UNEMPLOYMENT INSURANCE: AN HISTORICAL OVERVIEW

As one of the very first social programs recognized as necessary and funded by the federal government, unemployment insurance can be seen as a crucial lynch-pin in the development of the Canadian welfare state. The first Canadian legislation aimed at "helping the unemployed" was the Employment Officers Co-ordination Act of 1918. Its purpose was to provide an employment placement service, co-ordinated by the federal government, and administered by the provinces.

With the economic devastation wreaked by the Great Depression in the 1930s, and faced with an American government promising American workers a "New Deal", the Canadian government had to act on the question of unemployment. Employment shrinkage averaged 35 percent per year between 1929 and 1934. The preoccupation of the Conservative government of the day became "the management of the unemployed". Work camps were established across the country and a deliberate effort was made to de-radicalize the growing movement of unemployed workers.

One Canadian political economist has described the "calculated effort" to separate as much as possible of the one-third of the labour force that was unemployed by 1933 from that part of the labour force still employed. "To this end, previous amendments to the Immigration Act and Criminal Code were re-issued allowing for the deportation of `unproductive immigrants' as well as political critics of the government." The end result of Bennett's manoeuvring was a victory for the Liberal government of Mackenzie King which promised, amongst other things, to establish an unemployment insurance program. The federal government passed the Employment and Social Insurance Act in June 1935 to provide compulsory unemployment insurance coverage for the unemployed, with the cost borne by employees, employers and the federal government. But in 1936, the Supreme Court of Canada declared the Act ultra vires, ruling that the federal government had no right to pass legislation in an area where the provinces had jurisdiction.

Following an amendment to the British North America Act, which brought matters of unemployment insurance and the placement of persons under federal jurisdiction, Parliament passed the Unemployment Insurance Act on August 7, 1940. According to a government published historical review of unemployment insurance: ...the Canadian law was to follow the principles related to insurance, that is, it was to assist persons exposed to certain risks... Also, the insurance scheme was supposed to be actuarially sound with the costs to be distributed among the parties at risk and those responsible for the causes of unemployment. Under the law, the federal government paid for the administration of the program as well as contributing to the fund an amount equal to 20 percent of the combined employee and employer contributions.

A new Unemployment Insurance Act was enacted by the Trudeau government on June 27, 1971, following the tabling of a "White Paper" on Unemployment Insurance in the House of Commons on June 17, 1970. According to the government, the major objective of the law was to provide "adequate income support for all persons experiencing temporary earnings interruptions." The Act provided for universal coverage, eased eligibility, and added new benefits in cases of sickness, maternity leave and retirement.

When universal coverage commenced on February 2, 1972, the Act covered 96 percent of the Canadian labour force. Excluded were the self-employed, persons aged 70 years and older, and individuals earning less than one-fifth of the maximum weekly insurable earnings. The Act stipulated that the unemployment insurance program be financed by employees, employers and the federal government. When the Act was introduced, the national unemployment rate stood at 6.2 percent. The Liberal government made its original calculations with the thought that the unemployment rate would remain at around four percent. Although it dropped to as low as 5.3 percent in 1974, it never fell below four percent, and the general tendency has been for it to rise.

"REFORMING" UNEMPLOYMENT INSURANCE

Starting in 1976, the federal government embarked on a long series of cutbacks to the Unemployment Insurance program. The first cut introduced was to the benefit rate for claimants with dependents; it was reduced from 75 percent of weekly earnings to 66 2/3 percent, and the period of disqualification was increased from three weeks to six weeks. In conjunction with these changes, the federal government assumed less responsibility for the overall costs of the program.

Then in 1977, the maximum number of benefit weeks was reduced from 51 to 50. In early 1979, the benefit rate was further reduced from 66 2/3 to 60 percent of weekly earnings, and new restrictions making it more difficult to qualify for benefits were introduced. In April 1980, the federal government began using unemployment insurance contributions of employees and employers to fund the short-lived National Employment Service, and in July 1980, the government further reduced its responsibility for extended benefits due to high unemployment rates. The first series of cuts were justified as part of a necessary attack on inflation.

With the Conservative sweep and ensuing Mulroney years, the mantra changed from fighting inflation to reducing the deficit. The cuts, however, continued. In 1985 and 1986 the Mulroney government ordered that for the purpose of establishing benefit entitlements, severance payments and pension income would be considered the same as "earnings from employment."

On October 22, 1990, Parliament passed Bill C-21, amending the Unemployment Insurance Act and shifting the entire cost of the UI program onto employees and employers. Since 1990, therefore, the federal government has contributed no money to the program beyond its contributions as an employer. Other important changes outlined in Bill C-21 made it more difficult for unemployed workers to claim benefits. The amendment also increased the penalties and reduced the benefits for those who quit their jobs "without just cause", refused to accept "suitable employment" or were fired for misconduct.

AN OVERVIEW OF THE AXWORTHY REFORMS

In 1993, the Department of Finance released the document Agenda- Jobs & Growth: A New Framework for Economic Development, in which the Chretien government stated "Reform of the UI program is central to the goal of encouraging employment. A smaller, better-targeted UI program would permit funds to be reallocated to reducing employer and employee premium rates, and to strengthening our investment in employment development services." (p.42)

This document was the starting point for a series of public consultations on the restructuring of the unemployment insurance system which was led by the then minister of Human Resources Development, Lloyd Axworthy. During these consultations, hundreds of organizations and individuals made written and/or oral presentations. In December, Axworthy introduced Bill C-112 which was passed the following year with some minor revisions. Despite the fact that the federal government had not contributed to the UI system since 1990, Bill C-112 cut $2 billion from the program to be phased in completely by 2001. The maximum benefit coverage dropped from $448 a week to $413 a week, and eligibility was tightened. Over 75 percent of these presentations made during the consultations directly opposed the measures contained in Bill C-112.

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