where is that discussion in your department?
Ms. Ryan: This has been a long-standing issue and consideration for the program. The current legislation was put in place after the 2009 recession and essentially first suspended and then stood down from having a separately managed fund to reflect the difficulties encountered in managing the account through an economic downturn, which was funded by the Consolidated Revenue Fund at the time.
That inherent flexibility of being able to top up the fund, as well as the clear desire to keep the fund running at a long-run balance, neither surplus nor deficit, is something that we think is deeply embedded in the new legislation.
It is the case that the EI account is an accounting mechanism. It is intended to bring transparency to the use of those premiums, but it is not a separate account. The issue of managing the funds as a separate account was recently tried and did encounter immediate real-world problems. The balances that are currently being tracked in the program and were included in the budget documents put the account much more on continuing a balanced target of tracking towards zero.
Senator Nancy Ruth: When you did the number crunching, given the downturn, over a period of 20 or 30 years has there not been sufficient surplus to cover economic downturns such as we experienced?
Ms. Ryan: The previous government introduced the rate-setting mechanism at the time, in 2008, to rebase the program to this new track of gearing towards zero. That did reset the program to zero, which followed a period of budget surplus, a cumulative budget, which reached $57 billion. The period during the recession reached a cumulative deficit that the mechanism that's in place now is tracking back towards surplus.
Senator Nancy Ruth: Ms. Andrew, what do you think of all that?
Ms. Andrew: I take a different perspective. Over quite a period of time, a $57 billion surplus was tracked in the notional account, but of course it wasn't in the vault; it had been spent on other things. The former government decided — unfortunately just before the last recession — to set up the Canada Employment Insurance Financing Board and to zero out the account. Effectively, employers and employees would not get that money back.
We went into the last recession with no cushion for a rainy day, and then the account fell into deficit of about $9 billion. That's what the actuary had said. Roughly $10 billion was what the actuary had said you needed as a cushion to cover for recessions, and he was almost on mark.
Since the recession, employers and employees have had to pay back that $9 billion, and we've just done that. We've come into the black at about $0.5 billion.
Ms. Ryan is correct that the commission is actually setting the rates, and it's on a seven-year, break-even basis. Clearly that will smooth the rate-setting process. The government's platform said they only want to spend EI money on EI programs and benefits, which is fine.
I've been concerned about the surplus deficit situation, but I'm also looking at the expense line. It's a big department, and a lot of things considered related to Employment Insurance are paid for out of the Employment Insurance fund — everything from the Social Insurance Register to Labour Market Development Agreements, the $2 billion that are sent to provinces and territories, and much more. I'm looking at all the things that go into that expense line as well.
Senator Raine: I can see this is a very complex topic. I appreciate that, but when I look at something going from two weeks to one week, that's simple; even I can understand that. But that's a 50 per cent change. That's a huge change.
If the change is mandated and legislated and it takes more than two weeks to get your first cheque, and sometimes longer, is that a retroactive one-week pay, or do you wait until your claim gets in?
Ms. Andrew: Yes. I think it will take longer than two weeks because there's the processing time. For the employer to get the record of employment information in and the processing time, it's 23 days now.
Ms. Ryan: The current best time that we can hit is 25 days, which exceeds the 14 days. Essentially there is an application process. It takes time to set up a claim, and it does require information from the employer.
With the move from two weeks to one week, you're exactly right, senator. The claimant will get that cheque added to what they're owed as soon as that claim is set up. That week will be retroactive, and it will be there at the start of a claim.
Senator Raine: Except it isn't there. If the intent was to put the money in the hands of the workers faster, it's not working.
Ms. Ryan: If I may, senator, the intent is to reduce the gap. Once a person is unemployed because of job loss, illness or the arrival of a new baby, they aren't expected to cover that two-week period before there will be new money coming in. With the change, that gap that they will be facing is one week, and every effort is being made to make sure that that payment will come as fast as possible.
The Chair: Ms. Andrew, with regard to the rates, you quoted $1.61 for the EI premium rate. In the briefing document from the Ministry of Finance, it indicates that Budget 2016 has a forecast EI premium rate of $1.61 of $100 of insurable earnings for 2017, a significant reduction of the current rate of $1.88 per $100 of insurable earnings. I may have misunderstood you, but I thought you said the current rate was lower than $1.61.
Ms. Andrew: I'm sorry. Perhaps I wasn't clear. It is currently $1.88. It was legislated frozen at that level for three years. Next year it is to go to $1.61, which is higher than the previous forecast.
Can I add one little piece of information? There's also operating here something called the Small Business Job Credit that was not extended in the budget. Minus having that job credit, 90 per cent of businesses in the country will see an increase next year.
The Chair: Based on your concern about the impact of this current budget provision, do you anticipate that the 2017 EI rate will be above $1.61?
Ms. Andrew: We are actually just on the cusp of working with the actuaries over this summer. The rate will be announced mid-September. I'm trying to crystal ball it here, but I would guess it will be a little higher than $1.61.
Ms. Ryan: If I may, senator, the estimated costs of all policy measures were incorporated in the estimate of the $1.61 that appeared in the budget. I would also add that the measures in the budget largely reflect the government's platform commitments, which included a target for the EI rates that accommodated the measures.
The Chair: Thank you very much. I continue to think that there's a lot of smoke and some mirrors around the world of high finance, but we're going to take you at your word on all of these issues. Thank you for appearing.
(The committee continued in camera.)