Human Resources Committee on March 9th, 2016

[The Chair, Liberal, Bryan May]

Thank you, Mr. Busby. That's good.

As I said, coming from Toronto, from the Canadian Federation of Independent Business, we have Mr. Daniel Kelly.

Welcome.

[Daniel Kelly, President and Chief Executive Officer, Canadian Federation of Independent Business]

Thank you very much.

I will refer to the slides that I believe you have in front of you, so I'll keep the numbers going.

Just for those who don't know, CFIB is a small business advocacy organization. We have 109,000 members across Canada, all of them are independently owned and operated businesses. We're a strictly non-partisan advocacy group.

Slide 3 shows that the small business expectations for the economy are dropping pretty fast. In fact, in Alberta right now we have an unprecedented low in small business optimism. That is quite troubling. Slide 4 tells us that on the employment front, small employers have been holding it reasonably well to this point. There have been more small employers looking to hire than looking to lay off. In recent months, as we've been measuring it, that gap is getting really small, where we were near a larger number of employers looking to lay off than hire. But in the most recent months, there's actually been a nice uptick it seems in terms of hiring expectations. This is often very seasonal. We do see this reading fairly frequently at this time of the year, but one would expect with the economy being as flat as it is right now, small firms, which do a disproportionate amount of the hiring in the economy, may continue to struggle with that in the future.

Slide 5 shows that the tax burden remains the number one concern of small and medium-sized firms across the country, but employment insurance is still fairly high. About 46% of our members say that EI is an issue of concern to them.

Payroll taxes hit small firms disproportionately hard. Slide 6 shows that 76% of members, small business owners, say that payroll taxes, EI, CPP, workers' compensation, those types of taxes, are the ones that hit them the hardest, well above corporate income tax, personal income tax, or even sales taxes.

One thing I should point out on slide 7 is that a huge number of small businesses across Canada have been asked by employees to lay them off so the employee can collect employment insurance premiums. While employers support strongly the view that there should be a good, well-funded system of EI available for those who lose a job through no fault of their own, we do need to do more to ensure that it doesn't encourage people to go and sit on the sidelines of the labour market as opposed to being actively employed.

With respect to the 2012 changes, we did survey our members in three regions: Atlantic Canada, Quebec, and Ontario. On slide 8 it shows that there was fairly broad support for most of the changes that were brought in at the time. That was including employers in Atlantic Canada and Quebec as well.

But we did certainly get some negative feedback from small businesses that are seasonal in nature. We did a deep dive as to what their issues and challenges were. There was concern at the time that they might lose good people who they depend on year after year. I have to say though, in reality—and I think this was consistent with what Colin was sharing a minute ago—virtually nobody got rejected from the employment insurance system as a result of these changes.

Enforcement has always been a problem. Most employees know that if you have a good story when you go into the EI office, you'll get reinstated with benefits in about two seconds. That does suggest to most employers that the enforcement really showed that these changes weren't having an operational impact on their employees or prospective employees.

I do want to note that small firms invest very heavily in training. We've estimated that at about $14 billion a year from SMEs. Most of that training in the small business workplace is informal. Small firms do find it more costly to hire new entrants into the economy, about $4,200 per year. It costs a lot more when you hire somebody who doesn't have job experience than somebody who comes with some.

We also know that small firms are the largest source of employment for inexperienced workers. I got my start at a pizza restaurant in Winnipeg where I grew up, and many of you will say the same thing, that your first job was often at a small independent business. That's very costly to the business. Small firms take a huge chunk of that employment burden in terms of training.

I do want to note very strongly with you that the Liberal promise to reduce the size of the cut in EI premiums in 2017 does worry us, particularly our small firms. Many of you may not know that in 2017 EI rates for small firms will go up while rates for employees and larger firms will go down. That is a huge concern. That's as a result of the small business job credit that was brought in for 2015 and 2016. That credit lowered premiums for small firms a couple of years earlier than other groups, but now as a result, small firm employers are going to see payroll taxes go up in 2017 unless action is taken, something we're advising you to do.

[The Chair, Liberal, Bryan May]

You have about 30 seconds, Mr. Kelly.

[Daniel Kelly]

Very good. I'll skip ahead to my recommendations.

One recommendation is that you maintain the small business job credit or put in place a permanent lower rate for SMEs, perhaps on the first $500,000 in payroll, and that some consideration be given to a fifty-fifty split in premiums between the employer and the employee. We recommend that employer overpayments be ended. Right now that's estimated to be about $900 million a year that employers pay because they're duplicating the EI that was paid by a previous employer when somebody has a new job.

We do need details on the youth employment incentive. We're thrilled with the Liberal plan to exempt and put a holiday in place for EI for 2016, 2017, and 2018, but for that to have an effect, employers need to know about it. Right now no information, zero information, has been shared with employers about that incentive so that they can take advantage of it.

Finally, and this is very recent from some meetings in Alberta, we're getting a big uptake in calls about the work-sharing program. A lot of businesses are interested in using it in order to protect long-term employees, but perhaps some expansion or simplification of that program, as happened during the 2008-09 recession, may be of use. We ask for consideration of that.

Thank you.

[The Chair, Liberal, Bryan May]

Thank you, sir, and thank you to everybody for curtailing your remarks today. I do respect the work that has gone into these presentations, and I apologize again for putting you on the clock a bit.

We will move on to our first questioner, Mr. Warawa.

[Mark Warawa, Conservative, Langley—Aldergrove, BC]

Thank you, Chair. I'll be sharing my time with Mr. Deltell, so if have six minutes, at three minutes in, could you give it to Mr. Deltell?

Thank you so much to all the witnesses for being here.

To Mr. Kelly, with the Canadian Federation of Independent Business, in a past life I was an entrepreneur myself. There is a risk to running a business and hopefully there's a profit at the end of each year. The first three years are difficult and I think the first two years of business I did not make money. I lost money. The third year I made money and from then on. The more money I was making in gross, the more I was able to hire staff and expand. It's always a risk to create a business, and not all businesses are successful. My hat's off to those who are growing businesses and taking those risks because you help create jobs in the Canadian economy. Thank you for representing them.

For EI, I remembered that for every dollar I would deduct from an employee's gross pay to pay for EI, I would have to pay $1.40. When I would give an employee an increase, there would be a proportionate increase that I'd have to pay for EI, and if it was a bad year—there were some in the eighties—I went without a paycheque because my staff always got paid first. That's what it's like to be in business at times.

When we talk about increases to EI, or reducing the level of qualifying for receiving EI—I think the suggestion was 360 hours, which is 45 days of work—what's the direct impact to an employer?

Also, how important is growing government debt to the people you represent?

[Daniel Kelly]

We've certainly seen an uptick in the concern over debt and deficit, but this is across all governments, not just in the federal government. That is a growing issue of concern to our members, as shown in our surveys.

With respect to reducing the number of hours for eligibility, we are doing some surveying of our members on issues related to the reduced hours that would be required for new claimants to get on EI. I haven't heard any major hue and cry from small business owners about that.

I have to tell you that we are quite concerned about lowering the threshold, the number of hours that would be required for repeat claims. I think any thought to go in that direction, making it easier to get on or stay on EI, is at odds with the employer's interest. Many small firms feel they are competing for workers against the employment insurance system, and that's something that shouldn't be allowed.

Again, we do want to make sure that it is there for everybody, but we also want to make sure that it isn't terribly easy. I have to say that the numbers of hours that have been discussed in public policy circles are pretty darned low. We really urge you to do careful econometric modelling of what would happen as a result.

[The Chair, Liberal, Bryan May]

Thank you.

Monsieur Deltell, you have about two minutes and 15 seconds.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Mr. Chairman.

Mr. Kelly, I'm pleased to see and talk to you.

I have some questions about page 7 of your document, under the heading “Employers Competing with EI”. It says, “During the past year, have any employees asked you to lay them off so that they can collect EI benefits?”

I'm from Quebec. I'm very pleased to see that it's only 18%. On the other hand, we can see that in Atlantic Canada it's 27% and in Ontario it's 22%. How do you explain the difference between Atlantic Canada and Quebec?

[Daniel Kelly]

I don't know the reasons for the difference, but my observation, in looking at these numbers, is that they're too high in all regions that we surveyed: Ontario, Quebec, and Atlantic Canada.

The system isn't there for people to choose if they would rather sit on employment insurance than be in a job. But employers know that often around hockey season, hunting season, or summer, there are requests from employees who basically want to have a paid holiday. There's often great pressure on the employer to try to say yes to this. We're hoping that business owners say no. Really, the system should be there for people who lose their jobs through no fault of their own, and not people who ask to be laid off.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

We all recognize that EI is not a way of life. It's just a safeguard, because no one is removed from that kind of problem.

I'm very surprised to hear you talking about hockey and fishing. We are born to work, to get a salary, and to pay our taxes because we work hard. I'm very surprised to see that it's high, as you say, even if in Quebec it's not as high as other provinces. Still, it's too high.

[Daniel Kelly]

Yes.

[The Chair, Liberal, Bryan May]

Thank you.

Mr. Ruimy, please.

[Dan Ruimy, Liberal, Pitt Meadows—Maple Ridge, BC]

Thank you all for coming, gentlemen.

I'll be directing some questions towards Mr. Kelly.

Thank you for your presentation. I have a couple of questions. As a small business man and somebody who has been on EI, it's nice to know we have access to programs that help us get back on our feet. That's not an issue.

Page 3 of “EI Changes Through a Small Business Lens” asks, “During the past three years, have you had difficulty hiring new employees?” Really? We're looking at different industries such as hospitality, manufacturing, construction, trade, services, and resources. For the responses “very difficult” or “somewhat difficult” the responses are in the range of 70% plus.

We know we have a lot of unemployed people, but why is there such a difficulty in accessing those people who are unemployed and looking for jobs?

[Daniel Kelly]

There are several reasons.

In Canada I was actually very pleased to hear some of the comments coming from Liberal MPs in Atlantic Canada. I guess any MP in Atlantic Canada right now is a Liberal MP. The comments from several MPs and from the New Brunswick Minister of Fisheries were that we have to begin to accept that there are sectors of the economy, types of work, as well as regions of the country where people are just not terribly interested in taking the jobs that are available.

The example that was being used at the time was fish plants. The demand from Atlantic Canada is to ensure that there are more temporary foreign workers or permanent residents who come in to take jobs in fish plants because Canadians are not lining up for them themselves.

That example is extended beyond fish plants to all sorts of sectors of the economy, a growing number of sectors of the economy. Wages do play a role in that for some sectors, but we know that in the meat processing industry there are giant numbers of jobs with nobody applying for them. For agricultural jobs, it's the same. Young Canadians are not lining up for those jobs. Even for retail, hospitality—running hotels, changing hotel rooms—I have to tell you that employers are struggling often to do that even when the unemployment rate is high.

I have the example in Banff right now. There are loads of hotels that are sitting with areas closed even though there are customers who want those rooms, simply because they can't find the people to clean them and to take care of them. We shouldn't be losing out that way.

The temporary foreign worker changes that the Tories implemented were brutal and really made a bad problem a lot worse.

[Dan Ruimy, Liberal, Pitt Meadows—Maple Ridge, BC]

Coming back to that same question, though, we're talking about hospitality, construction jobs, manufacturing jobs, and trades. These are significant jobs that could be held. I don't understand. I know coming from B.C. where business is booming we have a shortage of employees, for example, in hotels, manufacturing. We're struggling to fill jobs, yet we have people who are looking for unemployment.

Can you make a connection between that?

[Daniel Kelly]

Sure. I've spoken about this a great deal and have done a lot of research in this area.

We are rapidly upskilling our young talent and wanting everybody, it seems, to be put through the school system to get a university-level education. Of course, we also have declining birth rates in Canada that contribute to this That bias against jobs in the trades and in jobs where you're working with your hands is still very strong.

I think some progress has been made on that front in recent years, but there's a disconnect. The immigration system brings in virtually no one other than refugees who are oriented to jobs like that. Our education system in Canada really doesn't push people to consider jobs in those occupational categories. That, I think, is one of the contributing factors to this problem.

[Dan Ruimy, Liberal, Pitt Meadows—Maple Ridge, BC]

I'll draw your attention to the next chart you have at figure 3: “How has the difficulty in hiring new employees affected you and your business?” Going down the list, it's 65%, “Poor quality applicants”; “Owner working more hours”, 60%; “Reduced productivity”, 50%; “Increased labour costs”, 42%. This is very telling to me. Can you speak to me about this?

[Daniel Kelly]

We actually did a report. I didn't include it in your packages. There's another report that we did that measured the Canadian work ethic among new entrants into the workforce, and I have to tell you the view from employers was not super flattering right now.

They love their current employees and desperately want them to stay, but when they're going to market to try to find new ones they're finding people who don't show up to work on time, people who will take a job and then say, sorry, they can't work any evenings, they can't work on the weekends. They have a concert on Tuesday and they can't come. One of the most disturbing trends I talked a bit about is employees who are bringing mom to the job interview, and mom is doing the talking, instead of the young person actually putting their own qualifications forward to the employer.

The work ethic, I have to tell you, among new entrants is a bit troubling.

[Dan Ruimy, Liberal, Pitt Meadows—Maple Ridge, BC]

I have one more question.

Overall, when we look at these types of issues are those employment issues or are those training issues that need to be addressed?

I get that some people are unemployed and need to tide themselves over to the next one, but looking at a business perspective, training seems to be a huge issue as well as work ethic. How do you think that plays into the whole employment program?

[Daniel Kelly]

I don't think there is one silver bullet in any of this. I think there need to be changes made in a variety of policies, both federal and provincial, to help in that regard.

One of the things we really do believe strongly, though, is that small firms that do a ton of on-the-job work-hardening skills training for employees need to be supported. We have all sorts of government support programs for university education, post-secondary education, but those skills that are learned in that job at the pizza place when you are 15 or 16.... If we can provide small firms with a lower rate of EI in order to recognize their investments in that initial training for Canadian employees, we think we will be better off.

That is why we have pitched the idea that, if employers generally pay 1.4 times what an employee does, maybe for small businesses up to the first half a million in payroll, it's 1.2 times.

A training tax credit is another way of accomplishing the same goal.

[The Chair, Liberal, Bryan May]

Thank you very much.

Ms. Ashton, go ahead.

[Niki Ashton, NDP, Churchill—Keewatinook Aski, MB]

Thank you.

Thank you to all of our presenters.

I want to make an editorial comment. I am a bit troubled by some of the tone used towards EI claimants. We did hear from Ms. Donnelly. She said that 99% of the people who receive EI would rather be working, and certainly I know that to be the case where I come from.

While I appreciate the discussion about some of the trends that business owners may be seeing in terms of young people, without those figures to discuss.... If we are going to continue down that path, I think we also need to have a discussion about the lack of good jobs available to young people in today's economy, and the increased dependence on precarious work, particularly in places like Toronto. That's for another discussion, but I don't like seeing my generation and those younger be maligned, in general terms, without having a fulsome discussion about the situation they face.

I want to go back to Professor Gray and Mr. Busby.

Professor Gray, you, in particular, referred to the importance of the labour market survey, which obviously pertains to the discussion here, but more broadly to the decisions governments make on the job front and program front. I wonder if you could speak a bit about why it is so important, and what we need to be doing on that front.

[Dr. David Gray]

First of all, perhaps I should disclose that I have a bit of a vested interest, I suppose, being a trained labour economist.

The survey that I was talking about is called SLID, a survey of labour and income dynamics, and it would follow people over time. We can get so much information by following people over time. When we look at the labour force survey that is released once a month, we can follow someone only for nine consecutive months at the very most.

That survey was pretty complicated. I remember it took me a while to get comfortable with it, but it was eliminated with absolutely brutal budget cuts at Statistics Canada.

As for the temporary foreign workers issue, it is still very much a relevant and hot button issue. They finally did allocate funds for the creation of a new survey, which would try to measure labour shortages and labour surpluses at the local level. At the level of the provinces, it's much too aggregated to really figure out what is going on in these local labour markets.

We need more detailed data collected from firms, as well as individuals, because firms, as well as workers, are important actors over long periods of time. We also have to make judgments based on how people act, not just on what people say. Everyone says that they desperately want to work, but economic research is often based on observed outcomes and observed behaviour, rather than just what people profess orally.

[Niki Ashton, NDP, Churchill—Keewatinook Aski, MB]

I thank you for that feedback. I want to go back to the point you mentioned earlier, again around the importance of moving to uniform, country-wide EI entrance requirements. Could you elaborate a bit on why that's important for us to take forward?