Ottawa would be well advised to bolster employment insurance benefits. Quickly.
A troubling new study by the Canadian Centre for Policy Alternatives has compared this recession to the 13 others the nation has seen since 1926.
And this one is shaping up to be a whopper.
The 43-page report examines, in great detail, the economics behind the current and former recessions.
Forget the Great Depression for a moment. The personal financial crises and job losses that citizens suffered through the 1980s and 1990s were the worst postwar Canada has seen.
And out-of-work Canadians were better prepared and protected when the jobs started evaporating back then.
Canada’s employment insurance system actually provided some security to workers losing their jobs.
At the beginning of the 1980s recession, 75 per cent of the newly unemployed could tap the government fund to tide them through the hard times.
And, as the economic problems worsened, the government support increased. By 1990, the number of unemployed tapping benefits had risen to 83 per cent.
Then the system was reformed.
Ottawa pulled out of funding what was then called unemployment insurance. Employers and employees saw premiums skyrocket.
The legislation was changed to employment insurance, extended benefits were eliminated and the duration of benefits were reduced in all markets but those with the highest unemployment.
People who quit or refused employment were ineligible for benefits, and it was harder to qualify for benefits.
By 1996, people qualified based on their hours of work, but the threshold for qualification was raised again to the equivalent of 420 (and sometimes as high as 920 hours, if you worked in a place with robust employment) from 300 hours under the old system.
And everyone now pays premiums. Under the old system, those who worked less than 15 hours a week were exempt from premiums.
“Part-time and seasonal workers found themselves increasingly likely to pay more into a fund that they were increasingly unlikely to be able to access for help,” according to the report.
Today, only about 44 per cent of unemployed Canadians access national jobless benefits.
And, unlike the earlier recessions, Canadians, encouraged by record-low interest rates, have more debt than at any other time in the nation’s history. Also, personal savings are at record-low levels.
So when people lose their jobs, they are more exposed than at any other time in the nation’s history.
And those job losses are getting severe.
“The scale of job loss today eclipses what happened in the opening months of the 1981-82 and 1990-91 recessions, both in absolute and relative terms,” according to the report.
“In those previous recessions, the rate of job loss accelerated as the recession wore on.”
This is likely to happen again.
“Swept along by global forces, production keeps going down and job losses, bankruptcies, government deficits keep going up.
“Our economic history shows that, as far as unemployment is concerned, the worst is yet to come.”
Nobody is prepared for it—including the national government.
“For almost two decades we have developed public policy based on the premise that the best social policy is a job. Income supports have been stripped in order to create incentives to grab whatever work is out there.
“What happens when the jobs dry up?”
Most households rely on two incomes, which, in the past, might have softened the blow of job loss.
Today, that’s not the case.
Many two-income households can’t survive the loss of one income.
And families with over-leveraged budgets may hit their personal debt wall in a hurry as women start to lose their jobs in growing numbers.
“Not since the Great Depression have unemployed Canadians been so unprotected in the face of a recession,” concludes the report.
As people’s finances dry up, they won’t be buying products.
And consumer spending accounts for 57 per cent of the modern Canadian economy. When that dries up, the layoffs get worse.
You can see the cycle.
Which is why government must step up efforts to keep money in the system, through public investment and support for laid-off workers.
“With exports, business investment and household spending all declining, governments are the only agents left in the economy that can offset the contraction,” according to the report.
“They can help by retaining and creating jobs through public expenditures and by sustaining the purchasing power of households through income supports—strengthening the foundations in order to raise the roof higher.
“Those two actions alone will help retain and create jobs in the private sector and offset the worst of the coming months.”
Right now, there is a lot of debate about restructuring employment insurance.
But the system needs to be bolstered immediately, before unemployment begins to snowball.
There isn’t much time. (Richard Mostyn)