Many working Canadians are getting an unpleasant surprise with their first paycheques of 1997 — higher employment insurance (EI) deductions, and lower take-home pay.
What happened? Didn’t the July 1996 reforms to the old UI program (which also changed its name to EI) spark a raucous debate over benefit cuts and tighter eligibility requirements? Didn’t the ceiling for insurable earnings drop? Didn’t the human resources and finance ministers announce a premium cut?
The headline story behind EI’s bigger bite in January 1997 was the federal government’s decision to stop limiting premiums only to a weekly maximum of $750 in earnings. Now, the full 6.96-per-cent premium (2.90 from the employee; 4.06 from the employer) is payable on all weekly earnings before reaching the annual maximum of $39,000. (Those with very low incomes will receive relief at tax time.)
There is, however, another more important story in the background. Over the years, the federal government has diverted a growing share of UI/EI premiums away from insurance purposes — regular initial benefits to laid-off workers — and toward a variety of non-insurance programs, such as regional extended and fishing benefits. Such programs now make up nearly half of EI expenditures, putting huge upward pressure on premiums.
The latest non-insurance growth area is joint federal-provincial training programs. Last year’s EI reforms proposed a sizeable ramping up of federal spending on training to fund $2 billion in new joint programs.
The federal government has correctly concluded that the results of its own training efforts have been poor. The past decade or so has seen a steady stream of new federal programs, each springing up with a new name and great hopes, only to succumb after sharp criticism from parliamentary committees, the auditor general, business and labor advocates, and so on.
Although the provinces’ record is far from unblemished, the case for provincial action in training is stronger. Training programs that have succeeded have tended to be tightly focused on local employers and specific skills, factors that provincial governments are clearly better placed to consider. The provinces also control programs such as education and welfare that are closely related to training, and whose failures training often tries to make good.
Does superior capacity for training at the provincial level justify joint federal-provincial management? The past record of shared-cost programs is not promising. And neither are the EI proposals, which require the provinces to deliver five specific programs hedged about with seven federal conditions. The sort of flexibility and accountability needed for training programs will be ill-served by federal and provincial bureaucrats stumbling along together in a three-legged race.
Labor market policy is an area where Canada needs less federal-provincial entanglement, not more.
There are better ways. If high national unemployment — not to mention an upcoming election — makes continued involvement in training appear irresistible to federal officials, direct grants or loans to individuals or employers are superior to new programs run jointly with the provinces.
Any such payments should be funded from the regular federal budget: Diverting EI premiums from insurance to sundry other programs makes a mockery of accountability.
Even better would be for the federal government to follow the lead of numerous proposals for reduced federal-provincial entanglement, including its own, and withdraw from training altogether. Accountability and flexibility will be better served if the provinces design, fund and run these programs on their own.
For its part, the federal government should refocus on its constitutional mandate of insuring workers at risk of being laid off. Eliminating spending on training and scrapping the proposed joint programs would allow EI premiums to be at least a percentage point lower than they are now.
Provinces might react by boosting their own training programs. Lower EI premiums would even give them some room if they needed additional revenue to fund them. Or, recognizing that even provincial training programs have had mixed results, the provinces could simply allow a growing economy and a smaller EI-premium wedge between what employers pay and what workers take home to improve the prospects for job-seekers. Either way, unemployed Canadians — not to mention the cause of federal-provincial harmony — would benefit.
With a little courage and imagination, the beginning of 1998 could be a different story. Responsibility for labor market policy could be more clearly located at the provincial/local level, where it belongs. Canadians seeking training could benefit from programs more closely tailored to local conditions than joint federal-provincial administration can provide. And lower EI premiums would lower the barriers that payroll taxes put in the way of less skilled Canadians seeking work.
All this, and higher take-home pay to boot — now that would be a pleasant surprise!
Kenneth Boessenkool and William Robson are with the C.D. Howe Institute in Toronto. They are authors of Ending the Training Tangle: The Case Against Federal-Provincial Programs under EI (C.D. Howe Institute, 1997).