Employment Insurance (EI) System Reform Examined in New Report to Protect High Earnings Losses Suffered by Displaced High-Seniority Workers

Vancouver, Canada, January 27, 2010 --(PR.com)-- High-seniority workers are found to more adversely affected by job displacement than low-seniority workers. A report entitled “Economic Change and Worker Displacement in Canada: Consequences and Policy Responses” by CLSRN affiliate Craig Riddell finds that long-tenure displaced workers – those who have been with the same employer for many years --experience disproportionately high losses particularly since many are re-employed at significantly lower wages than they received in their pre-displacement positions. Canada’s current EI system does not take worker's tenure beyond one year into account, but rather treats long and short-tenured employees in the same way. Riddell recommends that “aligning benefits more closely with magnitude of loss” can improve the social insurance dimension of Canada’s EI program.

A major part of earnings losses for long-tenure workers arises from post-displacement employment at wages substantially below pre-displacement levels. These wage losses appear to be long-lasting or possibly permanent. Riddell argues that the “a major flaw in the current EI program is that it does not provide benefits that reflect the cost of job loss. Long tenure displaced workers who suffer dramatic wage-cuts from permanent job loss are not treated any differently than displaced workers who have been employed for brief periods of time.” Traditional wage schemes are generally structured so that “workers earn less than their value to the firm early in their career and more than their value to the firm later in their career.” Such schemes make workers vulnerable to drastic wage cuts if displaced late in their careers. Older displaced workers are also less likely to be reemployed, than their younger counterparts. Recent Canadian data indicates that 83% of men aged 25-44 are reemployed within 5 years of job loss, but only 64% of men aged 45-59 are reemployed within the same time-period.

Long-tenure workers are those who tend to have been paying into EI for a long period of time without having claimed benefits. The report suggests that it would be socially just to recalibrate the EI system in order to provide additional benefits, and longer benefit periods to those who have been contributing to the system longer, but have not recently claimed benefits, rather than treating all workers, long and short-tenured, the same. Enhanced benefits could take the form of higher benefit levels, longer benefit durations, or access to funds for training or mobility assistance.

As enhanced EI benefits do not insure against an earnings decline in the post-displacement job, Riddell suggests that Canada implement a pilot “Wage Insurance” program. Wage insurance is a way to supplement reduced earnings for displaced workers who find post-displacement jobs at significantly lower wages than in their previous position. As reduced earnings can continue for many years after permanent job loss, and are particularly problematic for workers with high-seniority in their previous jobs, wage insurance could help offset some of these losses by partially filling the gap between the post-displacement income and the pre-displacement earnings level.

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