Friday, October 20, 2000
National Post

Why kill EI reforms that work?

By Peter Fenwick

When Unemployment Insurance was sweetened in the seventies and eighties, rural Canadians sunk into a desperate cycle of working eight to 10 weeks and then drawing UI for another 42 weeks. In the worst of the bad old days, government even supplied the work in clean-up-the-graveyard make-work projects that demeaned work even further.

The UI trap became so attractive that high school students, especially in high-unemployment areas, would drop out of school, sign up for the latest make-work scheme, and draw UI for months each year. It was a dead end for many young Canadians. Grim humourists called it Lotto 10-42.

Fortunately, things changed.

Under mounting deficits in the late eighties and early nineties, and under urging from a number of critics and politicians such as Lloyd Axworthy, the program was tightened to make UI harder to get. Maximum benefits were cut, while seasonal UI recipients who drew benefits season after season had their payments reduced through the intensity rule.

Remarkably, the reforms have achieved much of what was expected of them. According to a recent Atlantic Institute for Market Studies study by David Murrell and Rick Audas of the University of New Brunswick, the reforms have increased the length of time seasonal workers work each year, without cutting benefits appreciably. This is significant even if actual funding going to seasonal workers is as high, if not higher, than before the reforms.

The cuts from the intensity rule and the clawback were more than compensated for by the increase in funding to low-income families through the family supplement. When extra spending for job subsidies and training is added in, the funds pouring out to individuals have actually increased. The only reason total EI spending has dropped is the drop in the number of the unemployed.

But the most dramatic finding was the discovery that young Canadians, especially in Atlantic Canada, have stayed in school much longer, and have chosen occupations that are much less seasonal. Educational participation among 18-to-29-year-olds has increased by 50%, allowing young Atlantic Canadians to enter managerial and natural science professions at a 30% to 40% higher rate. The numbers choosing construction, farming and mining are down by 40%. In increasing numbers, rural Atlantic Canadians have turned their backs on a poverty-level existence that relied heavily on a cycle of low-paid seasonal work and Employment Insurance payments.

Last month the Federal Liberals repealed some of the mid-nineties reforms. Lotto 10-42 has not been fully reinstated, but they have baited a trap that may reverse much of the good work the reforms have accomplished. Instead of staying in school and pursuing careers in IT, business, health sciences and the professions, they may start returning to construction, fishing and seasonal labour, and other primary, highly seasonal occupations that are in decline.

The biggest inducement for young people to return to seasonal work is the elimination of the clawback. That 1996 reform cut the effective benefit rate for those making over $50,000 a year to zero after five years of drawing benefits. The high-income clawback has been declawed. Now highly paid construction workers and deck hands on shrimp boats can once again make extremely generous incomes without losing much of their EI benefits.

The Liberal sweetening of the pot is compounded by the huge loophole in the EI regulations that allows fishermen to draw EI benefits for six months a year without having to work any set number of weeks. The only requirement is to catch a paltry $2,500 worth of fish, an amount that can be caught in a few good days on a shrimp boat. According to Human Resource Development Canada’s own annual reports, the number of fishermen is growing again, despite planned expenditures of $350-million to buy back licences.

The federal government justified the repeal of the intensity rule and the clawback by arguing that they had failed to cut the number of seasonal workers or to lengthen the time they worked each year. The desired results were not achieved. Yet the failure may have been in not pressing forth with all the reforms that were proposed by Mr. Axworthy in his 1994 review of the program.

What is clear is the dramatic change in the economic behaviour of the younger generation of mostly rural Canadians. The weaker benefits appear to have encouraged them to stay in school, to upgrade their human capital and to prepare for professions that are much less seasonal. For them, at least, the reforms have been quite successful.

And yet, repealing the changes may not help the Liberals much. At the time of the announced EI changes last month, business leaders in Atlantic Canada called the changes offensive. In Halifax, where unemployment is an anemic 6.2%, generous EI benefits for Cape Bretoners are resented. And clawing back EI from high-income seasonal workers was supported by almost half the Atlantic Canadians polled by CRA, a Halifax public opinion polling firm. If the federal Liberals believe giving EI to people who make more than $50,000 a year is a successful political strategy, they are in for a rude awakening.

In the long run, the EI program has to be completely overhauled. A program that has devastated much of rural Canada by pushing people into highly seasonal work that exists only because of high EI subsidies has to be overhauled from top to bottom. At the top of the strongest economic cycle in 30 years, Cape Breton, rural Newfoundland, parts of eastern New Brunswick and the Gaspé still have unemployment rates above 15%. There are enough jobs for all in Canada; it is only the stultifying EI program that is stalling the adaptation to a new economy in these areas.

When the federal Liberals enriched the EI program in a callous attempt to recapture Atlantic Canada, they may have undermined the rather remarkable adaptation young people have been making over the past decade. If reforms like that continue, we will return to the dark days of the 10-42 syndrome and the terrible waste of human lives it represented.

Peter Fenwick is director of communications and publications, Atlantic Institute for Market Studies.