By Alex Whalen
and Fred McMahon
The Fraser Institute
The spike in unemployment across Canada due to the COVID-19 pandemic has triggered changes in the employment insurance (EI) program. And those changes could lead to significant problems.
When unemployment grows in any of the country’s 62 EI regions, eligibility and benefits change along with it. Due to the COVID-19 recession, the number of weeks required to access the program has fallen and the number of weeks of benefits has increased.
A new study by the Fraser Institute sheds more light on these changes. For example, at this time last year, a worker in Halifax had to work 700 hours to access 14 weeks of benefits. If current unemployment levels hold (calculations are made on a three-month rolling average), today that same worker in Halifax will need to work only 420 hours to access 26 weeks of benefits.
What’s wrong with increased benefits in a time of crisis?
Income stabilization is certainly a worthy goal and we know that programs such as EI can act as “automatic stabilizers,” which help support displaced workers during a recession. However, there are reasons why recent developments should concern Atlantic Canadians.
Regional EI benefits were introduced in Atlantic Canada in 1971, followed by a prolonged period of high unemployment – and soaring job vacancies. Perhaps because of the perverse incentives within the program, many workers preferred to remain on EI rather than seek employment.
This problem still exists and will likely be exacerbated by the COVID-19-related unemployment spike. Indeed, as the system increases in generosity and accessibility in Atlantic Canada, it may perpetuate the region’s problems with EI.
There’s also a danger for Canada as a whole. If extended EI benefits become the norm across the country, and they have the same effect on the rest of the nation as they do in Atlantic Canada, the damage to the country’s labour markets would be enormous.
Another national concern is the solvency of the EI program itself. One estimate in the study shows how the EI program could run a deficit of many billions of dollars this year. If so, it would be yet another fiscal problem for the federal government, which predicts a massive deficit this year and historic levels of debt.
An EI crisis would likely precipitate a rethink of the program.
Any reform of the program driven by such national concerns would of course affect Atlantic Canada. Soon, the rest of the country may not be as willing to subsidize Atlantic Canadian seasonal workers as in the past.
Now that Atlantic Canada-level benefits are available nationwide (at least for now), reform could happen, either due to insolvency or through changing attitudes toward the program.
Widespread unemployment across the country has triggered a massive expansion of the eligibility and generosity of Canada’s EI program. Atlantic Canada has been through this before.
Atlantic Canadians and Canadians alike should understand the potential consequences of this expansion and what it may mean in the near future.
Alex Whalen and Fred McMahon are analysts at the Fraser Institute.