Employment Insurance in Canada:
Hitting Rock Bottom

Unseen in nearly forty years

We have never seen such a small proportion of the unemployed receiving Employment Insurance (EI) benefits in nearly 40 years in Canada. In 2012, there was only 39% of regular EI beneficiaries relative to the total number of unemployed. In 2013 that figure dropped to barely 37% (see chart 1).

This ratio of beneficiaries-to-unemployed (B/U ratio) is only the tip of the iceberg: it is always higher than the real proportion of the unemployed getting benefits. The data released by the department responsible for Employment Insurance makes this clear (see chart 2).

For example, based on the the last EI Monitoring and Assessment Report, we can calculate that only 26% of the unemployed received benefits in 2012, while the B/U ratio was 39%. Note that 26% is also a record low.

So why use the B/U ratio if there is a more accurate measure? Because it is the only indicator which covers the entire period from 1976 to 2013. Data on the number of unemployed receiving benefits only starts in 2003, and is slow to be released : statistics from 2013 won’t be available until 2015.

B/U ratio in free fall

The beneficiaries-to-unemployed ratio (B/U ratio) has not always been as low as it is today. From 1976 to 1990 it averaged 76%, with the lowest drop of 67% recorded in 1981. After 1990 it began to fall, reaching lows of 42% in 1998 and 41% in 2011, before dropping below 40% for the first time in 2012 (see chart 1).

In summary, the B/U ratio has been halved in just under 25 years. What factors explain this calamitous drop? Primarily the Employment Insurance (EI) reforms of the nineties, which severely restricted access to benefits. Certain changes in the labour market also played a role in helping to increase the number of people ineligible for EI.

In fact, the very low B/U ratios recorded each year since 2011 are largely due to a labour market which has not quite recovered from the recession of 2008-2009. The Harper government’s reform of EI may have also played a role in 2013, the year it came into force, but it’s difficult to be certain of its effects as of yet.

More details on these subjects (and others) can be found below.

Throughout the ‘1990s, the Employment Insurance (EI) program was subjected to the four most regressive reforms in its history, in 1990, 1993, 1994 and 1996, respectively. The first two were undertaken by the Conservative government of Brian Mulroney, the last two by the Liberals of Jean Chretien.

Consequences of these reforms: increased length of employment required to qualify for EI, reduced duration of benefits as well as the amount of paid benefits and the complete exclusion from the program of people who resign or are dismissed for misconduct (see table 1).

Between 1989 and 1998, the beneficiaries-to-unemployed ratio went from 83% to 42%. Nearly half of this drop is directly attributable to the reforms of the ‘90s according to this study done for the department responsible for Employment Insurance. The remainder is primarily a result of changes to the labour market.

Among the main trends in the labour market over the past 25 years, two have especially contributed to the increased number of people ineligible for benefits: 1) a significant rise in the proportion of the unemployed who have been jobless for one year or more (including those who have never worked) and 2) the growth of part-time and temporary employment.

From 1976 to 1989, the unemployed of this group averaged 23% of all unemployed in Canada, with a high of 28% in 1983 and 1984. Between 1990 and 2013, this average increased to 32%, with peaks rising above 37% in 1997, and from 2011 to 2013 (see chart 3).

Because unemployed individuals who have been without a job for a year or more are automatically ineligible for Employment Insurance, their higher proportion since the ‘90s, and particularly since 2011, has directly contributed to the decline in the number of the unemployed receiving benefits.

What has happened for the unemployed of this group to become more and more numerous? To our knowledge, there is little analysis which seriously addresses this question. Note however that the proportion represented by this group increases in the years following a recession, a sign that economic cycles, and their effect on the labour market, play a role.

Since the ‘90s, the growth of part-time (+51%) and temporary (+57%) jobs in Canada has largely outpaced that of full-time (+32%) and permanent (+29%) jobs (see charts 4, 5 and 6).

However, it is more difficult for those with part-time or temporary jobs to accumulate the number of hours required to receive benefits. This is evident from their lower eligibility rate for Employment Insurance.

In 2012 (latest data available), for example, the eligibility rate for part-time workers was 2.3 times less than that of full-time workers, while the eligibility rate for temporary employees was 25% lower than that of permanent employees (source here, table 9).

One of the expected effects of the most recent reform to Employment Insurance (EI) was “8 000 claimants having their benefits temporarily discontinued” in 2013 (source here). Unfortunately, the data made public is not sufficiently precise to say whether this projection has been realized or not.

We can say, however, that the number of regular EI beneficiaries has indeed declined across Canada in 2013 (-5.9%) and this decrease cannot be explained by an equivalent reduction in the number of unemployed individuals (-1.5%). The phenomenon occurs not only at the national level, but also in most provinces (see table 2).

Furthermore, the new EI rules have already begun to take their toll, as reported by the media:

A majority of unemployed people have paid EI premiums, but are unable to receive benefits when they happen to be in need. That’s the troubling conclusion which emerges from the EI Monitoring and Assessment Reports.

The latest report shows for example that in 2012, 62% of those who were unemployed had paid EI premiums during the year preceding their unemployment period. However, within this group of unemployed EI contributors, barely 42% received benefits (see table 3).

In fact, since 2003 (when the data started being published), never has there been more than 46% of unemployed EI contributors receiving benefits, except in 2008 (49%) and 2009 (51%). Consider however that the recession which marked these two years increased EI eligibility (here’s the explanation).

If we take into account not only premiums paid in the course of the 12 months preceding unemployment, but those paid throughout all previous years of work, the result is even more devastating.

We thus realize that 86% of individuals unemployed in 2012 have certainly contributed to EI during their working life, but of this number, only 30% have received benefits. In fact, this situation has been ongoing for many years (see table 4).

The employment insurance program has become both too restrictive, and poorly adapted to the current reality of workers and the labour market.

This is clear from the anemic proportion of EI beneficiaries, which has persisted since the late ‘90s and reached historic lows in 2012 and in 2013 (see chart 1).

Adding to the mix, the minority of the unemployed who do receive benefits also face difficult circumstances, especially since the last reform in 2013 (overview here).

In summary, the Employment Insurance program has some major problems: it fails to adequately protect the victims of unemployment. On the contrary, it places them in a highly vulnerable position.

As for the employers, they generally have a large pool to choose from when it comes to recruitment: there are on average six times more unemployed than job vacancies in Canada, and even more in most provinces (see table 5). This shortage of jobs relative to the number of unemployed is felt in almost all sectors of activity (see table 6).

So, the equation is as follows: vulnerability of workers + a shortage of jobs = downward pressure on wages and quality of all jobs. If we are employed long-term or occasionally unemployed, we are all affected by the result of this equation.