Good afternoon. My name is Aaron Wudrick, and I am the federal director of the Canadian Taxpayers Federation.
I would like to thank the committee for inviting me here today to discuss the changes to employment insurance.
As I previously said, the CTF is a federally incorporated not-for-profit citizens' group, with over 89,000 supporters nationwide. We focus our advocacy on three key principles: lower taxes, less waste, and accountable government.
With respect to the recent EI changes introduced by this government, we acknowledge that they are motivated, as always, by the best of intentions, namely, helping people who need help. That said, I don't think I need to repeat an old saying about the destination to which roads so paved can often lead. Making EI more generous is a hard thing to argue against without sounding heartless, but we also need to be aware of the longer-term impacts of what is effectively a more generous system.
I want to take a little bit of time today to probe two of the principles that we think should inform our approach to EI, the issue of fairness and the role of incentives.
First of all, why do we even have EI? The obvious answer is that in a prosperous society like Canada, part of our social safety net should be to ensure that we take care of those who lose their jobs. We require people to pay a premium, just as we do for any type of insurance, which then provides compensation in the event that what the insurance is designed to protect against occurs, in this case, unemployment.
While we call it employment insurance, that's actually a bit of a misnomer. A fairly standard feature of insurance is that the premiums being paid bear some relation to the risk involved. This is why, for example, car insurance premiums for people with poor driving records are much higher than they are for those with perfect driving records. Yet EI premiums do not vary according to this principle. Everyone pays the same premium rate.
The same applies with respect to benefits. In our own 2013 study of the EI system, which I'll come back to a little bit later in my remarks, we discuss a typical scenario of two workers in Newfoundland. One of these workers lives in St. John's, where his employer is also located. The other commutes to work from outside of the city. They do identical jobs for the same employer, at the same location, at the same pay. Yet if both of these workers are laid off after 26 weeks of work, for which they earn $16,200, the worker who lives in St. John's would not qualify for EI benefits, while the worker who lives outside the city would receive up to $16,830 over 34 weeks. This is just one example of the kind of unfair or seemingly unusual outcomes that our EI system can produce.
Another age-old debate is about the impact that the EI system has on an individual's behaviour. Most of us know the two basic arguments here. On the one side, we have those who believe that too generous a system induces people to become reliant on that system. On the other side, some take the view that nobody is on EI by choice and that everybody wants to work, no matter how generous the system is, but that there's simply no work to be had. This debate, unfortunately, ends up deteriorating into the latter group taking offence about what the former group is implying about the character of people on EI, and we never really get down to the nitty-gritty of it.
To be honest, the CTF is not neutral in this debate. We believe that a system that is too generous can create disincentives for people to seek or accept work when they otherwise might do so. Make no mistake, this is not a criticism of those individuals, since it's perfectly rational and understandable for people to take a better deal when it's offered to them. Rather, we see it as a criticism of the structure of the EI program, and an illustration of unintended consequences.
Another characteristic of overly generous EI that we would argue is harmful is that it can implicitly discourage mobility of Canadians. Being forced to leave one's community or province to find work is not always a pleasant experience. It's hard to leave family and friends behind, but we need to be honest about whether it is always a good thing to effectively encourage people to stay in places where there are fewer economic opportunities, when they might be able to find work elsewhere.
Finally, I wanted to touch on the CTF's own proposal for major reform of EI, which is inspired by the system that exists in Chile and was introduced in 2002. This would fundamentally change how the system works and how it affects Canadians. It's from 2013, as I mentioned. It's 28 pages, and you can find it on our website. I'd be happy to provide it to the committee. The model is essentially a mandated savings vehicle. You can call it an employment insurance savings account, or EISA, which workers are required to pay premiums into. This money could then be invested in any eligible RRSP investment vehicle. When a person, a spouse, or a family member becomes unemployed, they can draw down on this account. Upon retirement, any remaining EISA balance, or at least part of that balance, could be transferred to their RRSP, thereby helping to alleviate a separate but equally pressing concern—inadequate retirement savings.
In conclusion, no one disputes that insuring the unemployed or taking care of them is the wrong objective, but we must always strive to strike a balance between generosity and fairness, while recognizing the role that incentives play in affecting people's behaviour.
Thank you.