The Impact of Bill C-12 on New Entrants and Re-entrants - October 2000

The Impact of Bill C-12 on New Entrants and Re-entrants

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• Purpose
• Background
• Methodology and Data Sources
• Key Findings
• Conclusions
• Biographical note

This study investigates the impact of the employment insurance (EI) legislative changes on new entrants and re-entrants (NEREs). Under the new EI legislation, NEREs are required to have worked 26 (at 35 hours per week) instead of 20 insurable weeks under the previous system. This study estimates the annual cost savings to the EI account, and determines how individuals might be affected and how workers might adjust to the changes through their employment patterns. More specifically, the following issues are examined.

• How many unemployment insurance (UI) NEREs in 1995 would not have qualified for benefits under EI?
• Extrapolating the findings to 1997, what would be the annual cost savings to the EI account resulting from the higher entrance requirement for NEREs?
• What is the demographic and income profile of NEREs under UI, particularly those with 20-25 weeks of insurable employment who would not qualify under EI regulations? Does the new NERE rule tend to disqualify workers with higher or lower incomes?
• Would NEREs under UI who do not qualify for benefits (those with 20-25 insurable weeks) be likely to secure additional weeks to meet the new higher entrance requirement under EI?

Under the new EI legislation, NEREs are workers with fewer than 14 weeks or 490 hours (after January 6, 1997) of insurable employment, or 14 EI benefit weeks, or a combination of 14 weeks of insurable employment and benefit weeks during the 52-week period immediately preceding the qualifying period (the 52 week period immediately preceding the last Record of Employment (ROE) issued or the period since the last EI claim made, whichever is shorter).

For this analysis, first a method of identifying NEREs is developed, since the existing data do not include this information. Then the demographic profile of these workers, their income distributions, and their expected behavioural responses are determined. The analysis is constrained by lack of hours data in 1993-95. It cannot include those individuals who were ineligible for UI in 1995 but who would become eligible for EI benefits now if each insured hour of their work were counted.

This study is based on a random sample from the Canadian Out of Employment Panel (COEP) surveys from 1995. The sample consisted of 3,814 individuals who terminated a job in the fourth quarter of 1995 and were issued a ROE. The COEP data are supplemented by linking the data to individuals' previous ROEs and EI Status Vector records. The EI Status Vector records are used primarily to obtain detailed information about the EI claim history of individuals in the qualifying and the prequalifying periods. The 1995 results are then used to estimate the expected effects in 1997, including the potential cost savings to the EI account in 1997. The study also estimates the likely behavioural response by NEREs to the new eligibility requirements by estimating the probability they would be at or just above, as opposed to being just below, the entrance requirement.

• About 19 percent of all regular beneficiaries who left a job in the last quarter of 1995 were new entrants or re-entrants (under the UI definition). Over one-third of them had between 20 and 25 weeks and would not have qualified for benefits under EI.
• The impact of the EI change did not concentrate on any particular demographic group but was distributed more or less equally among all ages, regions, and genders.
• Men accounted for about two-thirds of NERE beneficiaries with 20-25 insurable weeks, more or less proportional to their representation among all regular beneficiaries. Youth accounted for 15 percent of NEREs with 20-25 insurable weeks and were somewhat more likely than older beneficiaries to be in that category.
• Individuals in lower-income households and those relying on social assistance would have been more likely to be affected. Individuals with monthly household incomes below $2,000 accounted for 60 percent of all NEREs with 20-25 insurable weeks. In addition, 19 percent of NEREs with 20-25 weeks had received social assistance since losing their jobs.
• The higher entrance requirement may have reduced the annual cost of regular payments by $650 million (about a 7 percent reduction).
• The average number of beneficiaries would have been reduced by up to 7 percent under the new EI system. This is an overestimate, because some individuals who qualified for benefits under EI but not under UI could have significantly lowered this cost-saving figure. This has not been accounted for in the cost-saving calculation because in 1995 no data on hours worked was available. Moreover, some individuals could have worked additional weeks later and subsequently collected EI benefits.
• About one-fifth of new entrants and re-entrants in 1995 are estimated to have been able to increase their insured weeks of work to meet the 26-week eligibility criteria if needed.

Tightening the entrance requirement for new entrants (and re-entrants) seems to be effective, both as a cost-saving measure and a method of encouraging stronger employment attachment. In 20 percent of the affected cases, the change from UI to EI would have encouraged more weeks of employment. The higher entrance requirement would have significantly reduced the number of beneficiaries and the amount of total benefits paid in the post-EI period. A large number of affected individuals were in lower-income households (with monthly income less than $2,000) or relied on social assistance. Although the Family Supplement is helpful to low-income individuals who qualify for benefits, it does not offset the tendency of disqualifying low-income NEREs. This effect may be reduced somewhat if the entrance requirement is redesigned to be lower in high-unemployment areas and higher in low-unemployment areas, similar to the design for the entrance requirement for non-NEREs.

Constantine Kapsalis is an Ottawa-based economics consultant specializing in labour market analysis and training and education studies. Previously he was an economic researcher with the Canadian Labour Market and Productivity Centre and the now-defunct Economic Council of Canada.