History of Unemployment Insurance - Major Studies of Unemployment Insurance

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During the early and mid-1980s, there was a series of reviews of, or touching on, Unemployment Insurance. Many covered the same issues as the UI Task Force Report. They tended to reflect the traditional debate between a smaller program focused tightly on insurance principles and a larger program offering a wider range of benefits with an emphasis on income redistribution. While none resulted in immediate and major changes to the program, they provided perspectives for future decisions.

Royal Commission on the Economic Union and Development Prospects for Canada (the Macdonald Commission)
The Commission of Inquiry on Unemployment Insurance (the Forget Commission)
Equality Issues in Federal Law and The Report of the Parliamentary Committee on Equality Rights (“Equality for All”)
The Newfoundland Royal Commission on Employment and Unemployment (The House Commission)
The First Report of the Standing Committee of the House of Commons on Labour, Employment and Immigration (The Hawkes Report)
The Federal Government’s Response

Royal Commission on the Economic Union and Development Prospects for Canada (the Macdonald Commission)

The Royal Commission on the Economic Union and Development Prospects for Canada was chaired by Donald Macdonald, a former Minister of Finance. It commissioned numerous analyses by economists and others of aspects of the economy during its work between 1982 and 1985. Some included studies of UI as one of a wide range of issues affecting the overall health of the Canadian economy.

The August 1985, final report of the Commission recognized that the UI program had been of great help to many Canadians during the high unemployment of the early 1980s. However, it concluded that certain UI provisions hurt the effective operation of Canada’s labour market. In particular, the Commission argued that the UI program:

contributed to an increase in the duration of unemployment;
increased the volume of temporary lay-offs;
reinforced the concentration of temporary and unstable jobs in high-unemployment and low-wage regions; and
provided too generous a subsidy to Canadians whose labour force behaviour was characterized by repeated unstable employment.

The Commission criticized the wide-ranging role of the UI program. It suggested that other programs be created to provided a guaranteed annual income and to meet the needs of the long-term unemployed. It argued for a smaller UI program linked much more strongly to insurance principles with lower benefits and higher qualifying criteria. It suggested that regional benefits be eliminated, that financing costs be amended to relieve the cyclical burden on the private sector during recessions and that experience rating of premiums be introduced on a business-by-business basis.

The Commission of Inquiry on Unemployment Insurance (the Forget Commission)

Two months after the Progressive Conservative Government of Prime Minister Brian Mulroney was elected in September 1984, it made an economic statement that promised a comprehensive review of UI. The six person Commission of Inquiry on Unemployment Insurance, under Claude Forget, began its work almost a year later. Its work drew on the Macdonald Commission’s research but also involved public hearings and submissions.

The Commission heard some 475 presentations in 46 communities across Canada, and considered 1500 written submissions.

Labour and business submissions to the Commission expressed traditional perspectives. In the end, the Commission’s majority report, supported in most aspects by Chairman Forget and three commissioners, concluded that a “. . . fundamental transformation of the design of the program and of the structure of the organization was essential.” While all commissioners issued supplementary statements, two commissioners with backgrounds in the labour movement rejected the majority view and recommended a number of changes that would have eased restrictions and increased the level of assistance provided.

The majority report agreed with the Macdonald Report that the UI program produced disincentive effects that discouraged long-term stable work patterns and that the UI program should be returned to its social insurance roots with an objective of income protection.

The majority report also agreed with Macdonald that the income supplementation elements in the existing program, primarily regional extended benefits and the largest portion of fishing benefits, should be shifted to a new program or programs developed through federal-provincial agreements that would assist families and individuals with low earnings.

The majority report tried to find ways of reallocating the existing level of UI program costs, $11.7 billion in 1985, into more productive uses. A portion of those funds would be needed to operate a simplified UI program. The rest would be available for transfer to a range of human resource development programs including an earnings supplementation program, economic and community development initiatives, education, literacy and basic training programs, and policies and programs to promote greater flexibility in the labour markets.

The majority report also tried to sweep away existing variations in the UI program that in their view produced inequity and complexity. After a four-year phasing-in period the following conditions would apply:

a standard cumulative entrance requirement of 350 hours or approximately 10 weeks;
benefits based on average weekly insurable earnings in the 52 weeks prior to unemployment;
benefits paid in 50 weekly installments after a two-week waiting period;
benefits to equal two thirds of insurable earnings;
an annual maximum insurable earnings limit applied according to the employer’s pay periods; and
a system of credit banking to ensure that all hours worked and all earnings were included in the calculation of benefits.

Other major recommendations included:

rejection of the Macdonald Commission recommendation for experience rating;
creation of a cumulative employment account that would provide extra benefits to laid-off workers with more than 30 years in the labour force;
continuation in the UI program of provisions to cover temporary sickness, maternity or parental benefits with some changes;
retention of work sharing but with streamlined procedures;
rescission of job creation because it was not an appropriate feature of a UI program;
rescission of training provisions in the Act and limitation of the role of the program in training to waiving the search requirements for those undertaking approved training;
extension, in principle, of UI coverage to all part-time workers but first of all to those who worked a minimum of eight hours per week;
removal of the age limit of 65 as a barrier to UI eligibility;
rescission of the treatment of pension income introduced on January 5, 1986, to be replaced with a policy that differentiated between unemployment that occurred at the time of initial receipt of the pension (the pension income would be treated as earnings) and unemployment that occurred during future employment periods (premiums and benefits would be based on formulae that would take into account pension income); and
establishment of a more autonomous Unemployment Insurance Commission.

The majority report calculated that, if its recommendations had been in place in 1985, the cost of operating the UI program would have been reduced from $11.7 billion to about $9.2 billion. The $2.5 billion saving would have been available to fund the proposed human resource development initiatives. This amount would have been augmented by $570 million for existing short-term job-creation programs. Therefore, the total sum available would have been about $3.1 billion.

The minority report, by the two labour representatives, began by stating that the overwhelming majority of participants in the consultation process had accepted the basic structure of the existing UI program and there was no mandate for anything more than alterations to current program rules.

It focused on improving the functioning of the existing program. It accepted most of the recommendations in the majority report that increased assistance to claimants and rejected most that cut back. Some of its recommendations to increase assistance went well beyond those of the majority report; for example, it proposed that the existing maximum benefit period of 50 weeks be eliminated, creating an effective maximum of 71 weeks.

The minority report estimated that its recommendations would have pushed the total cost of the UI program to $12.9 billion.

Equality Issues in Federal Law and The Report of the Parliamentary Committee on Equality Rights (“Equality for All”)

Most of the Canadian Charter of Rights and Freedoms came into force with the rest of the Constitution Act, 1982. Section 15 on equality rights came into force three years later on April 17, 1985. Judicial decisions under the Canadian Human Rights Act had already forced changes to the UI Act and regulations. The Charter strengthened the potential grounds to challenge aspects of the Act and contributed to many of the changes which would ensue in the following years both through direct challenges and by creating a climate more sensitive to these issues.

Two documents raised UI issues in the context of this fundamental change. The first was a discussion paper released by the Department of Justice entitled, Equality Issues in Federal Law. It was meant to solicit public comment on the application of the Charter to federal activities including Unemployment Insurance.

The second document came from the House of Commons, which asked its Standing Committee on Justice and Legal Affairs to assess the impact of section 15 on federal laws, programs and practices. To carry out the task, it formed a special committee which reported in October, 1985.

The committee considered a number of unemployment insurance issues but made very few specific recommendations. It recommended the creation of benefits to be available to either parent, in addition to maternity benefits. It also recommended an end to the higher entrance criteria for special benefits and to the aggregate 15-week limit on all special benefits during one claim. It recommended that the 65-year age-limit for regular benefits be removed. It suggested that the weekly insurability criterion of time be reduced from 15 hours, but to no less than eight.

The government’s response to these recommendations was that it would await the Forget Commission’s report before further action.

The Newfoundland Royal Commission on Employment and Unemployment (The House Commission)

In 1985, the Government of Newfoundland and Labrador established a Royal Commission on Employment and Unemployment. It submitted its report, Building on Our Strengths, in 1986. The Commission, chaired by Douglas House, was asked “to investigate all aspects of employment and unemployment in the province of Newfoundland.”

The Commission recommended that the province adopt a vision tied to a post-industrial era of electronics, computers, modern transportation and communication systems which no longer needed centralized populations for large-scale manufacturing enterprises. The Commission argued that achievement of this vision was impeded by “inappropriate” labour market incentives such as UI and job creation programs.

The Commission argued that the status quo undermined the intrinsic value of work, good work habits and discipline, the importance of education, personal and community initiatives and the incentive to work. It also discouraged self-employment and small-scale enterprise. In addition, the make-work aspects of the UI system encouraged political patronage and distorted the efforts of local development groups. Finally, the UI system had become “a bureaucratic nightmare” which was vulnerable to manipulation and in which the role of officials had become distorted.

In recommendations similar to those of the Forget report, the Commission suggested that income support and supplementation functions should be moved from UI to a guaranteed basic income system and an earned income supplementation scheme, both administered through income tax. The UI program could then return to its role of providing income maintenance to persons “in transition between permanent jobs or on short-term layoff, sick leave or maternity leave.”

The House Commission believed these changes would improve the provincial labour market and encourage a more productive use of the skills and abilities of Newfoundlanders. It recommended that the provincial government negotiate a system based on these recommendations, possibly as a pilot for Canada as a whole.

The First Report of the Standing Committee of the House of Commons on Labour, Employment and Immigration (The Hawkes Report)

During 1986 and 1987, the House of Commons Standing Committee on Labour, Employment and Immigration prepared its own review of the UI program. On March 19, 1987, it released its First Report to the House, commonly known as “the Hawkes Report” after committee chairman, Jim Hawkes. Like the UI Task Force and the minority Forget reports, and unlike the Macdonald and the majority Forget reports, the Hawkes report opted for change within the existing policy framework of the UI program.

The report made 90 recommendations. Most significantly it proposed that benefits for long-term unemployed people and those in regions of high unemployment be extended, with 10 work-weeks required for 50 weeks of benefits across Canada and with a future possibility of a return to a two-thirds per cent benefit rate.

The Committee also proposed the elimination of special entrance requirements for new entrants, re-entrants, farm workers, sickness and maternity/adoption benefits and of the benefit repayment provision. The notion of “credit banking” would be expanded to encourage claimants to accept short-term jobs and to permit persons leaving the labour force temporarily for reasons such as schooling or child-rearing to have their benefits suspended for up to five years.

On the issue of pensioners drawing UI benefits, the Committee did not believe that UI should be used as a retirement benefit. On the other hand, it felt that workers in receipt of pension income should be allowed to insure themselves against a loss of income if they took a job and later became unemployed. The Committee’s solution was to impose different job-search requirements on such persons. They would have to search for and accept employment as if they were new job entrants without previous occupational experience.

The Committee proposed greater, and more innovative, developmental use of the UI program. It also recommended a number of changes to treat claimants with more “respect and dignity” including changes to the job search, disentitlement, sickness and appeals provisions of the UI program.

On organizational issues, the Committee recommended that the UI program should be administered by a more autonomous body. It recommended a new Commission that would report to Parliament through a Minister and have a board of directors with nine members: three from business, three from labour and three from government (two from the federal government and one representing the provinces.)

Concerning the cost of the UI program, the Committee concluded that both employees and employers were prepared to accept as reasonable the current expenditure level of about $11 billion. However, both employees and employers were anxious that the monies be spent more effectively. The Committee’s report did not include an estimate showing the effect of their proposals. EIC officials believed that the changes would have added about $1 billion to the cost of the program.

The Federal Government’s Response

On May 15, 1987, the Hon. Benoît Bouchard, Minister of Employment and Immigration, told the House of Commons that the government had reviewed the advice provided by the Macdonald, Forget, House and Hawkes reports. He noted that there were “sharp and irreconcilable differences among those studies.” Consultations with worker and employer groups, with the provinces and others had convinced him that“opinion on Unemployment Insurance is divided, even polarized.” According to the Minister, one school of thought held that the UI program should be broken apart with insurance on one side, operating in accordance with insurance principles and with what are called social benefits on the other handled by another, unspecified mechanism. The second school did not accept the distinction between social benefits and insurance principles. Its proponents argued that the scope and coverage of the UI program should be expanded and enriched.

In view of the lack of consensus, the government had decided that “the competing and conflicting opinions of all the interested parties are best reconciled within the current structure of Unemployment Insurance.”