EI Reform - Aiming East, But Affecting Ontario
Initial reactions to the reforms requiring frequent regular EI benefit recipients to take any “suitable work” offered to them may well turn out to be incorrect. In particular, the idea that EI regions within Newfoundland and Labrador, PEI, and parts of New Brunswick will be most affected is probably off the mark.
Many perceive the “suitable work” reform to be directed eastward. But the regional impact of these changes will be most strongly felt in any place in Canada that combines a substantial percentage of EI claimants, particularly frequent claimants, with a sizable number of job openings relevant for such workers. High unemployment rate regions simply have too few job opportunities for the new policies to have a large scale effect.
At an individual level, those most likely to be strongly affected by the policy change will be repeat users in extremely low unemployment rate regions, such as Alberta. These EI claimants will be required to take up relevant job offers, and offers will be plentiful. However, there are relatively few such individuals in Alberta so the province as a whole will not be greatly affected. The regions that will be most heavily affected are likely to be those that combine a more substantial percentage of repeat users of EI and a sizable number of relevant nearby job openings.
Therefore, it seems reasonable to expect that regions in the "middle" of the frequent use/unemployment rate spectrum (these two tend to move together) are likely to be most strongly affected by the policy change. Parts of Ontario fit this bill.
Regions like the frequently mentioned Notre Dame-Central Bonavista Bay in Newfoundland have extremely high unemployment rates (21.1%) and many EI claimants who are frequent users receiving benefits worth many times the premiums they pay. However, there are relatively few jobs – suitable or unsuitable – in the area. A few workers in this region will be affected, but the new policy is unlikely to have a large aggregate effect immediately. There are simply insufficient job openings in this region.
However, over the long-term, if the policy is enforced consistently, the pattern of excess part-year employment subsidized by EI may evolve toward full-year work.
Some might interpret this argument as saying that the most "severely" impacted regions will be those with mid-range unemployment rates. But, it may well turn out that this is the wrong adjective. These regions are more likely to be "beneficially" impacted in the long run.
If this new policy is enforced it will clearly cause short-term pain for some workers. However, in the long run, if it works, this policy should reduce unemployment and cause firms and workers to tailor employment patterns less to EI’s parameters.
Employers’ role in this aspect of the use of the EI system will also be highlighted as this shift goes forward.
These incremental changes will help our national output since worker time is one of the few truly “use it or lose it” factors in our society. The incomes of those who take jobs will increase, and there is also a direct benefit for those premium payers who subsidize the EI system.
Lower EI premiums result in more money in the pockets of individual workers. (Although workers and firms both pay premiums, workers will be most affected since wages above the minimum wage adjust to account for most of employers’ premiums).
Additionally, economic evidence comparing on-the-job to unemployed search for new/better employment does not suggest that unemployed search is always superior. Often employed search has advantages. Job search need not end when EI does, and in the short term employed job search may become more common following this policy change.
Canada has a problem with deleterious EI incentives subsidizing part-year work. The new regulations may have a positive effect in reducing this work disincentive, although additional policies directed toward employers may also be required in the future.
The upside is that once we have a better handle on this problem, we will be able to turn our attention to improving the EI system for those most poorly served at present, including long-tenured job losers, permanent part-time workers, and low-income premium payers in stable employment who are the wrong people to be subsidizing the EI system.
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