Canada’s employment insurance system requires modernization to weather negative economic shocks, according to a new report by the C.D. Howe Institute.
The report, which analyzed unemployment rates across Canada over 13 years, found 85 per cent of the variation in rates reflects provincial differences, including layoffs occurring in regions characterized by persistent high unemployment rates and chronic employment instability, while the remaining 15 per cent represents changes in unemployment rates over time, including layoffs caused by cyclical economic shocks.
According to the report, the problematic features of EI are variable entrance requirements and benefit durations that are slow to respond to increases in unemployment, as well as finely divided administrative regions with boundaries that reinforce inequities in access conditions and potential benefit durations.
The report proposed three key policy recommendations, including: implementing uniform or more universal entrance requirements across Canada; using monthly changes in provincial unemployment rates as the indicator for labour market conditions to adjust benefit entitlement durations; and significantly reducing the number of administrative regions to achieve greater transparency of boundaries and a higher degree of precision in calculating regional unemployment rates.
“An indication of a system that isn’t working is one that has been amended when the program is most in need,” said David Gray, an economics professor at the University of Ottawa and one of the report’s authors, in a press release. “When the next recession hits, without reform, we’ll be doing the same thing as now with plugging gaps. We’ll need to target spending to the newly needy.
“However, the net cost of what we propose depends on the generosity of the revised program rules and the potential savings from increasing benefit durations in a recession and decreasing them in an economic expansion.”