EI and local labour market distortions

My column in the TJ today was on the EI changes and the growing protests.  Someone asked me to clarify a few points so here goes.

First, one of the main problems with the EI system particularly in rural and northern NB is that is has a distorting effect on local labour markets.  In areas with unemployment of 15%, for example, there is ‘unemployment’ – the number of peopel who are unemployed and then there is ‘unemployment’ – the number of people really available for work.

My point is that if we have a de facto support program for seasonal workers and the EI program basically puts these folks ‘through the motion’ of looking for work each year, it does distort the labour market.  The whole impetus for the EI changes came as a result of business people telling government that they can’t find workers to stay in jobs year round even in regions with very high unemployment.

All I am saying is that those folks who are not really actively looking for work and won’t be shouldn’t be showing up as unemployed and actively looking for work.

If you want to have an income support program for seasonal workers – don’t pretend it is unemployment insurance.

Second, I don’t think the government every really made the case that changes were needed.  They should have done research and made the case to the public.

I said before and I’ll say it again, any potentially significant public policy changes such as that should go through a process of public input, feedback, research, etc. rather than just imposition.

The point is that the EI changes were supposed to be – on paper – good for people and good for local economies.    Now we are being told by opposition parties and opponents that is going to kill rural and northern NB.  Which is it?  Will it remove labour market distortions and create an environment where businesses want to invest or will it kill rural economies?

The problem is that no one really knows.

I conclude my column with:

With these new changes, we will stumble along by trial and error with local officials making judgement calls about who should be forced to work suitable employment and at what wage level.

For those like me who want to see tangible economic renewal in rural and northern New Brunswick, it looks like we are in for a period of even more uncertainty.

Good luck trying to get businesses to invest in that environment.

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24 Responses to EI and local labour market distortions

  1. mikel says:

    I think you are overlooking the fact that in these places there are NO JOBS. There are no industries there saying ‘we can’t find people. The problem most people have with the changes is that now they will be required to travel a far distance for jobs that won’t pay as much as they get on unemployment (which usually isn’t much).

    You seem to assume that somebody on seasonal work simply isn’t looking at all for a job and doesn’t want one. One young woman says she works at a summer canteen where she is allowed to bring her daughter to work (she’s a single mom), and depends on EI to get her through the winter where she has to care for an ailing mother.

    The new changes will mean that from her home in a tourist town, she will have to buy a car, insurance, pay for gas, and drive an hour to get to a job that probably pays barely enough to cover those things, and certainly won’t provide her with daycare.

    That woman would probably LOVE a job in that town that is dead all winter. There are no industries there saying “gee, we really can’t find people in January”, there are no industries there AT ALL. So I really don’t see the ‘distortion’. I share the concern that a lot of people have with this issue-for example, I still don’t know why St.Stephen has an umployment rate of 10%, yet Ganongs has to ship in Romanians to work there. On their website they advertise they are looking for people, so it would be interesting for somebody to actually go to St.Stephen and ASK what is going on. Is Ganong such a horrible place to work or what?

  2. First. A statement that something “has a distorting effect on local labour markets” suggests that there is some natural ‘non-distorted’ state of those markets. One wonders what that state would be – does it include the ‘distorting’ effects of gender equity, the ‘distorting’ effects of minimum wage, the ‘distorting’ effects of government employment in the region? Or – more logically – should we not just conclude that use of the phrase ‘distorting effects’ is shorthand for “I have no argument here but I want to make the case anyway.”

    Second. When you use the phrase “an income support program for seasonal workers” you suggest (as is typical in the media) that the primary beneficiaries are the employees. However, this “income support” mostly supports the industries that have been depending on governments to subsidize their operations, allowing them to hire people part time without vacation leave or other benefits. This is the sort of support large corporations and friends of the government routinely receive to subsidize their operations, but under a different guise.

    Without reasonable access to EI, people are not going to stay in the region unless they absolutely have to. If you want to develop a region economically, the first thing you have to do is ensure that the workforce has income security. Without that – under whatever name you call it – you have nothing at all. Conversely, the removal of income support is a very clear statement that the government is not interested in economic development. Which raises the question, what *is* it interested in?

  3. mikel says:

    And isn’t the ‘distortion’ effect why the statistics are ‘seasonally adjusted’? If not, what the heck is the point of seasonally adjusting the stats?

    And just a followup to the Ganong point above is that I have heard anecdotally that a lot of the ‘ads’ that companies put out are just for show. They can get foreign workers much cheaper and have every intention of using them, but have to at least make it LOOK like they are hiring locally. I may have mentioned this before but I know of people who have gone to potato farmers and some other companies and applied for jobs and not even gotten an interview. And these were pretty capable people-and produce picking isn’t exactly rocket science.

  4. richard says:

    “If you want to have an income support program for seasonal workers – don’t pretend it is unemployment insurance.”

    I think that is a key point. The EI program needs a real overhaul. Offering annual EI to seasonal employees keeps those persons in place and provides local businesses with a pool of employees. If those things are desirable then perhaps there should be a separate program in place to fund it – not just EI premiums.

    At the same time, the local unemployed should be encouraged to work where there is local demand. For example, is Ganongs using imported labour for cost reasone, or because local unemployeds are refusing the work? If it is the latter, then there is something wrong.

  5. I think some people misunderstood my point. Richard reiterated it. If you have several thousand people in a local community that are listed as unemployed but they are not really unemployed it distorts the labour market. The unemployment rate may be 15% but the ‘real’ unemployment rate may be only 8%.

  6. anonymous says:

    Hello folks, I live in N-W NB, (grand falls to be exact.)

    I know what is distortion, once you do you’re 400 hours or so you got your layoff and you apply for the EI in the winter.

    I mean this is a distortion, we work less hours, the town has less money and we create less wealth. Think inversely, this is a job problems, think the other way this is a distortion of the EI.

    EI if it was a real insurance, not an income program the premium will be adjusted for your risk like any other insurance. I think EI fail to correct the real problem. I have no problem of paying for an insurance if im at risk, but this is not an insurance.

    We’ve created a dependence, we are hooked both employer and employees on EI. We need to create job, not part-job.

    EI what it creates for a town like grand falls is a Small numbers of working hours share to the people, a bad policy for everybody.

  7. anonymous says:

    If there no jobs fine, My idea is that We should lower wages so people will work more hours and business are able to export.

    Gradually conditions will improve for distressed regions.

  8. anonymous says:

    We need lower taxs in NB, we are just not competitive.

    Most people in the NW-NB are buying gas+grocery+staples in Maine.

    We need lower taxs, a boost.

  9. anonymous says:

    We should have trade EI for lower tax an a special economic zone status so we can be competitive.

  10. anonymous says:

    People dont want to become rich in rural areas, they just want to work and live, they dont want more socialism, politicians do.

    When free markets are embraced, we all do well.

  11. Steven says:

    @mikel

    If there are no jobs in a community and no prospects for a job in the future, should the government/ EI be paying to allow them to continue to live there working seasonally or should they be giving them support to move to where the jobs are?

  12. richard says:

    “We need to create job, not part-job.”

    Yes, but there isn’t much data to suggest that lowering taxes will do that for you. Your comment that many in NW-NB shop in Maine suggests that EI is probably a subsidy not only to seasonal industries in NB but also a subsidy to Maine border stores. Certainly there is not much evidence that lower taxes in Maine have led to a boom in northern Maine.

    Faith in the ‘free market’ and ‘low taxes’ mantras is like faith in supernatural entities – often misplaced.

  13. mikel says:

    Well, THAT last point certainly is not true. Free markets is essentially the problem. The free market is what wants people the heck out of there, the free market is what made the problems with EI obvious-people in Toronto and Windsor couldn’t collect because they lived in areas which had lots of jobs, but then suddenly there were no jobs. If you want an example of free markets drive through Kouchibouguac some time. In the 1800’s that was a thriving area that was catching up to Moncton in population, building ships for Britain. Britain couldn’t get its ships from europe due to the wars, then when that ended, well, like I said, drive through Kouchibouguac sometime.

    I DO agree that the EI system needs overhauling, but let’s get real, THAT isn’t happening. Harper is doing just the same as the liberals, and now payroll taxes are going up all because the feds are deeper in debt than anybody, and people’s pension plans and the EI system is the only thing left for the feds to pillage.

    But we can’t let David off that easy. If we agree with the gentleman from Grand Falls then ‘distortion’ is simply the regulations of the EI program. Collecting EI has ALWAYS been determined by the availability of jobs in your local area, it has ALWAYS been easier to collect in certain jurisdictions because there are no jobs. In ANY disenfranchised area the hours you need to qualify are relaxed. And fisheries have always been a special case with ‘special needs’ as well.

    As for the idea of ‘making that a separate program’, the question would be, first, WHY? It still performs the same function, it gets you through the lean times til you work again. And second, well, you can GUESS just how well a different program like that would go over!

    And again, there is minimal distortion since the amount you collect is decided by how many hours you work and the amount you got paid. Somebody working for just a summer for minimum wage is not going to be living pretty through the winter.

    In Grand Falls, the question would be…what else is there to do all winter? I’d REALLY like to know how lower taxes will help Grand Falls. IS David’s point that the ‘distortion effect’ is simply the number of people who make enough on EI to not bother working even though jobs are available? To agree with that then you have to dig into the EI regulations and you have to be saying they are wrong, because they take into account local jobs. What Harper is doing is saying its not just whether jobs are available in Grand Falls, but if they are available in Edmunston. IF New Brunswick had a functional public transit system, then we wouldn’t be having this conversation, but there isn’t even a BUS service anymore.

    Back to Grand Falls, I checked Kijiji, Irving, Monster, career beacon, HRDC and the grand total was ZERO. For Edmunston, there were a few, but not many, most were information technology jobs that I doubt the VAST majority of people are trained for. Personally, I think MORE ‘socialism’ is necessary for the government to train people for these jobs. Oh wait, theres ONE job for a ‘marketing associate’, so everybody start padding their resumes.

    As for Ganong, there ARE other legitimate reasons why people may not want to work there. Is there a foreman with a habit of sexually harassing people? Is it unsafe? Are there work practises very likely to injure people? Its also a moot point right now since they are not hiring, or at least if they are, they are doing a horrible job of it. It isn’t posted in ANY online site, even HRDC, and their own website lists nothing and just says ‘contact us’, which means ‘don’t contact us’.

  14. Don Dennison says:

    ‘An income support program’. Yes. It’s (or was) called Guaranteed Annual Income when first proposed by Marc Laonde back in the ’70s. It was tested successfully in Steinbeck Manitoba and found not to produce work disincentives. It is much cheaper and non-stigmatizing, compared to the welter of welfare and suppport programs we have today.
    Chances of being adopted ? Nil.

  15. richard says:

    “there ARE other legitimate reasons why people may not want to work there.”

    Maybe, but where is the proof? As to ‘not hiring’, they already have offshore workers in place, do they not?

    And Don Dennison is correct – the right approach here is income support, not twisting EI to unintended purposes. He is also correct that chances of it being implemented are nil. Consequently, we are stuck with the EI mishmash.

  16. mikel says:

    I had forgotten about that Don, and I think if Harper, like Chretien, had mentioned an interest in a GAI, then people wouldn’t be so wigged out.

    I agree the chances are at least CLOSE to nil, but its interesting to note that something along these lines ARE available once you are old in the form of a Guaranteed Income Supplement, the maximum of which is $745, on top of the old age security of $546. Not sure if those are ANNUAL amounts, lord I hope not. However, its interesting that ‘income splitting’ and a GIS is available at a time when courts are saying that you can’t force somebody to retire. Since the charter says you can’t discriminate based on age, perhaps its time for a court challenge to extend those benefits to the rest of us!

  17. mikel says:

    That’s my point Richard, since they are not hiring, its hard to find proof. No matter WHERE you are, EI funds eventually dry out. So people in St.Stephen NEED to work at SOME point.

    It’s important to note that when SOME people are talking about EI we are talking about expanding it, which makes the recent changes all the worse. Some people think its ‘so bad’ that ANY changes are fine, depending on how lazy you think people are.

    But for numbers, St.Stephen is in the same EI region as Edmunston, where the rate is 13%. But even in St.Stephen you still need 440 hours to qualify, or about ten weeks. This qualifies you for at least 25 weeks and 45 weeks maximum. This is identical to coastal regions in NB too by the way.

    In Kitchener, the unemployment rate is half that, 6.6%. And the big difference is that you need 665 hours to qualify. This will get you at least 15 weeks of benefits, to a maximum of 38 weeks.

    So in St.Stephen, or ANY place in NB, you get seven weeks more-hardly a huge deal.

    You can check out this article for more on the recession and EI:

    http://www.winnipegfreepress.com/canada/employment-insurance-flaws-exposed-by-current-recession-43242417.html

    The BIG problem with EI was that it RAN OUT. Or people didn’t have ‘enough hours’. So clearly if you just ‘dumb down’ the requirements,then that addresses the problem.

    So to justify making collecting EI HARDER when EI is at least a halfway measure to a Guaranteed Income plan, is pretty disengenuous. If somebody is criticizing people for ‘being lazy’ and refusing to work, that criticism is CERTAINLY going to still exist if those people are getting a ‘guaranteed income’ as opposed to EI. In fact, you’d think people would criticize MORE.

  18. richard says:

    “That’s my point Richard, since they are not hiring, its hard to find proof.”

    Is that your point? You stated there are legitimate reasons for people not wanting to work there. Where’s the proof of that? Seems to me you are switching the goalposts.

    There are two separate issues which you are mixing up. 1) seasonal employment – is the current EI system the best way to address it? 2) Are EI recipents turning down potential local employment opportunities without good reason (but with the implicit approval of EI managers).

  19. mikel says:

    You misunderstood, there are legitimate reasons why people MAY not want to work somewhere. That’s why AFTER that I listed some reasons with question marks at the end. I have no idea, I don’t know anything about Ganong apart from what is in the media. It may be a wonderful place to work, but given the fact that they have to bring in foreign workers to do jobs that are not high skill in an area of high unemployment, then I have suspicions.

    I’m not sure how I’m mixing up those two issues, there are LOTS of issues at play here. It’s important to note that NEITHER of those two points are helped by the new change to EI, so EVERYBODY should be concerned about it. For number one, even if you had a ‘guaranteed annual income’ program it would probably make more sense to still have an EI program handle seasonal work. For number two, we really have no evidence, but its worth pointing out that an EI recipient MUST be ready and willing to work. Case workers will even call you and tell you about jobs, and you simply CAN”T turn them down and still collect EI. Again, the problem is there is a bigger area where you MUST go to work, even if you have no way of getting there.

    So again, there is a lot of bias in that claim-there is no evidence to support number two, and the regulations within the EI program already pretty much rule it out. Its been a good twenty years, but I can remember collecting EI and it was a big deal because you would be docked a day’s EI and risked being cut off if you weren’t home and a case worker called to tell you about a job-you essentially had to prove that you were out looking for a job.

    That bias is pretty much the same one that people say about panhandlers-that they should just ‘get a job’. I hear that all the time even about panhandlers in New Brunswick, where the unemployment rate is almost 20% in some areas (and that is only the ‘official’ definition of ‘unemployed’) yet people will still go on as if there are jobs out there even for people with serious mental illnesses.

  20. Tony says:

    @mikel
    I think that most people are missing the point. One of the objectives of “tightening up” the EI program is to “encourage” people to move from zombie towns and regions to those where labour is needed. That’s the “free labour market” rationale of the changes. And I must say it completely makes sense. Of course they will be people resisting the idea of leaving their traditional life styles and “the lands where their ancestors have lived for decades/centuries”. However, weren’t their ancestors migrants themselves? They could use one or two lessons from the people who moved to those remote regions because of the opportunities that they offered back then and, since things have changed, move to cities/regions that offer opportunities today.

  21. Ray says:

    That there are geographical areas that relie more heavily on EI due to seasonal employment is an undeniable fact. Pretty hard to grow pototoes this time of year. Fishing seasons exist to sustain the resource. The beautiful beaches seen in tourism brochures are pretty desolate these days. Since you can’t relocate the potatoe fields, fishing wharfs, and beaches to list a few, I think EI is something we have to accept as a society, as the cost of having local potatoes, fish, places to vacation etc. Otherwise why not scrap EI altogether and just import all those things and vacation somewhere else.

    For the most part, people collecting EI benefits end up spending it all back into the local economy to eat, gas up the car, and pay the rent. Not many are hoarding it for RRSP season that’s for sure. People with full time employment should consider themselves fortunate that they don’t have to live on 55% of their income for a good part of the year.

    While there may be cases of abuse, I don’t think it is that high of a percentage. Besides, show me a program that isn’t abused somewhat. Health Care comes to mind, but I gladly pay taxes to have that available when I need it.

    If I remember correctly, the EI fund was in a big surplus in the 90s until it was lumped into general revenue to help pay down the debt. In other words, the EI fund was looted to pay for government mismanagement in other areas.

    I guess the current government needs to have some seasonal workers’ $200/week EI benefit so they can help pay for F35 fighter jets which have ballooned to some $50 billion or as I prefer to call it, FIFTY THOUSAND MILLION DOLLARS!

    I was on EI once as a young man and swore I would never let some bureaucrat make me jump through hoops and look down on me from the comfort of their air conditioned chair again. Fortunately I had the wherewithal, opportunity and health to become my own boss. That was 25 years ago. I can’t imagine going through that these days.

    Sadly, many people happen to live where they are out of work for periods of time and have no other viable options. They rely on EI to hold them over until their employer calls them back.

  22. Will says:

    Sorry folks, EI is an emergency fund not an annual take the winter off fund. Jobs or no jobs people aren’t retraining or willing to move. You’re taking $1 billion dollars in EI claims mostly from other people. All my contracts are for remote clients. Have some pride in yourself.

  23. mikel says:

    Again, we have a lot of bias here. People can only collect X amount from the EI fund. The criteria simply gives a person a few weeks more, up to a month and a half more, if they can’t find a job, that’s it. There were three pilot programs which were cancelled which extended EI somewhat, and that applied to northern ontario just as much as the maritimes. So this is not a ‘structural’ issue. It is only media and some people that are painting EI in rural areas as something different than urban areas.

    And again, the reality is that the people who CAN get jobs out west are ALREADY doing so. Have you looked at a New Brunswick newspaper recently? In the Daily Gleaner I counted three jobs, two of which were in Alberta, and which advertised $20-$30 an hour. You REALLY think people are saying “the heck with that, I’m staying here and making poverty wages by doin nothin”.

    That girl I mentioned above has a young child and an elderly mother, she can’t afford to move them all to Alberta. And I’ve got news, given the depopulation and the fact the government is curtailing hiring, basically you are arguing for the depopulation of the PROVINCE, not just rural areas. And what about if oil prices crash, is everybody fine with Canada being empty?

    Meanwhile, the federal government just pumped another quarter of a billion dollars into the auto sector in southern ontario, but hardly anybody is complaining about that.

  24. richard says:

    “You REALLY think people are saying “the heck with that, I’m staying here and making poverty wages by doin nothin”. ”

    There are individuals who earn good wages during parts of the year; they are not poor or working poor. They draw on EI plus whatever savings they have to get them through, e.g., the winter months. They do not want to relocate to AB or SK for various reasons, and there are good reasons why we might not want them to – for example, forcing out those seasonle EI recipients might reduce the labour pool sufficiently that costs to business go up, forcing them to layoff employees or cut back on spending.

    The point made in the original post was not this was necessarily bad, but that the seasonal draw on EI is not what EI was originally meant for. You still seem to be confused about what was in David’s original post and have charged off in the wrong direction (again). You are confusing David’s position with Mr Harper’s – they ain’t the same.

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