History of Unemployment Insurance - Developments from 1980 to 1983
The new Liberal Government that was elected in early 1980 intended to follow through on plans to study unemployment insurance. However, although study took place, action did not. Instead, the energies of the UI system were directed at coping with the worst economic downturn since the 1930s. Unemployment rose sharply, almost overwhelming the system in place. The Commission, Canada Employment Centres and employees responded to the sharp increase in workload with additional staff and resources, and a variety of innovations to increase efficiency. The few substantive program changes were forced more by human rights decisions, ad hoc responses to specific policy and operational issues, and by the continuing effort of the federal government to control its deficit by shifting the burden of UI-related costs to employers and workers.
1980
Average national unemployment rate: 7.5 per cent
Benefits paid: $4.332 billion
Premium rate: $1.35
Maximum weekly insurable earnings: $290
Cumulative UI Account balance: –$6 million
Only one major piece of UI legislation was introduced during the year. Bill C-3 extended the 10-to-14 week variable entrance requirement until June 1982, and was the first of a series of bills during the 1980s to extend this “temporary” measure. C-3 also implemented the former Progressive Conservative Government’s budget decision to eliminate the threshold financing formula. That shifted all costs of initial and labour force extended benefits to premium payers. The federal government would continue to pay the cost of regional extended benefits from general revenue. This change was meant to reduce the government’s share of the cost of total UI benefits to about 20 per cent, the level that existed before 1971.
One minor bill, C-22, the Adjustment of Accounts Act, became effective April 1, 1980. It provided that the government’s cost of paying benefits be credited to the UI Account from the Consolidated Revenue Fund on a fiscal rather than a calendar year basis.
Financing and Insurability Changes
The Hon. Lloyd Axworthy, Minister of Employment and Immigration in the new Liberal Government, also announced two important regulatory changes. Effective April 1, the costs of employment and related services and the costs of administering the UI program were to come out of employer and employee premiums at an estimated additional charge against the UI Account of $246 million for the 1980-1981 fiscal year.
The second regulatory amendment resolved the minimum insurability debate started by the changes in Bill C-14. The need to meet both wage and number-of-hours criteria had been criticized for its impact on part-time and low-wage workers, particularly women. Under the new rule, insurability shifted to achievement of either criterion. From January 1981, a person who earned 20 per cent of the maximum weekly insurable earnings or worked 15 hours a week would be insurable. This extended UI coverage to approximately 300,000 workers at an initial annual cost of $100 million in benefits. It was estimated that UI premiums would pay $75 million of the additional cost and $25 million would be paid by the federal government.
The UI Account at the end of 1980 showed the effect of these changes. Elimination of the government contribution to initial regular benefits and the shift of employment service costs to the UI Account helped push the annual deficit up sharply, to $656 million from $91 million.
Maternity Benefits — Teachers
The issue of maternity benefits for teachers was at the centre of a case decided by the Supreme Court of Canada. The Commission had stopped benefits in the July and August non-teaching period if a teacher’s contract continued into the next teaching year because it considered there was no loss of earnings. The Supreme Court ruled against this interpretation, holding that money received by the teacher before her maternity period was for services provided before that date. As a result of the decision, the Commission re-instituted a teachers’ regulation that permitted the payment of maternity benefits in the non-teaching period but specified that other UI benefits would not be payable to teachers during this period unless:
- the contract of service in teaching ended on or before the start of the non-teaching period; or
- the teacher was employed as a casual or substitute teacher; or
- the teacher qualified for benefits because of employment in another occupation than teaching.
Operational Issues
In May, the expansion of appeal rights and facilities contained in Bill C-27 was implemented.
Overpayment issues took a high profile among operational issues in early 1980. A computer programming error led to $4.8 million in overpayments. Efforts to recover the money were largely successful but also led to the occupation of some Canada Employment Centres in Nova Scotia by protesters.
That year’s Auditor General’s Annual Report estimated that UI overpayments in 1978 amounted to $290 million. About $125 million of these overpayments were caused by employer errors on the Record of Employment, $69 million from workers’ failing to report work and earnings and about $96 million from Commission errors.
In response to those and other criticisms of benefit control activities, the Commission introduced 11 measures to reduce the incidence of overpayments. These included a new Record of Employment form, a report on hirings program, an improved quality control/quality assurance system, an on-line computer system and improved staff training.
The speech from the throne in April 1980 announced a review of major social and economic programs in order to promote expenditure restraint and labour market adjustment. In July, the Task Force on Unemployment Insurance was set up within Employment and Immigration Canada “to review recent experience with the Canadian system of unemployment insurance and to consider the types of changes that would be appropriate in the light of factors likely to influence the operation of Canadian labour markets in the 1980s.”
1981
Average national unemployment rate: 7.5 per cent
Benefits paid: $4.757 billion
Premium rate: $1.80
Maximum weekly insurable earnings: $315
Cumulative UI Account balance: +$331 million
Task Force on Unemployment Insurance
On July 7, 1981 the Report of the Task Force on Unemployment Insurance was tabled in the House of Commons. The Report traced the evolution of the UI program and examined and assessed the impact of the program on the Canadian economy and society, especially in the period from 1971.
The Task Force reviewed the existing provisions of the UI legislation from three points of view:
- inequities;
- impacts on the labour market; and
- complexities that created difficulties in administration.
The terms of reference had asked the Task Force “to identify options for change in the program, with a view to establishing for the 1980s a more coherent framework of objectives related to social insurance principles and designed to facilitate the matching of unemployed workers with available jobs.”
Early on, the Task Force decided to exclude fishing benefits from its review of the UI program. The Task Force concluded that this component presented a unique set of issues and should be studied separately.
Following its research, the Task Force concluded that although there were signs of a developing consensus that the UI program had to change, there was little agreement about the scope or nature of that change. The disagreement arose from differences of opinion about the proper role and objectives of an unemployment insurance program and about its place within Canada’s income security strategy.
In the face of this disagreement about “ends,” the Task Force decided not to attempt to propose a radical restructuring of the philosophy or principles of the UI program. Instead, it chose to try to find practical changes that, if adopted, would eliminate or significantly reduce inequities, promote labour market adjustment and simplify program administration.
The Indicative Package of Changes
The Task Force put forward an illustrative set of measures it called an “Indicative Package,” an attempt to find a balance among the three aims of addressing inequities, impact on the labour market and simplification. The Task Force prepared a detailed analysis of the impact of its proposals on workers and employers with data broken down by a number of factors including gender, industry, occupation and region.
Although the Indicative Package addressed the means not ends, the cumulative effect would have been a substantial change to the operation of the UI program. Some examples will illustrate the scope of the proposed changes. The Task Force suggested:
- eliminating the special entrance requirements for new entrants, re-entrants, repeaters and special benefits (sickness, maternity and retirement);
- adopting a single entrance requirement of 15-20 weeks based on the regional rate of unemployment, up from the current 10-14 weeks;
- eliminating the minimum insurability rules to provide more universal coverage and to ease decisions on what work was insurable;
- disregarding all earnings on separation for premium and benefit purposes;
- extending the application of maternity benefits to adoptive parents;
- raising the benefit repayment rate on high-income claimants from 30 to 50 per cent;
- reducing the duration of benefits, especially for claimants with shorter job attachments;
- increasing penalties for people who quit jobs without just cause; and
- improving the income security of working women by enhancing maternity/adoption benefits.
The Task Force’s estimate of the financial impact of its Indicative Package for the year 1983-1984 showed that women claimants would receive $10.4 million more in UI benefits; men would receive $230.4 million less. The government’s share of benefit costs would drop by $295 million while the share borne by employee and employer contributions would increase by $75 million.
Consultations
Through the fall of 1981 and the early part of 1982, the Task Force held dozens of meetings with groups representing business, labour, women, Aboriginal people and other interests. The proposals were also discussed in federal-provincial meetings. The results of the consultations were referred to Cabinet along with a set of revised proposals. After considerable discussion, Cabinet approved a series of changes, and work began on drafting the necessary legislation and in preparing implementation strategies.
However, by the summer of 1982, the economy had dropped into a serious recession. Its quick onset and depth took planners by surprise, and EIC began to gear up for the impact on unemployment. Work on legislative changes stopped except for ad hoc activity.
1982
Average national unemployment rate: 11.0 per cent
Benefits paid: $8.455 billion
Premium rate: $1.65
Maximum weekly insurable earnings: $350
Cumulative UI Account balance: –$2.397 billion
As unemployment rose sharply, serious processing backlogs resulted until CECs were permitted to hire more staff. The government also introduced a work-sharing program using experience gained in a number of pilot projects in the late 1970s. Its 1982 budget was set at $10 million and later raised to $90 million. Actual expenditures were about $83 million.
In late 1981, the Commission and government agreed to reduce premium rates slightly for 1982, because the UI Account held a surplus and a stable economy was forecast. At the same time, the economy began its sharpest decline since the 1930s. Unemployment increased by 60 per cent during the next two years and program costs more than doubled. Deficits grew sharply in both the UI Account and in the government’s overall operations.
The UI Act would have permitted a premium rate increase of more than two thirds. There were concerns that an increase on that scale would only hurt employment and the economy even more. The search for a compromise in rate-setting sparked extensive consultations with employer and labour organizations. As a result Minister Axworthy announced that premium rates would increase by almost 40 per cent for 1983. It was decided that the projected doubling of the cumulative UI Account deficit was defensible, given the alternative.
Mr. Axworthy also announced that current circumstances did not permit changes to the UI program on the scale of those suggested in the UI Task Force report. Instead, the government introduced Bill C-114 extending the variable entrance requirement for one year, until June 3, 1983.
Some ad hoc changes were made as a result of the Task Force’s work. One dealt with earnings on separation. Treatment of money paid to employees on separation had long made assessment of claims difficult. Even that year, the Supreme Court of Canada was called on to rule whether payments from a vacation-pay trust-fund, such as those common in the construction industry, were earnings or not. In the Bryden case, it ruled they were not.
Because of the complexity of issues such as that, there had been a series of changes in treatment of earnings on separation. In 1977 severance pay was dropped as earnings for benefit purposes. Then, in a two-stage change in 1978, accumulated sick credits and bonuses and gratuities were dropped. On September 5, 1982 regulations were amended so that all types of separation monies, including vacation pay or pay in lieu of notice, became non-earnings.
In August 1982, the government announced that UI Regulation 16 concerning the eligibility of agricultural workers would be revoked as of January 1, 1983. Under the regulation, agricultural workers had had to earn at least $250 and work at least 25 days during a calendar year for the same employer before their employment became insurable. After revocation, agricultural workers were subject to the same insurability rules as all other workers in Canada. This meant that in 1983, they would have to work 15 hours a week or earn $77 (20 per cent of maximum weekly insurable earnings). The intent of the change was to make the UI program “more equitable and responsive to present economic conditions” and to “make short-term agricultural work more attractive to workers in other sectors.”
1983
Average national unemployment rate: 11.8 per cent
Benefits paid: $10.063 billion
Premium rate: $2.30
Maximum weekly insurable earnings: $385
Cumulative UI Account balance: –$3.854 billion
Most of the focus in the UI program during 1983 was on coping with the administrative problems caused by record claim levels. Program expenditures rose sharply, mainly because of the cost of regular benefits but also because of the developmental use of UI funds. For example, job creation benefits rose from $83 million in 1982 to $107 million in 1983.
These increased expenditures pushed the government’s contribution to the UI Account in 1983 to $2.81 billion, from the 1982 total of $1.78 billion. Due to large premium increases, the UI Account annual deficit declined from $2.73 billion in 1982 to $1.46 billion.
Despite the rising cumulative deficit, the government decided, in October 1983, to freeze UI premiums for 1984. It was anxious that private sector costs be kept to a minimum in order to encourage employment. The government recognized that this would lead to a higher cumulative deficit by the end of 1984, estimated at$5 billion, but expected that if current labour market assumptions were correct the UI Account could be, once again, in surplus by 1987. This forecast was quite close: the Account was again in surplus in 1988.
Expansion of the UI coverage to more agricultural workers in 1982 had created administrative difficulties for employers. The Commission developed a simplified Record of Employment for agricultural day-workers that reduced the paper burden for employers but complaints continued. After consultations with representatives of employee and employer groups, section 16 was changed. It now required that employees work for the same employer for seven days in a calendar year before UI coverage could begin. Once the seven-day requirement had been met, the workers were subject to the same insurability rules as other workers.
New procedures for processing UI claims were introduced. The average wait for a claim to be processed fell from 24 to 21 calendar-days.
In addition to coping with a record number of claims and many legislative changes, the Commission was involved in initiatives surrounding the Record of Employment. The Task Force on Unemployment Insurance had recommended the creation of a joint Commission–private-sector group to review the Record of Employment. The Task Force hoped it would be possible to reduce the administrative complexity faced by employers in reporting insurable employment and earnings.
Two reports were produced in 1983 on the Record of Employment (ROE). One of the reports came from a group with representatives from government and the private sector, and the other from officials from EIC and Revenue Canada, Taxation. Both reports concluded that the ROE system was about as simple and efficient as possible under the existing legislation. Progress toward a simpler process would have to wait for legislative changes.
Another initiative was the introduction of the Comprehensive Tracking System to study in detail the processing of a random sample of claims. The initiative was prompted in part by a request from the Auditor General that departments improve their capacity to audit their own operations. The Tracking System was designed to determine the extent and causes of errors in the claims and payments systems which led to over-and underpayments.
Perhaps one of the most significant events during the year was a statement in the Supreme Court of Canada ruling that changed traditional UI jurisprudence. During a long strike at INCO in Sudbury, a worker there had found two days of work a week at a hospital in that city. When he lost that job, his application for benefits was rejected because he was deemed not to be “regularly engaged” in the hospital job. Under the jurisprudence to that time, his inability to prove he had no intention to return to his work at INCO after the strike meant that he was disentitled to benefits. Although that decision was consistent with all previous UI Act decisions on the issue, the Supreme Court of Canada overturned it and, effectively, liberalized the interpretation of UI rules.
In her decision, Madam Justice Bertha Wilson stated, “Since the overall purpose of the Act is to make benefits available to the unemployed, I would favour a liberal interpretation of the re-entitlement labour dispute provisions, I think that any doubt arising from the language of the statute should be given to the claimant.” Madam Justice Wilson’s position quickly became a new guide for UI jurisprudence.
