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The surge in unemployment caused by the COVID-19 pandemic will mean Canadians will need to work fewer hours to qualify for employment insurance (EI), and they will be able to collect it for longer.
Economists are wondering what effect that may have on people returning to the workforce.
How unemployment affects EI
In Canada, EI qualification criteria match the level of unemployment in any given area. Workers in areas with higher unemployment, such as rural or economically depressed regions or those that rely on seasonal industries, have to work fewer hours to qualify for EI benefits, and can receive those benefits for longer.
In areas with low unemployment rates, it takes longer to qualify for EI and workers are eligible for fewer weeks of payments.
The system is designed this way to ensure access to benefits reflects the workforce realities in different parts of the country and changing economic climates.
The COVID-19 pandemic has put millions out of work as businesses shuttered and people stayed home to avoid spreading the coronavirus, and many are drawing on emergency government programs to pay their bills.
At the start of 2020, the unemployment rate in Canada, according to Statistics Canada’s monthly labour force survey, was 5.5 per cent, but by May it had risen to a record-breaking 13.7 per cent.
Diminishing minimum qualifications
A study released this week by the Fraser Institute, a public policy think tank, looked at 56 provincial employment insurance regions, and found that in April and May workers across Canada had to work, on average, a minimum of 627.5 hours to qualify for 17.3 weeks of EI benefits. By June, workers needed only 491.3 hours of work, on average, to qualify for 23.5 weeks of EI benefits, the study states.
The study says that, using a three-month rolling average, if current levels of unemployment hold, by August/September workers will need 453.1 hours of work to qualify for 25.6 weeks of EI benefits.
The study concluded the impact of these changes on Atlantic Canada will mean the unemployment in Atlantic urban areas will match what is typical in Atlantic rural areas, which may have a damaging effect on urban Atlantic labour markets.
In June-July 2019, unemployment averaged 6.5 per cent in urban Atlantic Canada, requiring an average of 665 hours of work to collect 15.3 weeks of EI benefits, compared to 11.3 per cent unemployment, on average, in rural areas, requiring an average of 507.5 hours of work to qualify for 22.7 weeks of EI benefits.
According to the Fraser Institute report, if current levels of unemployment hold for the EI three-month rolling average, unemployment in urban areas of Atlantic Canada will average 12.9 per cent, requiring an average of 437.5 hours of work to collect 25 weeks of EI benefits, compared to 15.2 per cent average unemployment in rural areas, requiring an average of 431.7 hours of work to qualify for 28 weeks of EI benefits.
“There is danger... that we will have a long-term rise in unemployment and the generosity of the system keeping the unemployment rate high.”
- Fred McMahon
The study’s author, Fred McMahon, a resident fellow with the Fraser Institute, argues that a more generous EI system provides an incentive for people to avoid returning to the workforce.
This happened in 1971, MacMahon said, when regionally extended insurance was introduced in Atlantic Canada — unemployment increased significantly compared to the national average, and regional labour shortages developed.
“What was happening across Atlantic Canada at that time was that employers were reporting labour shortages because people didn't want to leave EI to work because the EI payments were so generous,” he said.
“There is danger in the long term for Canada that the same thing will happen, that we will have a long-term rise in unemployment and the generosity of the system keeping the unemployment rate high.”
MacMahon said this is already being observed, albeit anecdotally, in some sectors of the economy. In Atlantic Canada, the agricultural and fish processing sectors have both complained of trouble hiring employees, and some have resorted to bringing in workers from out of the country using the temporary foreign worker program.
However, MacMahon said it isn’t known to what extent those observed trends are, and if they are caused by available benefits like the Canada Emergency Response Benefit and EI or other factors, such as workers being concerned for their safety, or the unavailability of childcare.
Fred Morley, a Halifax-based economist and founder and chief economist with Rising Tide Economics, said while a small correlation in EI availability and willingness to work has been observed, it does not justify the kind of widespread concerns that have been raised by the Fraser Institute and others.
“There's a kernel of truth there. When you look at academic work in the area it suggests … that correlation is very small — .2, .5 per cent, that kind of thing,” he said.
“Your unemployment might go up a very small amount because of the availability of employment insurance, but I don’t think there’s an army of miscreants out there that are trying to take advantage of this on a regular basis. I don’t think our Canadian labour force has those characteristics.”
In fact, Morley said, what has been seen in the last 10 years is that despite the availability of employment insurance, when jobs become available, people take them.
“Unemployment rates have been going down for quite some time,” he said.
This is true in Atlantic Canada as well, but the region has extenuating circumstances that affect unemployment rates.
A Statistics Canada study released in 2019 said despite the unemployment rate falling to its lowest level since 1976, the region still has higher rates than the national average. In 2018, the unemployment rate ranged from 7.5 per cent in Nova Scotia to 13.8 per cent in Newfoundland and Labrador, compared to 5.8 per cent nationally.
The StatsCan study attributed this to a few factors: the importance of seasonal industries, a smaller workforce due to an aging demographic and young people leaving the region, and the large gap between unemployment rates in rural and urban areas.
While Atlantic Canada may continue to face these challenges for some time, Morley said, evidence suggests a mass change in workforce availability — in Atlantic Canada or anywhere else — is not going to happen.
“There are pressures currently that are very unusual. It’s a once-in-a-century kind of thing, but when things get back to normal and the economy starts to reopen, we'll see people going back to work,” he said.