EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, January 24, 1996

.0940

[Translation]

The Chairman: Good morning. Welcome to the Standing Committee on Human Resources Development.

[English]

Today we're continuing our study of Bill C-111 and again we have witnesses from the Department of Human Resources Development before us to continue our process of understanding the intricacies of this piece of legislation.

I'll just state the names of the witnesses, for the record. They are Deputy Minister Jean-Jacques Noreau; Norine Smith, acting executive director, insurance; Gordon McFee, acting director general, insurance policy; Karen Jackson, acting director general, labour market policy; and Diane Carroll, acting director, UI policy analysis.

We will continue where we left off yesterday.

Mrs. Brown (Calgary Southeast): Mr. Chairman, I have a question for clarification.

The Chairman: Yes, Mrs. Brown.

Mrs. Brown: Just before I came here this morning I received a phone call at my office to say that all meetings tomorrow are cancelled. Is this correct?

The Chairman: No, that is not correct. We will be continuing our sessions tomorrow morning at 9:30 with the officials. The afternoon session is cancelled because we're going to do that today.

Mrs. Brown: Yes, I knew that. But I received a call this morning that said all meetings were cancelled tomorrow.

The Chairman: Do you know where that call came from?

Mrs. Brown: I'm not going to say because I'm not sure whether it was your office or not.

The Chairman: It's inaccurate, wherever it came from.

Mrs. Brown: Thank you.

The Chairman: Without further ado, I now turn the floor over to our witnesses.

Mr. Jean-Jacques Noreau (Deputy Minister of Human Resources Development): Thank you, Mr. Chairman.

First of all, I would like to follow through on yesterday's request for additional information and lay out how we're going to proceed and what we will try to make available to you today and what will come at a later date through the clerk of the committee.

Today we are giving the clerk the gender impact analysis paper and the calculations requested by Mrs. Brown on the estimates of jobs created by the changes in the legislation. If you remember, there were some questions about the 100,000 to 150,000 jobs created by various elements of the changes. We will be giving that to you. We will be giving you the evaluation report excerpts I mentioned yesterday that deal with the conclusion of an evaluation that says that 72% of the people found the extra work required. We'll give you the excerpts of this evaluation so you can read it yourself.

There was also a request concerning youth and dependency on which we will provide you information. As to the rest, we are continuing to review the list of requests with the clerk. We will feed the committee information on the demands made of us yesterday, and we'll add the ones you'll make today, etc.

.0945

Just as a link between yesterday and today, Mr. Chairman -

[Translation]

Ms. Lalonde (Mercier): I have a request. Should I postpone that until later?

Mr. Noreau: It's as you wish, Madam.

Ms. Lalonde: I will let you go ahead because you may answer my questions. I will ask my questions later.

Mr. Noreau: In order to make the link between yesterday and today, we will devote the morning to providing you with detailed information about the changes to the eligibility rules for unemployment insurance benefits, which is Part I of the legislation.

[English]

You will be hearing about the new eligibility system in detail, the new benefit regime and the new financing framework.

This afternoon, as you know, we will be focusing on the problem the minister identified at his last appearance, the earnings interruptions and what are the ins and outs of those problems. As I indicated yesterday, I will have, if you want to hear them, some departmental officials from the regions, who are already beginning to try to address some of these issues as they begin to arise, especially in the Atlantic region.

Tomorrow it will be again part II of the legislation, where we will focus on the employment benefits, how this will be worked out with the provinces, and how the act allows for this joint work with the other levels of government and the other partners.

This morning the benefits and the rules that govern the eligibility to them is our topic. I'll turn to Norine Smith to take you through this presentation.

The Chairman: Thank you.

Ms Norine Smith (Acting Executive Director, Insurance, Department of Human Resources Development): I'm working with a document that's entitled ``Employment Insurance: Promoting Jobs and Growth'', part one, on insurance benefits. I believe it's been circulated to members of the committee.

Starting on page one, just to give you a quick sense of the structure of this document and what I will be covering, today I'll be focusing on the insurance benefits, as has been mentioned to you before. Tomorrow's presentation will be with respect to part II and the employment benefits aspect of the employment insurance bill.

This document goes through each of the parameters of the proposed changes to insurance benefits in turn and provides you with a bit of information about the rationale behind the change in the objectives, how that change will function, quite a number of examples that will give you a sense of how it will be affecting people and affecting claimants.

The document is grouped under three main types of changes to the insurance system: the eligibility system, or how people qualify for UI; the benefits regime - in essence, how large their UI cheque will be; and the financing framework - how premiums are paid and how the UI account is managed.

There are two options: I could go through a number of sections, maybe give a presentation for about 30 minutes and take a round of questions and answers, or we could take the same approach we did yesterday with the impact data package and as we go through each parameter take some points of clarification at that time. I'm in the committee's hands.

The Chairman: I think yesterday afternoon seemed to work well. If it's okay with the committee, perhaps we could allow for points of clarification, provided that everybody understands they're points of clarification and we don't disrupt the flow too much. Would the committee prefer that, or would you prefer to hear the presentation and save your questions until after?

.0950

Mr. Nault (Kenora - Rainy River): Mr. Chairman, quite frankly, I find that interruptions in the presentation make it very difficult to follow the presentation. I would prefer to have the presentation and have people make notes and then ask questions at the end and let the presentation occur. It seems to be very disruptive when every five minutes someone cuts in and asks questions. You lose your ability to follow the presentation after a while.

The Chairman: I see. Is that view shared?

[Translation]

Mr. Dubé (Lévis): What I have to say is not about that point. Yesterday, I was in touch with someone who followed the debates on television. He found that our proceedings were going well, but that often... I would prefer it if our coming hearings did not follow the same pattern as yesterday's. We're receiving explanations about what's happening, but someone who's listening or viewing these proceedings can't understand anything.

I would like us to pay attention to that point because Canadians want to understand the significance of the figures that are put forward. We must have qualified people to give us information. Apparently yesterday, it was very difficult to follow.

The Chairman: For two reasons, we will allow Ms. Smith to make her presentation and we will then ask our questions.

Mr. Noreau: Mr. Chairman, the presentation is in three phases. First, we could deal with entitlement to benefits, clarify whatever needs to be, go on to the next phase, etc. We would thus have unified groupings.

The Chairman: Agreed. That's a good compromise.

[English]

Ms Smith: Okay. Turning to page 2 then, the first topic will be the total hours system. The sections of the act that give effect to these changes are section 7 and schedule I in the act, which can found at pages 129 and 130 of the bill.

The intent of the changes to move from a system that's based on weeks of work to one that's based on hours of work is to try to measure work in a way that more accurately reflects today's labour market and the variety of work arrangements people have today. A week can mean very different things for people. It can be anywhere from one hour to sixty or more hours a week. So the hours system would call an hour an hour and give people exact credit for what they have done.

There are a number of examples of how different workers with different types of work patterns are treated quite differently under the new system. We could go through these one by one.

The first example is the comparison between a part-time worker and a full-time worker. In the example we have two people who are both working 420 hours a year. The part-time worker does that over a 28-week period at 15 hours a week and qualifies for UI. The full-time worker does that over a 10-week period at 42 hours a week but does not qualify for UI. Under the provisions of Bill C-111, if they were working in a high unemployment area they would both qualify for UI because they both have 420 hours of work.

Taking the case of someone with multiple jobs versus a person with a single job, suppose you had two workers who were working 36 hours per week, one doing that in one job and the other person doing that in three jobs of twelve hours each. Under the present system, the first worker would be insured and the second worker would not be insured. Under Bill C-111 they would both be ensured.

The next example is one we talked about a fair bit yesterday; that is, part-time workers who are excluded because they're working less than 15 hours per week or they're earning less than $163 per week. For example, you could have someone who is working 14 hours a week for 50 weeks to accumulate 700 hours over the course of a year who would not qualify for UI today, but someone who is working 15 hours a week for 20 weeks and working 300 hours over the course of a year who would qualify for UI today. Under Bill C-111 that situation would be reversed.

.0955

The hours that will be required to qualify for UI will range from 420 to 700 hours and will depend on the part of the country in which one lives and the unemployment rate that exists. Those numbers of 420 to 700 hours are equivalent to today's entrance requirements of 12 to 20 insurable weeks based on the national average work week of 35 hours per week.

This shift to an hours-based system would go through particularly with respect to the multiple job holder, for whom this can be very important. Remember the earlier example I went through of a multiple job holder who was not insured at all, even though that person was working 36 hours a week. If that person became sick or had a child and needed maternity or parental leave, they would not have any insurance coverage at all. Under this system, workers in those circumstances would be fully covered.

It's also the case that workers in those circumstances, if they only lost one of their two jobs, would have some improvement in their insurance coverage. Take the example of a worker with two jobs: the first job is $500 a week and the second job is $100 a week. Under the current program rules, only the first job is insured, because the second job was less than the $163 per week threshold. So their insured earnings would be 55% of that $500 per week, or $275 a week in benefits. They're allowed to earn $69 a week on claim before their benefits will be reduced. In total, once they become unemployed their total income from work and UI would be $344 a week.

Under the provisions of Bill C-111, their insured earnings would be the total amount of the $500 per week and the $100 per week from both of their jobs. That would be 55% of $600 a week, so their insurance benefits would be $330 per week. They're allowed to earn $83 per week while on claim. So if this person loses just their $500 per week job, they will be receiving an income from UI and work of $413. So there's a comparison between $344 per week under the current program and $413 per week for this multiple job holder losing one job under the provisions of Bill C-111.

As mentioned yesterday, the total hours system will embrace into the insurance program an additional 500,000 part-time workers and it will remove the glass ceiling at 15 hours per week that now exists where employers might try to hold jobs below that in order to avoid premium payments.

We know from survey data and our administrative data that 77% of current claimants work 35 hours or more per week and 91% of claimants work 30 hours or more per week. So for the majority of claimants this shift to the hours system will have little effect or in fact will be beneficial, because they will be able to count more of their hours of work.

To give you an example of seasonal workers who work long hours, in the data package you received yesterday there was data on the hours of work of seasonal workers, who typically work above the national average work week. Suppose a person was working 45 hours a week for 20 weeks. Today they'd be qualified for 30 weeks of benefits if they were in an area of the country with 13.5% unemployment. In the future they would qualify for 32 weeks of benefits.

.1000

Altogether, we have estimated that some 270,000 claimants will receive and use an additional two weeks of benefits. In total, about 800,000 claimants will receive more weeks of entitlement. The maximum length of their claim will grow because of this provision. But of that group, 270,000 are currently already using all their weeks of claim, so the two extra weeks will be very important for them.

The shift to an hours-based system is one of the elements that will be helping us to simplify the administrative requirements for the reporting system employers face. They will no longer be needing to track minimum hours of work per week in order to figure out the insured earnings of a claimant in any particular week.

On page 5, the new entrance requirements for new entrants and re-entrants, these provisions are found in subclause 7.(3) of the bill. The entrance requirements for new entrants and re-entrants will be increasing from 20 weeks today to 910 hours, starting in 1997. The 910 hours are equivalent to26 weeks of work at the average work week of 35 hours per week.

I'll spend a fair bit of time on this next little table, because this was a point we spent some time on yesterday, trying to understand the definition of a new entrant or re-entrant.

We define a new entrant with respect to somebody's work attachment over a two-year period. If someone had less than 490 hours of work last year and was coming to qualify for UI this year, they would require 910 hours of work to qualify for UI. Because they had less than 490 hours the previous year, they would be considered a new entrant.

If they had more than 490 hours the previous year, 909 hours or more, then they would not be a new entrant or a re-entrant and they would qualify for UI under the regular entrance requirements I just described, of 420 to 700 hours. If someone has 910 hours in their first year in the labour market, they can qualify in that first year.

In essence, there are two ways someone who's entering the labour market can qualify for UI. They can achieve 910 hours in their first year in the labour market or they can achieve 490 hours or more in their first year and then they can qualify in their second year if they meet the basic entrance requirements of 420 to 700 hours.

I want to come back to a point Mr. Scott was raising yesterday, that once you've met these criteria of having entered the labour market you don't have to go back and re-meet those requirements year after year, as long as you continue your labour market participation. You go through the door once, if you will. In future years you're always subject to that 420-to-700-hour requirement as long as you've never withdrawn from the labour market for any reason.

.1005

To be even more precise on that, suppose you have a claimant who has been qualifying for UI for many, many years on the basis of...let's take the minimum of 420 hours of work in a year. The question might come up, well, I thought you said you needed 490 hours last year in order to qualify for this year at 420. Last year I had only 420. Are you going to consider me a new entrant?

No, because in the bill there is also a provision that provides for what are referred to as ``prescribed'' weeks or hours of work. If you worked last year and had 420 hours of work and qualified for UI, you also have many weeks and many deemed hours of income that are related to your work attachment in that year. You had many weeks of UI. Therefore all that is rolled together, and the person in that circumstance might end up actually having close to a full year of labour market attachment. The things that are also considered to be income or earnings from labour market attachment would include worker's compensation, for example.

Shall I run through that again? Did you find that very confusing?

Just to cut to the quick on that, the bottom line is that someone who has once met the entrance requirements for a new entrant, re-entrant and in subsequent years is qualifying for UI at the minimum entrance requirement of 420 hours of year will continue to qualify. They don't have to go back and meet that new entrant, re-entrant hurdle again unless they actually withdraw from work.

There was a question yesterday about youth and their use of UI. There's a quote here from the working group on seasonal work and the unemployment insurance program. It was their assessment of this problem. They said ``Something has to be done to stop young people from leaving work to take advantage of the specious short-term benefits of UI to the detriment of their future career prospects''.

On page 6, our analysis suggests there are perhaps 88,000 people who currently qualify for UI and who qualified in 1993 as new entrants, re-entrants and who in that year would not have been able to qualify if this provision had been in place at that time. We've also estimated that if those 88,000 individuals had been able to find an additional three or four weeks of work - I'm trying to multiply that by 35 in my head, because we're now in the world of hours - they would have qualified. That is, while the entrance requirement is going up by the equivalent of 6 weeks of full-time work, the average person who would be affected by this would need only three to four additional weeks of work.

I have a short comment on the note that's at the bottom of this page, to clarify the circumstances under which students would be able to qualify for unemployment insurance. The fact that somebody is a student doesn't necessarily disqualify that person from UI. You're qualified for UI if you meet the basic entrance requirements and you're ready and available for work. A student who normally works, for example, Friday night, Saturday, and Sunday, and has done that for an extended period and then loses that job, would probably have the hours required to qualify for UI on the basis of that job. If they continue to be available for work during those hours of work, which are their normal work hours, and if they are actively engaged in job search, then they would be able to qualify for UI with respect to that work.

.1010

Mr. Chairman, that's the end of the section on eligibility.

The Chairman: We'll have some brief questions for clarification. I saw Mr. Scott first, and he'll then be followed by Madame Lalonde.

Mr. Scott (Fredericton - York - Sunbury): On the question of the re-entrants that you mentioned, you said that once they met the new entrance requirement they wouldn't have to do it again. You also said they are considered new entrants if they have fewer than 490 hours in the previous year. When this starts, would the people who would have been getting 420 hours...? The bottom threshold is 420 hours. Is everybody a new entrant?

Ms Smith: No.

Mr. Scott: Consequently, when this starts, if you have 420 hours, you've entered the system at 420 hours. The next year, even though you didn't get 490, you're still in but you're not considered a new entrant because you had the 420 and got in.

Ms Smith: Yes, and let me try to again run through why that person gets in.

When we are assessing how many hours of labour market attachment that person has, he has420 hours of work in the previous year that enabled him to qualify for UI in that year, and he might have received 30 weeks of UI benefits in that year. Those 30 weeks of UI benefits are considered to be weeks of labour market attachment. That person therefore had a very extensive labour market attachment according to the rules of the UI Act. So there's a section - and we could point it out to you - that deals with what we referred to as prescribed hours of labour market attachment.

Mr. Scott: Thank you, that's very helpful.

The Chairman: Madame Lalonde.

[Translation]

Ms. Lalonde: You're saying that under that new system, someone who has two jobs would have both jobs insured. Then in the example, you say that if one job is lost... Insurable jobs at 600 $, is that for one or two jobs?

[English]

Ms Smith: That's for both of their....

[Translation]

Ms. Lalonde: That's right. Therefore, I think there's a little hitch here. Look at the total salary for both jobs. The person would have to lose both jobs. You're saying that if one job is lost... But you based the calculation on both jobs. Do you follow me? In order to lose both jobs at once, you'd have to be either very unlucky or live in a village that shuts down. Under the current legislation, you cannot voluntarily quit without being subject to a penalty. If you lose your job, you're immediately insurable, but I feel that what's being suggested here is somewhat fallacious. You lose one job, but you still have an income. You have to have lost both in order to receive benefits. You can't receive benefits on the basis of both jobs if you still have one job.

[English]

Ms Smith: No. There are certain circumstances in which someone can lose both jobs, and an example would be when he or she is sick. In this particular case, though, there is another amendment included in the bill that deals with the insurability of income from a job that is continuing.

You have two jobs, one of which ends while the other continues. Under the current act, you're not allowed to include the job that continues as insured earnings. But there is an amendment in the bill that will allow the earnings from the job that is continuing to be included in calculating your insured earnings for determining your benefits. So it works the way this example is laid out.

.1015

[Translation]

Ms. Lalonde: Excuse me, but when you say: "Earnings allowed while on claim, $83", that means that you have to lose the second job, because you'd only be allowed to earn $83 a week with the second job.

Excuse me, but I really think there's a problem there.

[English]

Ms Smith: No.

[Translation]

Ms. Lalonde: Either both jobs were lost, or neither of them were. If we continue...

[English]

Ms Smith: No, they have not lost both jobs. They've lost only one job.

[Translation]

Ms. Lalonde: But in order to continue receiving benefits, all a person can earn is $83 in their second job. That's what you're saying: "earnings allowed while on claim." And you add: "total income, $330 plus $83."

[English]

Ms Smith: Yes.

[Translation]

Ms. Lalonde: But if I earn $112 in my second job, I'll have to come to some agreement with my employer to earn only $83.

[English]

Ms Smith: No, perhaps the problem is that -

[Translation]

Ms. Lalonde: It isn't complete.

[English]

Ms Smith: - the way the arithmetic is shown on the bottom here is not exactly the way the claim is calculated.

The way the total income of $413 is actually made up is the following. There's $100 from work this person has from that second job that has continued, plus they will have in fact only $313 of UI benefits because there's the $330, which is their basic UI, and then there's the deduction from that $330 to reflect their earnings while on claim. And they are allowed to have 25% allowed earnings while on claim before we start reducing some of their benefits.

So the arithmetic is $330 of basic UI, and then we subtract the $100 they earn while on claim minus the $83 they're allowed to earn while on claim. That leaves $17. So it's $330 minus $17, which gives you the $313. We will write down this arithmetic for you, but this is the way the numbers do work out. They do not have to go back to their employer and say they're allowed to earn only $83.

[Translation]

Ms. Lalonde: I'm trying to understand this properly. Suppose someone has two jobs that allow him to earn the maximum amount of $39,000. Is that right? There's an insurable maximum of $39,000, correct?

[English]

Ms Smith: Yes.

[Translation]

Ms Lalonde: That's right.

[English]

Ms Smith: Could you say that again? That's the maximum for which you're insured, but you can earn a lot more than that.

[Translation]

Ms Lalonde: Excuse me? But the insurable maximum is $39,000 and this applies...

Mr. Noreau: Whether you have one job or two, your insurable maximum remains $39,000.

Ms Lalonde: I mean that the two jobs combined make you earn up to the maximum.

Mr. Noreau: You can earn...

Ms Lalonde: You would then be entitled to maximum benefits. Is that correct?

[English]

Ms Smith: Yes. But we will write out in some detail the arithmetic that goes behind that claim calculation so you can see how the earnings while on claim affect the size of the benefit cheque.

The Chairman: That would be helpful. I had the same question.

[Translation]

Ms Lalonde: I have two more questions.

The Chairman: Are they brief? I wouldn't want to...

Ms Lalonde: They're questions that will be useful for everyone.

The Chairman: Very well.

Ms Lalonde: What does it imply to withdraw from the labour market? You said that a person would keep the 420 hours that keep their head under water, except if they withdraw. What does withdrawing from the labour market mean?

[English]

Ms Smith: In this context, it's with respect to these particular attachment thresholds. So if somebody neither worked nor received UI, nor received workers compensation, nor, I think, sickness benefits, and there weren't enough hours or weeks of any of those activities in a particular 52-week period to meet the threshold of 490 hours, they would be considered to have withdrawn from the labour market and would have to meet that entrance requirement again. All those activities can lead to one being deemed to have had sufficient labour market attachment.

.1020

The provision I'm referring to in the act is subclause 7(4).

[Translation]

Mr. Noreau: It's important to note here that being part of the labour force can take many forms: working, receiving unemployment insurance benefits, receiving worker's compensation or disability benefits. In short, a person must not have been in any of these four situations in a given year in order to be considered out of the labour force. It's important for people to understand that participation in the labour market can be in the form of work, of course, but also in any one of these benefit systems.

Ms Lalonde: Is that also the case when determining insurable earnings?

[English]

Mr. Noreau: Workers compensation?

Ms Smith: No.

[Translation]

Mr. Noreau: The insurable earnings are determined by...

Ms Lalonde: Therefore, if someone was on leave because of an accident in the workplace... We will be discussing this again during the clause-by-clause consideration, but this is already of great concern to people. If I work 10 weeks and have worked the required number of weeks before losing my job because of an accident in the workplace or an illness, is the level of remuneration established according to what I received while I was working, or according to that remuneration plus compensation under the worker's compensation plan?

[English]

Mr. Noreau: Go ahead.

Ms Smith: It would be based on the period worked.

The Chairman: We're going to come to that. So why don't we defer the answer to that question to when we get to it in the presentation?

[Translation]

Ms Lalonde: That's a hitch.

[English]

The Chairman: We'll have a short question from Marlene Catterall and one from Jan Brown, and then we'll carry on.

Ms Catterall (Ottawa West): On the definition of ``withdrawing from the labour force,'' let me give you three examples.

Is somebody considered to have withdrawn from the labour force who has had a reasonable attachment to the labour force, maybe over five to ten years, but has now either taken maternity time or is caring for children or for an elderly relative? Is somebody considered to have withdrawn from the labour force who has taken a period in which to establish a business? Is somebody considered to have withdrawn from the labour force who has been taking a training program?

Ms Smith: In answer to all those questions, it is not a definitive yes or no. It always depends on how long they engaged in these various activities.

Taking the case of someone who was on maternity or parental leave, if that person were taking say five years of leave, yes, they would be considered to have withdrawn from the labour force and would be needing to meet the new entrant or re-entrant rules.

I might add that one of the things that will be described tomorrow when you come to part II of the act is that in terms of access to the employment benefits, in the case of someone who has withdrawn for a period of five years for those sorts of purposes, they would have access to the employment programs although they would have to meet the new entrance requirements to have access to insurance benefits.

.1025

You gave the example of someone who has decided to try a hand at self-employment. If that person has been without insured earnings and without workers compensation, UI, or sickness benefits for the entire 52 to 104 weeks prior to the filing of their claim, then, yes, they would be considered to have withdrawn.

Ms Catterall: And that's despite the fact they may have been working 70 or 80 hours a week to establish a business or generate income.

Ms Smith: Yes, because they're engaged in self-employment. With the exception of fishermen, the self-employed are not covered by the UI program.

Excuse me, but what was your third example?

Mr. Noreau: And by the way, they don't pay premiums while they are self-employed and trying to develop that business.

Ms Catterall: The third one was training.

Ms Smith: If they're engaged in training that is sponsored by the part II employment benefits, it would be considered to be a period of labour force attachment and they would not be new entrants.

Ms Catterall: But not if they've chosen to take a six-month course to upgrade specific skills they need to improve their employability.

Ms Smith: That would only be a six-month period -

Ms Catterall: Or a year.

Ms Smith: - and that probably wouldn't be long enough to force them to be considered a new entrant or re-entrant.

Mrs. Brown: I'd just like a point of clarification on this whole notion of labour market attachment. As I heard your explanation, it seems to me you were talking about a combination of work and unemployment. I think it would be very useful if you could write down somewhere a comprehensive definition of what you really mean by ``labour market attachment''. There is a lot of confusion emerging over that particular term, especially when you're talking about someone establishing a reasonable attachment to the labour market. When we're looking at Ms Catterall's question about someone who is self-employed, it would seem to me that it would be a healthy consideration to look at in terms of those definitions.

Ms Smith: If I could just answer that one quickly, the definition and what I was describing exist under the current act. Right now, perhaps we can give the clerk a copy of the regulations that lay all of this out, because the regulations that have existed for some time would continue to pertain to this issue.

Mr. Noreau: Maybe there's a plain-English version of it that we could -

Ms Smith: It's not too bad.

Mrs. Brown: The other thing I'd like to know in terms of the 88,000 individuals who will be affected by this proposed reform.... I was wondering what the demographic profile of those 88,000 was. I guess it does not include those who would be self-employed. If these 88,000 individuals are indeed our part-timers or single-parent moms - that particular working group - I think it would be useful to know that.

I have to take some exception to the third comment about reducing the risk of an early start to a cycle of dependency. If I were cynical, I guess I would ask if that is opposed to a late start. You might want to have a look at how you've expressed yourself there.

Also, a question asked of me by a journalist last week was why I thought the government decided to mix hours and weeks together. What you've really come up with is a very confusing formula for all of us to come to terms with, and even this individual is having a lot of difficulty managing this notion of hours and work weeks in terms of the eligibility requirements for the new proposal.

The Chairman: Perhaps we can have a short answer to those questions. Some of those are more than questions of clarification and may be better posed in a different context so that we can carry on.

Ms Smith: I'll deal with the last question first and then turn to my colleague, Karen Jackson, on the other question.

The entitlement side of the program - how people qualify for benefits - is exclusively defined in terms of hours in the new bill. The part of the program that continues to be described in terms of weeks is how many weeks of benefits you can get. But we will still be paying out cheques twice a month, so we still need to deal with the payment side on a weekly basis. How people qualify is entirely expressed in hours now, though.

.1030

A voice: The 88,000...?

Ms Karen Jackson (Acting Director General, Labour Market Policy, Department of Human Resources Development): What we can tell you about the 88,000 is that we would estimate about 45,000 of them are women and 25,000 of them are youths. Some of those women are in the youth number and some of the youth are in the women number, so they're not entirely discrete numbers.

The Chairman: What I'd like to do is to invite Ms Smith to continue. I know there are questions around the table. I have some of my own. I would prefer to allow Ms Smith to carry on with her presentation. Those questions we don't get to we'll deal with at the end.

[Translation]

Ms Lalonde: There are...

The Chairman: We'll get back to that. I would like Ms Smith to be able to finish her presentation.

Ms Lalonde: I would like her to discuss effects on behaviour.

[English]

The Chairman: Ms Smith, would you continue?

Ms Smith: The next section starts on page 7. It's quite a lengthy section and there are quite a few complicated parts in here. I'll be in your hands, Mr. Chairman, as to whether you decide, when I continue along, at some point you want to stop and take some questions on two or three items and then start again.

The Chairman: I think what we should do, since time is moving along, is this. I invite you to do the section, and those around the table will save their questions.

Ms Smith: Okay, we'll start with the total earnings system. I would emphasize that this is a topic we'll be coming back to in some detail this afternoon. So it might be a particular area where we could defer some questions to this afternoon.

This refers to clause 14 of the bill. The change is to move to looking at insured earnings over a fixed period of consecutive weeks that would range from 16 to 20 weeks, depending on the unemployment rate in the region where somebody lives in 1996. This provision would be phased in and it would be a fixed-length period of fourteen to twenty weeks. The provisions for the monitoring of the new regime are set out in subclause 14.(5) of the bill...and whether or not changes might be made to this fixed averaging period on the basis of those monitoring results.

There are quite a number of examples in here of why this provision has been brought into the bill. The objective is threefold: first, to try to ensure a typical stream of earnings from a claimant.

There's an example here that might sound a bit hypothetical but is perhaps not all that atypical of some work patterns. You might have one claimant who works full-time every week and another claimant who works fairly sporadically and typically works only two weeks out of every month. They are both earning the same hourly wage, so in the weeks they work they're working the same. Under current UI arrangements, both of these claimants would receive exactly the same size of UI benefits when they become fully unemployed. However, if you compare the size of those UI benefits for that second worker who has been working only two weeks out of every month...in fact, over a month their UI benefits would actually exceed what they had earned in a month.

We'll come back to that example this afternoon, with some specific numbers.

In the interest of time, I might skip over example two, which describes the situation with the disincentive in the current program to accept work during the tips and tails of a seasonal work period, because we have a more detailed example this afternoon as well.

The third example is one.... I might ask that you change the word where it says, in example three, ``bundling''. ``Banking'' is the term that's normally used here, and I don't want to create some confusion with a pilot project we have under way that's using the terminology or jargon of ``bundling''.

.1035

I might take just a second on this example. This is something that's not legal, but it's not all that uncommon, frankly, with the way people report earnings.

Take someone who has worked for sixteen weeks and has earned $420 per week. There could be an arrangement with the employer to have those earnings reported over a twelve-week period that would make it appear as if this person has been earning $560 per week. This banking of hours into a shorter period would increase the size of that claimant's UI cheque from $231 a week to $308 a week and over the course of that claimant's total claim could increase their UI benefits by $2,000, or almost 25%.

Under a system that's based on averaging over a fixed period of time, most of the instances in which banking would be advantageous probably would no longer apply.

The table on the top of page 9 goes through the specifics of how the phasing in of the fixed averaging period would work. I've included in this table what the minimum entrance requirement expressed in weeks under the current program is for regions with this unemployment rate, so you can see by way of comparison how the fixed averaging period would work relative to someone who is able to meet only the minimum entrance requirements for the program.

I do want to emphasize, though, because it has been a point for some that has been a bit of confusion, that the fixed length of time for averaging or looking at a claimant's earnings is not related to their entrance requirements. They don't need sixteen weeks of work to qualify for UI. It's just a sixteen-week period over which we would be averaging their earnings. They might have fewer weeks of work than that.

The fixed averaging period is in addition to the first two reasons I've described as trying to bring benefits more in line with a typical stream of earnings and to get rid of some of the disincentives that exist within the system. It also relates to our ability to simplify the reporting requirements for employers. They don't have to track weeks of work wherever they might occur but just look back over a rolling sixteen-to-twenty week reference period.

I'm turning to page 10 now, on reducing the maximum benefit duration and the maximum length of the claim. This provision is reflected in schedule I, which is found, as I mentioned earlier, on pages 129 and 130 of the bill. The maximum length of claim will be reduced to 45 weeks from the current 50 weeks.

This change has been made on the basis of some of the results that have come from evaluation studies, in particular one that's entitled Unemployment Insurance and Job Search Productivity, by four academics, Crémieux, Fortin, Storer, and Van Audenrode. Their research found that the effectiveness of job search falls off fairly dramatically once claimants have reached nine months of unemployment and that the benefits from additional UI entitlement are not really found in the increased ability of these claimants to find work and the improvement in wages they might have in their new jobs from having had that extra bit of time. Claimants who have reached that point in their claim are probably more in need of the employment benefits under part II than additional weeks of income support.

On page 11, the intensity rule...this is found in clause 15 of the bill. Claimants will see their benefits reduced by one percentage point for every twenty weeks of benefits they have received over the past five years, according to the table that's laid out there. As mentioned yesterday, this provision would be implemented in a prospective sense. Everyone would effectively have a clean slate - no-claim history prior to July 1996 - and we'd start counting weeks of benefits received after that time.

.1040

To give you a bit of a sense of the cost of a UI claim relative to the contributions an individual might make, it would take seven years of continuous employment by that worker for both their contributions and the contributions of their employer to have paid for a 45-week claim. Someone who has drawn 101 weeks of benefits over a five-year period but has been working during all of the other time over those five years would have made contributions that would have paid for 19 of those 101 weeks of benefits drawn. They are receiving five times more than they are contributing. So the purpose of this provision is to right that balance a little bit.

I would ask the members to make one small change on page 12. In the middle of the page, it's noted that 50% of claimants have 20 weeks or less of benefits in a five-year period. The next point should say that close to 68% of claimants have 40 weeks or less over five years and would therefore see an impact from this provision of no more than one percentage point.

It should be noted that this five-year claim history would be maintained on a rolling basis - when we reach year six, year one drops drops off. While there is a period in which this provision is reaching maturity and people's additional weeks of UI usage would lead to potentially progressively lower benefit rates, once we reach year six they could start to gain back percentage points if they have been able to reduce their UI usage.

Only weeks of regular benefits would count. People who have been receiving sickness, maternity or parental benefits, or who have been receiving benefits under the work-sharing provisions or under the employment measures, would not have any of these benefits included in their claim history. Additionally, if we suppose an individual has extensive claim history but is now coming to claim benefits under sickness, maternity or parental provisions, that person will receive the 55% benefit rate if he or she is in receipt of any of those types of insurance benefits, regardless of claim history.

Turning to page 13, there's an example showing how someone who has drawn 21 weeks of benefits every year might see his or her benefit rate - the size of the weekly cheque - gradually decline, and a comparison of the total amount of benefits he or she would receive over this six-year period with what he or she would receive under the current act. In total, this person would receive $27,300 worth of benefits under the provisions in Bill C-111, as compared to $28,875 worth of benefits under the current act. That's a reduction of about $1,500 over six years.

The maximum amount one would receive if one were at the 50% benefit rate and had maximum insurable earnings would be $37 or $38 per week. A typical claimant would probably be receiving a reduction under this provision more on the order of $20 to $25 per week.

.1045

The clawback is the other aspect of the changes that are based on a claimant's five-year claim history. The clawback provisions are found towards the end of the bill. They're found in part VII of the bill, clauses 144 and 145. They're back at pages 109 through 111.

As with the intensity rule, the benefit history would be building up starting January 1996, so it's a prospective provision. Everyone starts with a clean slate.

Currently, individuals with net income that's greater than $63,570 are not subject to the clawback. Where that number comes from is that 1.5 times the current level of the maximum insured earnings, which is $42,380.... That figure of some $63,000 is more than twice the average industrial wage. We're anticipating that with the new clawback provisions, which I'll describe in some detail in a second, about 6% of beneficiaries would be subject to the clawback, compared with 1% today.

There are two parts to the way the clawback would work, one part for claimants with very little claim history and another for claimants with more extensive claim history. If we turn to page 15 and the table in the middle of the page, for claimants with twenty or fewer weeks of benefits in the past five years or in a five-year period before to the tax year in which this applies, they would be subject to the clawback if their net income is greater than $48,750. For claimants with more a extensive benefit history than that, the net income at which they would be subject to the clawback would be $39,000.

This next point is one that has been a bit of a source of confusion. The clawback operates at a tax-back rate of 30%, so for every dollar of net income above the threshold levels that are set out here the claimant would pay back 30¢ at tax time. But there's also a total maximum amount they would be required to pay. So they might in total be required to pay anywhere from 30% of their total UI benefits received to 100% of their total UI benefits received.

I have a number of examples of this. I'll go through this fairly slowly, because I think this is an area people find quite confusing.

Before I get to those examples, let me just go on to say the clawback applies only to regular benefits, so a claimant, who has been receiving sickness, maternity, or parental benefits, would not see those benefits clawed back.

This is a provision that operates through the tax system. It depends on your net income. Net income is the number that's in the middle of the second page of your tax form. I haven't tried to define it completely here, but just to give you an idea, it's income from all sources. That would include earnings, UI benefits, interest earnings, dividend earnings, your self-employment earnings, social assistance benefits. And it's less various types of expenses and deductions, such as your RRSP contribution, union dues, and child care expenses.

You should also note that any amounts you pay back under the clawback provisions reduce your taxable income. This happens before the tax calculations are made on your tax form.

I'm going to take a fair bit of time on the examples in this next box, to walk through this.

The first example is a first-time claimant who collects $5,000 in insurance benefits and has net income of $50,000. Under the current Unemployment Insurance Act they would not be subject to any claw back provisions at all, because their net income is less than that $63,000-plus threshold.

.1050

Under the Employment Insurance Act, Bill C-111, their net income exceeds the new threshold of $48,750. So they would be subject to repaying 30% of the amount that exceeds that net income threshold, up to a maximum of 30% of the UI benefits received. So they have $50,000 of net income, and subtracting the clawback threshold of $48,750 leaves a surplus of $1,250. The tax-back rate of paying back 30¢ on every dollar means that they would pay 30% of that $1,250, which would be $375.

That's an example of how the tax-back rate of 30% comes into play.

The maximum amount they might ever have had to pay would have been 30% of their total UI received. Their total UI received was $5,000. The maximum amount they might have had to pay would be $1,500, but they never reached that point because they don't have net income far enough in excess of the threshold.

The next example is a claimant who also receives $5,000 in insurance benefits, also has a net income of $50,000, but has a much more extensive claim history. They have received over120 weeks of benefits in the past five years, and therefore they are potentially subject to the total 100% tax-back of their UI benefits. We could see how this plays out in this particular claimant's case.

Again, under the current Unemployment Insurance Act this claimant would not pay anything back at tax time. However, now they have net income that exceeds the threshold by $11,000. So it's $50,000 of net income minus a threshold of $39,000, for $11,000 over and above the threshold. They would be subject to paying back 30% of that $11,000, or $3,300, again because their income is above the threshold but it's not high enough for them to be subject to the 100% repayment provisions.

The next example shows you exactly the same claimant but with a higher net income. This is an example of where the 100% maximum repayment could potentially come into play. This claimant has net income of $80,000, rather than the $50,000 in the examples we've looked at so far, so their net income in excess of the threshold is $41,000. They could potentially be paying back, at the 30% tax-back rate of $41,000, $12,300. However, they never have to pay back more than they received, obviously, so they would pay back their full $5,000.

The next example gives you another idea of when the 100% clawback might come into effect.

If a claimant who has received 121 weeks or more of benefits in the past five years and has $1,000 of insurance benefits has a net income greater than $42,333, then they would pay back the entire 100% of benefits received. If they had received $5,000, then they'd have to have had income at $55,667 to pay it all back. If they'd received $10,000, then they would have to have had an income of $72,333 to pay it all back.

.1055

[Translation]

Mr. Noreau: I will give Norine time to catch her breath. This is aimed at frequent users, wage-earners who will have their benefits withdrawn when they go beyond the type of income you see here. The example of $10,000 of unemployment insurance and $72,000 of net income is probably infrequent, but there are people in specific situations who make that kind of money under the current system, and are not penalized and can keep all their unemployment insurance income, whereas here, they will reimburse it in full as their income increases.

You may also have noticed the threshold. For an infrequent user, the threshold is set at $53,000 and for a frequent user, it's $39,000. In examples 2 and 3 on page 16, we used the threshold of $39,000 net income.

Would you like to continue, Norine?

[English]

Ms Smith: Yes, I'll continue with two more elements in this section.

The family supplement for claimants in low-income families is on page 18. This provision is found in clause 16 of the bill. The family supplement would apply for claimants in low-income families where the family income is less than $25,921. That number is the same number that applies to the child tax benefit, the working-income supplement, the tax credit - a number of tax credits within the tax system. So it isn't a number that has relevance to the UI system as much as to the income tax system.

In the UI Act now, individuals whose personal insured earnings are less than half of the maximum insured earnings would qualify for a 60% dependency rate. This provision would replace that. The change is designed to better target the supplement for people who are truly in low-income family circumstances.

A couple of statistics here will give you a sense of that. Thirty percent of those who receive the dependency rate under the current program provisions have family incomes in excess of $45,000. Under the new provisions, under the family supplement provisions, over half of the people who would be receiving this family supplement are not now able to receive the dependency rate because their personal weekly earnings might have been fairly high even though their total family income, when you look over a year, would have been fairly low.

So 45% of the people who would be receiving this family supplement are currently receiving the dependency rate and 55% would be claimants with dependents with low family incomes who are not now receiving any supplement at all.

It is a provision that would be phased in. It would be fully mature in the year 2000, and the maximum benefit rate that an individual could receive would be 80% - I have some examples of that on the next page.

I would emphasize that the top-up varies according to family size, just as it does under the child tax benefit, and the eligibility rules and definitions would be those that apply to the child tax benefit.

It is not intended that the Employment Insurance Commission get into the business of assessing people's family incomes but would piggyback in essence upon the child tax benefit and people's ability to qualify there.

Only one spouse in a family would be able to get the benefit, which would be sensible. The average top-up under this provision would be $30 per week. That contrasts with the maximum that someone can get under the current dependency rate, which is $20 per week.

.1100

A couple of statistics were in your data package yesterday. As a result of this provision the benefits that would be received by claimants in low-income single-parent families would increase by 10%, and 6% by claimants who are part of a couple in a low-income family with children.

Let me go through one example on page 19 to show you how to read this table. The top part shows you what the weekly benefits would be for claimants who are able to receive the dependency rate.

Let's take the example of someone who has weekly earnings of $250. That's less than half of the maximum insured earnings today, so they would be receiving benefits at a 60% benefit rate and would receive $150 per week.

The numbers down below show what would happen if their family income was in the range of $10,000 to $20,921. The child tax benefit and working-income supplement phase in, ramp up at income levels below $10,000, and start to ramp down at income levels above $20,000. Plus, this family supplement under Bill C-111 would also ramp down at incomes over $20,921. So this set of numbers only applies to people who are in that particular range. But it doesn't mean that the people at the other end of that range don't qualify; it's just that they get different numbers.

So if this claimant at $250 worth of weekly earnings had one child, they would receive a benefit rate of $171 compared to the $150 under the current program. If they had two children, they would receive $195 compared to the $150 under the current program. With three or more children, they would receive $200, and no more than that, even though their child tax benefit would continue to increase with more children, because there is a limit of 80% on the benefit rate.

I'll turn to page 20, the floor and allowable earnings while on claim. This can be found at subclause 19(2) of Bill C-111.

It is a fairly simple provision compared to some of the others. Low-income claimants would be able to earn a minimum of $50 while on claim before seeing any of their EI benefits reduced due to their earnings.

The current act allows claimants to earn 25% of their benefits while on claim. So those who have fairly low benefits were often in a position where they couldn't even undertake one day of work while on claim before they would start to lose benefits as a result. This change affects those who have weekly benefit cheques of $200 or less a week. As I say, it would more or less enable people to work for a full day at minimum wage before they would get less benefits due to their work while on claim.

So that concludes how benefits would be calculated under the new regimes, the size of the cheque.

The Chairman: This might be an appropriate time to hear some questions because the next section deals with premiums and financing of the program. So we'll stop here and entertain some questions of fact or clarification.

[Translation]

We will begin with Ms Lalonde, followed by Mr. Scott.

Ms Lalonde: It will certainly be longer than a second, Mr. Chairman!

.1105

I would like to get back to page 7; that's where we started from. This would concern you,Mr. McCormick. We're asking these questions for the ordinary people who have to live with this legislation.

[English]

Mr. McCormick (Hastings - Frontenac - Lennox and Addington): That's a good point - very often, I think.

[Translation]

Ms Lalonde: I respect the people who must see to the political mandate, but we are here to defend...

You say that benefits are based on the number of weeks worked. Entitlement is based on hours, but the income or salary used to calculate benefits is also based on hours.

Mr. Noreau: No. We agree on the fact that hours are what determine entitlement.

Mr. Lalonde: That's right.

Mr. Noreau: After that, it's total income, earnings in dollars.

Ms. Lalonde: Per week.

Mr. Noreau: No. They are added up and divided afterwards by a certain number of weeks, a fixed period.

Ms. Lalonde: Therefore, a period of weeks.

Mr. Noreau: A certain number of weeks, yes. We divide the total earnings by a certain number of weeks which, as you know, will vary from region to region according to the rate of unemployment.

Ms. Lalonde: I will go to the most essential questions, but I would really like an in-depth answer to that question. Essentially, you're undertaking this reform after having identified the biases that were introduced in the application of the system by users, who have tended to "help themselves to the system." You're building another system based on hours and total earnings that you're dividing by the number of weeks.

You certainly must know that this will have another effect on behaviour. There is a risk that it will favour eligibility. A person can obtain the number of hours required, even though their hourly wage may be lower.

That pressure did not exist before. It was even the opposite. The pressure was exerted in the following way: if I had a high salary, as soon as I'd earned the minimum, I was sure to have higher benefits. Now it's more a matter of making sure one gets benefits. In your general assessment, did you determine that this policy will create downward pressure on wages and are you seeking that effect?

Mr. Noreau: First of all, madam, we are not seeking that effect. Secondly, it remains to be seen, but right now, I fail to see how this rule involving total earnings could have the effect you describe. Essentially, this rule says to the worker that the more money he earns, regardless of how he earns it, regardless of the number of jobs he holds, the more the benefits divided by a fixed number of weeks will be high.

Ms. Lalonde: You're saying the same thing I am. The more you earn, regardless of the number of hours you require...

Mr. Noreau: You're trying to deduce that we're encouraging minimum wage work. I don't see any such cause and effect.

Ms. Lalonde: We shall see. I think we have a right and a responsibility to determine the direction of this reform. We musn't forget that everywhere, the minister... At the OECD, they say we must adjust to globalization, which never tends to increase wages, it reduces them. It exerts an upward pressure on the number of hours and a downward pressure on salaries. Personally, I see many things here that follow that trend.

.1110

On page 9 of the English version, you say that this method will ensure better adjustment between the stream or tendency to earn a certain amount... What you want is for the trend to favour remuneration rather than a reward in benefits for higher salaries during the period preceding lay-off.

Mr. Noreau: I have two comments about that. It has been noted that the current unemployment insurance system tended, sometimes, to be based on combinations of work and hours that were not at all representative of the income or the work done by the worker.

What we're trying to do here is to get back to a more representative system, that is the number of dollars earned divided by a period of weeks. This is more likely to reflect the earnings and the working pattern of a person. That's what we're trying to establish rather than low-income weeks and high-income weeks... You remember all the examples we saw when we made our diagnosis.

Ms. Lalonde: Two points remain. You did answer my question earlier about the worker's compensation benefits that a person could receive during the 16 to 20-week period. You told me that they are not considered a salary. So that is not part of the person's earnings.

And yet, the worker's compensation benefit is based on salary. Your formula would not be typical of what a person normally earns. That is therefore a major problem.

Mr. Noreau: It will be typical of work-related earnings, and not earnings related to support income, be it worker's compensation or anything else, because the principle underlying these measures is to try to link entitlement to the highest possible benefits to the work effort. Therefore, if someone has the misfortune of having a workplace accident, he will receive a benefit calculated according to the rules of this legislation. However, unemployment insurance is not aimed at compensating anything other than work.

Ms. Lalonde: You can expect that we will discuss this again. This makes no sense, not only to me, but also for many people listening to us. We musn't forget that a particular accident or illness that occurs during work is caused by the work and not by the opposite.

Mr. Noreau: I would have a point of clarification here, madam.

Ms. Lalonde: I know that this is in the method of calculation.

Mr. Noreau: There is a clause in the legislation that says that if worker's compensation benefits are received for four weeks, for example, during the period, this period will be extended by those same four weeks. Do you follow me?

Ms. Lalonde: Yes, I follow you.

Mr. Noreau: If, of the 16 weeks that the earnings will be divided by, four are weeks during which the person receives worker's compensation, the calculation will be done over 20 weeks. If the person is forcibly unemployed because of their health status, then their work earnings will be divided by 16 and not by...

Ms. Lalonde: I don't know the legislation by heart yet and I'm sure you don't expect me to. Does this mean, again in the case of someone who is on leave because of a workplace accident and who loses his or her job, that worker's compensation benefits will be excluded from the reference period and only work hours will be counted?

.1115

Mr. Noreau: They are excluded from income.

Ms. Lalonde: I have nothing against you.

Mr. Noreau: It is complicated, Ms. Lalonde.

Ms. Lalonde: It's your law that's complicated.

Mr. Noreau: It is indeed a complex structure. Essentially, I'm saying that if there is a worker's compensation benefit period, the money received during that period does not count as income, nor does this period count as a working period.

Mr. Dubé: But you said that we had to multiply by 20.

Mr. Noreau: No. We want to extend the period. We will remove from the system the period of benefits...

Ms. Lalonde: For that, you will go back to the old system.

[English]

Mr. Noreau: Do you want to try?

Ms Smith: I could try to give a couple of examples. There are many variances on this. I might not hit on one that's pertinent to the exact situation you have in mind.

Suppose a worker has an injury on the job and it has led them to be unable to work for a relatively short period. If that individual were to file their claim right at the point when they become injured, they could establish a claim on the basis of their work to that point. They have a full 52 weeks, which is what we refer to as the ``benefit period'', during which they can draw the benefits to which they are entitled.

Let's pick a number out of the air. Let's suppose that claimant is entitled to 25 weeks of benefits. Then they have 52 weeks over which they can draw those 25 weeks of benefits. If during some of that period they are in receipt of some sort of disability insurance, then they would draw that in some weeks and they would take their UI in other weeks, subject to the rules about income while on claim. When they come back into the labour force, if they've been off work for a very extended period because of their disability, they would not be considered a new entrant or re-entrant, but they would have to re-establish their eligibility for UI with another block of work later on.

Does that help?

[Translation]

Ms. Lalonde: Just a bit. The point from which you calculate, and that is what's important, does not fully depend on the worker, who cannot decide on a date. And if there's been...

[English]

Ms Smith: Well, yes, if they have lost their job because they are injured, then they can file their claim at that time.

[Translation]

Ms. Lalonde: If the employer keeps him at work for four weeks, those will be four weeks for which he will claim benefits that he may or may not obtain, but one thing is certain in what you're saying: you will not include that period in your calculations.

The Chairman: Could I ask Mr. Noreau to try to clarify that?

Mr. Noreau: We're now dealing with interruption of earnings and we will be discussing that exclusively this afternoon. I therefore suggest we get back to the topic of interruption of earnings later, for example the issue of synchronization of the time when the worker files a benefits claim. That's important, as you will see this afternoon. We'll be ahead of schedule if we discuss interruption. We can therefore delay that until this afternoon, with your agreement.

Ms Lalonde: I agree, Mr. Chairman. But we understand that these topics are related, because the calculation of the 16 to 20 weeks is linked to...

.1120

Mr. Noreau: In the case of ...

Ms Lalonde: We'll get back to that. All right.

I have another question to ask.

The Chairman: This will be the last one for now.

Ms. Lalonde: Mr. Chairman, excuse me, but all this is important for everyone!

The Chairman: Yes, but there are other questions that are also important.

Ms. Lalonde: I know that, but we have to take all the time we need.

The Chairman: I will allow our witnesses to finish their presentation and later, we will have time to ask questions. I would like us to finish what was planned for this morning.

Ask your question and Mr. Scott will also ask one afterwards.

Ms Lalonde: You're allowing me to ask only one, but I have many others.

On the issue of family benefits supplements, supplements for persons...

Ms Noreau:...with low incomes.

Ms Lalonde: With low incomes, I have many questions in mind. You may not be able to answer the first one fully, but why have you chosen to turn unemployment insurance into assistance? That's the only place in the legislation where, instead of having insurance as a principle, the law is transformed so that it becomes a welfare act.

Let me explain. Normally, we should deal with supplementary family benefits through a family policy, whether people are working, unemployed or sick. This should not be linked to the fact that someone on unemployment has more or less money for children. It should be a family policy.

Therefore, when you introduce such a measure, you are aligning somewhat with welfare which takes into account the number of children, etc., and you will have to do what they do with welfare, which is a kind of assessment, follow-up and investigation.

You say here that the same rules will apply, but there is a definition of spouse and it says that they must be of the opposite sex and that the natural or adopted children must be in the family unit. That makes a lot of sense, but to verify that, you have to...

Among the many questions I'd like to ask you, let me ask you this one: if your aim is the welfare of children, why do you state that the spouse must be of the opposite sex? If a couple has decided to live together and raise children, whether it's a couple made up of men or women, if it's for the welfare of children, why say that they have to be of opposite sexes?

Mr. Noreau: Mr. Chairman...

Ms. Lalonde: It falls within your logic, but it's not the logic I prefer.

Mr. Noreau: To answer the first question, namely why we've introduced elements of relation or need rather than strictly insurance measures, I would simply say that when the government reviewed these proposals for changing the rules, it was concerned with the impact this would have on low-income families.

Ms Lalonde: Because of the cutbacks.

Mr. Noreau: There are precedents. In the calculation of the child tax credit, we take income into account and we adjust the benefit to the income. The proposal, and it is quite accurate to say that this principle is not related to insurance, tends to be aligned with the tax child credit: this will not complicate things because that system is already in place. Since the supplement will be aligned with the tax credit, we will use the Revenue Canada data and files and simply pay the amounts that your referred to.

If you're asking me for a general policy decision regarding same-sex couples, I will wait for the government to take a position on this issue and then we can discuss it again.

The Chairman: Thank you, Ms Lalonde.

[English]

I now turn to Mr. Scott, who has a question, and I have a question of my own after that.

Mr. Scott: Actually, Mr. Chair, I have a couple but they are connected to each other.

.1125

I think I asked this of the minister last week, but I'd like to know how many people eligible for the income supplement would be the same people subject to the intensity rule. To some extent, if the intensity rule basically causes one to go from 55% to 50%, yet the income supplement could, generally speaking, take them as high as 80% according to the tables presented, I would be curious to know how many people really are protected from the intensity rule by virtue of the income supplement provisions.

Mr. Noreau: Before we get to the numbers, we understand that the intensity rule applies to everybody.

Mr. Scott: I understand -

Mr. Noreau: Whether or not you have 80% -

Mr. Scott: - but if you're applying a 5% reduction to 55% or if you're applying a 5% reduction to 80%, there's obviously a big difference. I'd be very interested in a cross-reference between income and the impact of the intensity rule.

There's one other question that speaks to something to which Mrs. Brown referred, although it may be better addressed this afternoon. I don't know, but it was brought up: Why do we use weeks for the divisor rather than hours? Mrs. Brown asked earlier why we were doing both, and it is a question that has often come to me. I'm not questioning the notion of the divisor or of having a greater period of time applied to the benefits than is required for the entry, but why does one have to be in a different measure than the other?

Ms Jackson: On your first question on how many of the people receiving the family supplement would also be affected by the intensity rule -

Mr. Scott: It's more the other way around, actually.

Ms Jackson: It's more the other way around?

Mr. Scott: Yes.

Ms Jackson: That's something we can provide, but we don't have it here today.

Mr. Scott: Thank you.

Ms Jackson: Could I ask you to expand a little bit on your second question on how the intensity rule affects people?

Mr. Scott: I part company a little bit from Madame Lalonde in terms of the desire to make sure that insurance principles are very strongly adhered to in this program. In my region of the country, the pay-outs are obviously a lot greater than the contributions, thus stricter insurance principles are not things we are particularly fond of.

Having said that, if one comes into this discussion thinking of unemployment insurance as an income supplement in terms of certain industries that simply cannot support families - and we want those industries to stay, so obviously there is need for some way to deal with this - or if you come into it with the perspective that there is a social policy, the intensity rule at a high level is less troublesome than the intensity rule applied at a low-income level. What I'm trying to get at is that for those people who are making $50,000 and are subject to the intensity rule, there is less resistance to it than there is from someone who is at a low-income level and is subject to the intensity rule. So I'd be curious as to where the impacts of the intensity rule come in.

Ms Jackson: Thank you. That provides me with the additional information I needed to answer your question.

[Translation]

The Chairman: I think Mr. Dubé wants to ask a brief question.

Mr. Dubé: One of the changes brought about by the proposed reform, compared to the current situation, is with regard to the increase in the number of hours. In my opinion, there will be an effect on what I call "Joe jobs", that is, part-time jobs that are generally held mostly by young people or women.

.1130

If this change is being made to increase the number of hours of those who already have a job but who expect to get a "Joe job", pressure will be exerted on that type of employment, so that people who have small jobs, who are in survival situations and who are not unemployment insurance recipients will be in competition for the same low-paying "Joe jobs", as I call them. Were those who proposed this change aware of that?

Mr. Noreau: Mr. Dubé, my impression is that the current system encourages employers to create jobs with a low number of hours. The reason for that is simple: if they make people work less than 15 hours a week, neither they nor the employees pay unemployment insurance premiums. As you know, in many sectors of the economy, there are trends, employment patterns that are aligned on the definition of a work-week under the current unemployment insurance system.

I get the impression that this encourages the creation of what you call "Joe jobs", jobs with a low number of working hours per week. There may be people whom that suits, but what the current system is proposing, is that the more hours you work, the more your eligibility improves. Therefore, this should no longer encourage employers to create jobs of 14 hours a week.

On the contrary, an employer who is concerned, for example, with the quality of his product would see that it is in his interest to count on a stable labour force, and not on people who only spend 12 hours a week in his workplace. There will therefore be an incentive in the new legislation not to create "Joe jobs", but to promote longer working hours, certainly for employees.

Mr. Dubé: You seem to be agreeing with me. I'm somewhat concerned about young people who have to pay for their studies and who have to survive, and who currently have access to jobs that allow them to do that. But the new system will mean that people who have well-paid jobs will become additional competitors in that system in order to make sure they're eligible for UI during the winter or at any other time of year.

Mr. Noreau: I admit that that possibility does exist, but to what extent will it happen? I think that's an impact that we cannot assess right now. We will have to monitor and assess the situation. Since this system encourages people to work more hours a week, I think we will see the reverse trend, namely a reduction in the number of jobs at 12 or 13 hours a week.

Mr. Dubé: I would like to point out that the government of Quebec - we're talking about the left hand and the right hand, two governments with different policies - is currently seeking to distribute working hours so that those who don't have any at least get an opportunity to work.

Mr. Noreau: They're mostly talking about overtime.

Mr. Dubé: Yes, but also...

[English]

The Chairman: Before we go to the next section, I'm going to ask for a clarification on one dimension of this reform. It has to do with the reference periods we'll be dealing with.

When we began talking about eligibility based on hours, it was hours within, as I understand it, a 52-week or yearly reference period. You have to accumulate so many hours within a 52-week period, and I presume that 52-week period is calculated from the time at which you make a request for benefits backwards 52 weeks -

Ms Smith: That's correct.

The Chairman: - or 104 weeks if you're a new entrant or re-entrant, if that applies to you.

Ms Smith: That's correct.

The Chairman: In the case of the fixed divisor rule, it's the 16- to 20-week period within that 52-week qualifying period that you're looking at. Is that accurate?

.1135

Ms Smith: Yes. It's the 16 to 20 weeks working back from the time when the claim is filed.

The Chairman: So the zero is when you file a claim. Then you look back.

Ms Smith: Right.

The Chairman: You look back 16 to 20 weeks to determine the weeks and the earnings in there that will apply to the determination of the benefit levels, and you look back 52 weeks to the number of hours to determine whether the person is a new entrant or qualifies for benefits as a new entrant or a regular claimant. Is that accurate?

Ms Smith: That's right. As you know, there's a parallel in the current system along those same lines today.

The Chairman: I have one final question, to which we were trying to find the answer at the table. Since it's hours now, not weeks, is there a maximum number of hours within a week that one could claim?

Ms Smith: No.

The Chairman: So theoretically, since there are 168 hours in a week, a person could claim 168 hours in a week if they were able to get a weekly salary for those hours and have them count.

Ms Smith: I suspect that if they did that too often we might ask about their health.

The Chairman: That's difficult physically -

Ms Smith: Yes.

The Chairman: - but there's no provision in the law to prevent that from happening.

Ms Smith: No.

The Chairman: I want to draw your attention to one other question that was pointed out to me here. I think earlier, Ms Smith, you mentioned that the clawback did not apply to.... This is on page 15 of your presentation, where it says that the clawback applies only to regular benefits, not to sickness, maternity, or parental benefits. It seems as if in that statement there's a contradiction with subclause 145(5) of the new bill, on page 111, where it says:

(5) If the claimant was paid special benefits in the taxation year, the claimant shall also repay 30% of the lesser of

(a) the special benefits paid to the claimant in the taxation year, and

(b) the amount by which the claimant's income for the taxation year exceeds 1.25 times the maximum yearly insurable earnings.

Did we read that right, or is there a contradiction?

Ms Smith: There's no contradiction. There's probably a lack of complete clarity in the presentation today. There's a distinction between how it works for someone who is a first-time claimant and how it works for somebody who is a repeater.

On this perhaps it would be useful for the committee if we were to prepare a little table about what weeks count and what weeks don't and what benefit rates count against which type of claim that's coming up. So rather than taking up more time, we'll put something down on paper that hopefully will clarify this a little bit better.

Mr. Noreau: Also, it might be useful if you had two tables on the clawback, because the clawback for the non-frequent user and the clawback for the frequent user are two worlds, in terms of both tax-back and eligibility of certain benefits. So we should distinguish between the two there together under a clawback. I think it is confusing for you.

The Chairman: In your clawback formula you do make a very sharp distinction between the person who has 20 weeks or less and has got them on only one claim over the last five years and those who have -

Mr. Noreau: Yes.

The Chairman: This brings me to the conclusion of this little round of questions. Obviously, this new program, as it gets implemented, is going to look back much further than just two years in determining a person's eligibility or various aspects of the program. In fact, it goes up to five years.

.1140

Could you explain a bit how that will be administered? How will those premiums, in a sense, be calculated and accumulated and recorded in order to enable us to go back five years? Has consideration been given to going back further than five years?

Maybe this leads back into your next presentation.

Mr. Gordon McFee (Acting Director General, Insurance Policy, Department of Human Resources Development): Mr. Chairman, there are two elements to tracking the records over the five-year period. The first is the administrative aspect you mentioned in your question. The second is the automated aspect of that.

The short answer to your question is that the systems and information-gathering mechanisms necessary to track that information are being developed now and on the assumption that the bill will pass into law they will be in place in time to track the information. You'll be aware as well from some of the previous answers that some parts of the tracking are phased in, so by the time it becomes realistically applicable the various devices will be in place to keep the information.

The Chairman: So you don't have all the information. The mechanisms are not fully in place but they're being put in place, so you can follow this program over a longer period than you were able to under the previous program, which was essentially contained within a one- or two-year claim history.

Mr. McFee: Yes, sir. As you allude to in your question, different kinds of information will be tracked over longer and shorter periods. There's a two-year level. There's a five-year level. It's that kind of thing.

The point I was making was that as you have already heard, some of the things that are counted don't start being counted until the bill has passed into law. In other words, people have a clean slate.

All I meant was the mechanisms are being developed now to start counting these things. Whenever they have to start being counted, those mechanisms will be in place to do that. Whether it's two or five years, depending on the nature of the element, that will be able to be done.

The Chairman: Thank you.

[Translation]

Ms Lalonde: Will there be retroactive measures in this, yes or no?

Mr. Noreau: The only one that is subject to confirmation, Ms Lalonde, is intensity, and there is nothing retroactive in that. It begins on July 1st. This is what Gordon calls a tabula rasa,

[English]

a clean slate.

[Translation]

However, I believe that women who have been out of the job market for five years will begin to be eligible for employment benefits as soon as the bill comes into effect.

That means that a person who has raised her family and who has received maternity benefits for three years would be eligible, starting in the fall of 1996. So eligibility for employment benefits or employment measures is retroactive.

The Chairman: I have a question about that. There will be an overlap for some recipients who will have begun their benefit period before the Act comes into effect, and these recipients will realize that the old Act applies to their benefit period, whereas other people who will have started paying premiums after the Act comes into effect will be subject to the new Act. Is that how it will work?

Mr. Noreau: Yes. And the principle that will apply is...

[English]

The Chairman: Old rules, new rules?

Ms Jackson: Old rules, new rules.

[Translation]

Mr. Noreau: Yes. The old benefits will be provided under the old regulations, and the new benefits will be provided under the new regulations.

The Chairman: When the benefit period begins, that's what will trigger the...

Mr. Noreau: In September, some people will still be receiving benefits based on the old system, and they will be coming to the end of that system, whereas someone who applies for benefits on July 2nd will come under the new system.

[English]

The Chairman: I think what we'll do is we'll turn -

[Translation]

Ms. Lalonde: To follow up on your question, Mr. Chairman, the 52-week period, which is the reference period, will begin for everyone when the new Act comes into effect. Is that correct? If there's no overlap, that's what that means. If there is an overlap, how are you going to translate weeks into hours?

.1145

Mr. Noreau: By a particular time, people will come under only one system. If I understand your question, you would like to know what happens with the reference period of a person applies for unemployment insurance benefits on July 5th.

Ms. Lalonde: Yes.

[English]

Mr. Noreau: Does he go back 52 weeks? How does that work?

[Translation]

Mr. McFee: In this kind of situation, the key element is what we call the beginning of the benefit period. In other words, when the application for benefits is approved, if that date follows the date the bill comes into effect, the new rules will apply. Consequently, we will go back 52 weeks to see what the person has done during that time for the purposes of calculating benefits and to determine whether he or she is eligible for benefits.

That's what "old claims, old rules, new claims, new rules" means, since the new application for benefits follows the date that the new Act comes into effect.

Ms. Lalonde: But that will cause major problems, because employers were not indicating the number of hours in their statements, but rather, the number of...

Mr. McFee: Ms. Lalonde, there are transitional provisions that will ensure that the transformation into number of hours will really take place in early 1997. Between July 1996 and January 1997, the other rules will apply when it comes to obtaining files and information about people. Administrative measures will be implemented to ensure that this transformation can be carried out.

Ms. Lalonde: That's not clear in the bill.

Mr. Noreau: I believe that Part VII of the Bill includes an entire series of administrative measures to attempt to cover these scenarios. The interim provisions on page 131 give you the answers for these scenarios.

Ms. Lalonde: We looked at them, but the answer to my question wasn't clear.

Mr. Noreau: If you wish, we could come back to that in greater detail and clarify what needs to be clarified.

Ms. Lalonde: Thank you.

The Chairman: We are going to continue, moving on to the next clause.

[English]

Ms Smith: We're now on page 21, dealing with the various elements of how premiums would be collected. The first is what we refer to as first-dollar coverage. The provisions described in the next couple of pages are found in quite a variety of clauses of the bill. Clause 2 in the definitions is where the bill removes the weekly maximum. Clause 4 is where the annual maximum insurable earnings are set. Clause 5 is where the weekly minimums are removed. Part IV of the bill, in clause 96, is where it lays out the refund that would be available to workers who have earned less than $2,000. Clause 96, a little later on, lays out the provisions on temporary refund of premiums to small business. So it's in two quite different parts of the bill.

Briefly, we would be shifting from a system where people pay premiums based on their earnings in any particular week, subject to minimums and maximums that would apply in that week, to paying premiums on the first $39,000 worth of earnings over the course of a year. Workers who have earned less than $2,000 in a year will have their premiums refunded to them through the tax system. The average refund these workers would expect to receive is about $30 and the maximum would be $60.

A temporary premium refund would be provided to small businesses that have seen their total premium bills grow over the course of 1997 and 1998. The growth in their premium bills could be for any reason, not just because of covering workers they might not have been paying premiums for in the past. It would include growth in premiums because they are It would include growth in premiums because they are expanding their business and have more workers.

.1150

I might note that first-dollar premium coverage and the greater simplicity this brings into place with respect to how premiums are calculated will be bringing the UI system in line with the way in which the premiums are calculated for the Canada Pension Plan and will greatly reduce the administrative complexity for employers in keeping track of premium payments.

It will enable workers, for the first time, to be able to double-check that their premiums have actually been collected and paid accurately. Currently, the only workers who are able at the end of the year to decide whether or not they've paid the right amount of premiums would be ones who have had premium payments that exceed the annual maximum.

The $2,000 premium threshold recognizes the fact that workers who have earned less than that are unlikely to have accumulated the hours necessary to qualify for benefits. An example here is that someone who has been working at a minimum wage of $5 and has been working for 420 hours would be earning about $2,100. That's about where they begin to be able to qualify.

That having been said, I want to clarify that this is looking at a premium payment on an annual calendar basis, not premium payments over a 52-week reference period basis, which is what applies for UI entitlement. This is an example that is described at the top of the next page.

For example, someone who might have started work in November and earned only $1,500 in that tax year would get a refund with respect to that $1,500, but that $1,500 and the hours associated with that work would be applicable if that person became unemployed, let's say, in the following March, and they would add to their insurable earnings and would add to their hours of work to determine their insurance entitlement.

Perhaps I should make a few comments on the complexity of the current administrative system for collecting premiums.

Today employers are obliged to try to allocate an individual's earnings into a Sunday-to-Saturday work week regardless of how they pay those people and regardless of the work patterns those workers might actually have. They have then to take the earnings that have been artificially allocated in that way and check. Does it exceed $163? Did that person work more than 15 hours? They ignore earnings over $815 per week.

Mountains of instructions have to be provided to employers to do this. We did a quick count, and there are about 150 pages of government regulations, policy guidelines, instructions to employers. This kind of complexity is one of the areas where employers have really pointed to the paper burden that the government imposes on them.

The temporary premium relief for small businesses would apply for two years: 1997, which is the first year in which the first-dollar coverage would come into effect, and 1998. It would apply to employers who have a premium bill of $30,000 or less.

There are a couple of examples at the bottom that will tell you what kind of employers and in what range the $30,000 premium bill might be if you had 150 to 250 part-time workers who are at the minimum wage or if you had 25 full-time workers at the average industrial rate. It gives you a sense of the diversity of employers who might qualify for this premium refund.

They would get a refund if their premiums increased by more than $500 over the previous year. The maximum refund would be $5,000. They would get half the amount by which their premium payments have exceeded that $500 increase in 1997, 25% of that excess in 1998. In both cases that's in reference to their premium payments in 1996.

.1155

A couple of statistics about businesses that would qualify. We were anticipating perhaps some 300,000 small firms would qualify for this temporary premium refund. We anticipate that at the current premium rate of $2.95 some two-thirds of all small businesses, or about 460,000 firms, will be paying lower premiums with first-dollar coverage than they pay today. If there were further reductions in the premium rates, for example if the premium rate were to go down to $2.85 in the future, close to 80% of small firms would be paying less in the future than they do under the current system.

About 28,000 small firms would be paying premiums for the first time under first-dollar coverage. Because of the minimum hours provisions, they have no workers who are covered today. We have estimated those firms would be paying on average about $100 per worker in premium payments. That works out such that those workers have a salary of about $2,400 in the year.

Maximum insurable earnings, page 23. This is in clause 4 of the bill. The maximum insurable earnings will be set at $39,000. As for the rate for 1996, we're still on a weekly basis in 1996, so it's $750 per week. The 1996 rate is contained in the companion legislation, which has not yet been referred to this committee, Bill C-112, for 1997 through to the year 2000. It can be found in clause 4 of Bill C-111.

The setting of the MIE at $39,000 and freezing it at that level until the year 2000 will bring maximum insurable earnings back a little more in line with the average industrial wage. It would have been almost close to 50% higher than the average industrial wage by the year 2000 if we had continued along the track of the current act.

The reason for that is that the current act has an escalating formula, a built-in escalator, which takes the average rate of wage growth over an eight-year period. High wage inflation in the early 1980s has been driving a wedge between maximum insurable earnings and the average industrial wage for some time. The chart on page 24 shows how that divergence has been accumulating. For some time the maximum insured earnings and the average industrial wage were tracking along in parallel. We're bringing those back together.

To turn to page 25 and how premium rates would be set, this is found in part III of the bill, clause 66. The current provisions for setting premiums effectively have premium increases and decreases tracking the business cycle relatively closely. It looks back over a three-year period and determines what premium rate would have been required to pay for the program in that three-year period, and that becomes either a ceiling or a floor for future years.

.1200

Instead of that very prescriptive methodology for setting premium rates, what's laid out in section 66 is that premium rates would be set in a way such that total revenues would cover the total costs of the program over a business cycle. As you know, the premium rate has already been reduced from $3 to $2.95 for 1996, and while there's nothing in the act that refers to the development of reserves in order to help to stabilize premium rates over a business cycle, the corollary of not having premium rates go in a very fluctuating fashion is to have the reserve grow in order to provide that sort of a cushion.

To give you a little idea of how a reserve helps to stabilize premium rates, we look at the experience of the last recession. During the period of 1990 through 1994-95, premium rates increased from $2.25 to $3.07. The statutory rates under the act were in the order of $3.25 to $3.30, as the government at the time had not stepped in and changed or overridden those provisions. The total premium load during that recessionary period went up by 47% and the status of the account worsened by $8 billion. We went from a $2-billion surplus to a $6-billion deficit.

You'll recall that when Karen Jackson was taking you through the data package yesterday, she did not make reference to section 5 in that package. There is a table there that shows you the history of the UI account since 1990; it shows you how that unfolded.

If, in contrast to that kind of a scenario, we had had premium rates at $2.75 during the entire recession and had a $10-billion reserve going into the recession, we would have been able to keep the premium rate at that level for that entire period, run down the reserve, and had $1 billion left when we came out of the recession. We would not have had premium rate increases helping to deepen the recession. A study that came out last summer - I believe it was done by Statistics Canada in conjunction with one of the Canadian universities - estimated that the pattern of payroll tax movement over the last recession added to the job losses in the order of about 200,000.

I should note that the UI account, as the minister mentioned in his remarks last Thursday, is included in the government's overall consolidated revenue fund, on the recommendation of the Auditor General. It has been that way since 1986, and any annual surplus in the UI account does reduce the overall budgetary deficit of the government in that year. Similarly, an annual deficit in the account increases the budgetary deficit. It's a temporary phenomenon that takes place only in the year of those annual surpluses and deficits.

The government pays interest to the UI account on any surplus that resides in the account. Similarly, the UI account pays interest to the government in those years when it's running a deficit. For example, during the period 1992-1995, there was $1 billion worth of interest paid by the UI program to the government because of the deficits that were in place during that period.

I should also emphasize that the surpluses that accumulate in the UI account can only be used for UI purposes. They cannot be spent on any program that is not covered by the act. In essence, the government borrows those funds and pays interest on them during those periods.

.1205

I guess that would conclude section 3. I give this to remind members that there's more information about the UI count in the data package, as I mentioned.

The Chairman: Thank you very much, Ms Smith.

We have 20 minutes for questions to conclude the morning session.

[Translation]

I will start by giving Ms. Lalonde the floor.

Ms. Lalonde: That was rather substantial, or perhaps I should say it was the pièce de résistance. I'll begin at the end, even though the beginning leads me to some other questions.

When we look at the overall picture of the unemployment insurance fund, we must remember that in 1990, the federal government decided to stop contributing to the fund, a contribution that reached 2 billion dollars per year. By 1993, the fund had a 6 billion dollar deficit, which leads us to conclude that if the federal government had not withdrawn from this area, we would have been able to get through the recession without having this problem. I'm not talking about the other problems the government is having with its finances; I'm talking about the unemployment insurance fund itself. It's important to make that clear. I think that we have to add...

Mr. Noreau: It's also important to understand, Ms. Lalonde, that at that time, the government would have robbed Peter to pay Paul, and given the general state of government finances, the government should have placed its 2 billion dollars in the unemployment insurance account, which would have had the same effect as a 2 billion dollar expenditure on interest rates and all other economic indicators.

Ms. Lalonde: Right now it is extremely important to understand that with the latest reform from Minister Axworthy, those who pay premiums into the unemployment insurance fund were declaring an income of up to $42,000, and now you are reducing that to $39,000. That's what's important to understand, just as it's important to understand that the benefits have been reduced repeatedly.

I would like you to prepare something that could be entitled "Assessment of the cumulative impact on expenditures of recent changes to the unemployment insurance program between 1991 and 1999" or until the year 2001, if you like,in order to include your proposals found in the new bill. In fact, it doesn't matter whether the minister was Barbara McDougall or Mr. Valcourt, Mr. Martin or Mr. Axworthy, there have been cuts.

I had such an assessment done myself, even though we didn't have the specific figures for the current Act. We used an average of 1.5 billion dollars rather than 1.2 billion dollars for the beginning, and an average of 1.9 billion dollars for the end. We arrived at a cumulative figure of 46 billion dollars, since 1991. That's an absolutely huge figure.

Mr. Noreau: Would you be so kind as to let me have your analysis, so that we can compare our figures to see whether we're using the same sources?

Ms. Lalonde: I'm impatient to see your own figures. My question is as follows: why have you decided to reduce the maximum insurable earnings to $39,000 rather than removing the ceiling on UI premiums for high wage earners, even if it does mean that the maximum reimbursed wages would be X dollars, thereby insuring that all wage earners, including high wage earners, those who work overtime and earn high wages, contribute to the unemployment insurance fund, particularly since this fund must also help employment development measures that play an active role in the economy? You could have chosen to increase this rather than reducing it, and judging by my own assessment, this would have made it possible to reduce the premiums further and provide more help to small business. But you decided to reduce this threshold to $39,000.

.1210

I have another question about annualization.

Mr. Noreau: Should I answer the last question right away, or not?

The Chairman: Yes.

Mr. Noreau: I'm going to ask Karen Jackson to give you a few figures, but what you're suggesting would have a very simple effect. If you were to remove the ceiling on what we call the maximum insurable earnings, people with very high incomes would contribute a great deal more to the fund.

Ms. Lalonde: Yes.

Mr. Noreau: You might consider that desirable. However, it would drastically increase the transfer. Earlier, you were refering to insurance principles and you were surprised that they weren't respected.

Ms. Lalonde: Social insurance.

Mr. Noreau: If I follow your reasoning, we'd be moving away drastically from insurance principles, because the effect you'd have would be to cause an enormous transfer from higher wage earners towards lower wage earners because the former would put much more into the fund and would gain almost nothing from it as they are rarely unemployed. So you would increase the flow of funds from the higher wage earners towards the lower wage earners. If you talk to me about insurance principles at the same time,...

Ms. Lalonde: Social, social. It's not the same thing.

Mr. Noreau: ...I'll find it difficult to reconcile it all. It's a choice. It wasn't made because I think it would drastically have changed the redistribution of unemployment insurance between the higher wage earners and the lower ones.

Ms. Lalonde: Currently, you are producing the opposite effect, because you set it at $39,000. You haven't spoken of the way that premiums will be collected with the annualization. Will it occur later? From now on, if someone earns a high salary during a relatively short period, he'll pay premiums on the maximum he makes without reaching the maximum insurable salary, which means that there will be a brutal cut-off at $39,000. Those who pay premiums and earn $39,000 will pay up to that maximum. The benefits - and please note that they will drop from $448 to $413 - will be frozen at that level. So there are some extremely important distortions occurring somewhere.

Before the chairman stops me, I'll finish off with a last question. We learned, during a briefing session, that reducing the maximum insurable salary to $39,000 would lead to a drop of 900 million dollars in cash inflow and for this reform to remain neutral, new premiums, taken as of the first dollar, would add around 900 million dollars more. I would like you to explain, given what you're saying, the fact that there is a decrease in the premiums paid by part-time workers. That's a figure that we got from the government actuary.

The Chairman: Let Mr. Noreau answer. You have asked several questions.

Mr. Noreau: There are several questions in Ms. Lalonde's comment. Firstly, concerning the maximum insurable earnings set at $39,000, we told you earlier that we'd observed that the maximum insurable amount, because of an automatic growth formula written into the former Act, was increasing much more quickly than wages, on average, in Canada.

This would have a significant impact on economic areas where, for instance, salaries tend to be average or low. In those cases, employers aren't able to attract employees. It's more lucrative to be on unemployment insurance than to work, because the maximum insurable is high. I was told that kind of thing in Gaspé and in New Brunswick.

.1215

What we wanted to do here was bring the maximum insurable amount as close as possible to the average Canadian salary, which is approximately $35,000,

[English]

if my memory serves me well.

[Translation]

That's the reason. I'm told the average is $30,000.

Secondly, the changes to maximum insurable earnings will have two effects. They'll reduce premium payments - if I'm insured at a lower level, I pay less in premiums - , but they also reduce benefits because my maximum insurable income is lower. There are therefore two effects. We could quantify them.

I don't recognize your 900 million dollars, but I'll look at it more closely. There are two effects. The total premiums are lower, which will decrease the amount in the fund, but the fund will pay less because the insurable level is lower. We could give you the statistics so that you can better understand the twin effect of the change made to maximum insurable earnings.

I have forgotten some parts of the question.

Ms. Lalonde: Why have you...

Mr. Noreau: I have given you an answer. To try and bring the maximum insurable earnings as close as possible to the average

Canadian wage. That's the reason.

Ms. Lalonde: In order to exert downward pressure in areas where...

Mr. Noreau: On both benefits and premiums.

The Chairman: I will now ask Ms. Jackson if she has something to add. Otherwise, I give the floor to Ms. Brown.

[English]

Do you have anything further to add to that answer?

Ms Jackson: I was going to provide some information on the second question that might be helpful in that context.

What we understand is that about 440,000 people in the current program pay premiums but cannot qualify for benefits. We estimate that under Bill C-111 that number will fall to about 300,000 people who will pay premiums but cannot qualify for benefits. So we're seeing a reduction of 32% of the people who find themselves in that circumstance.

Mrs. Brown: I have a point for clarification on what Ms Smith was talking about when she was describing the situation for small businesses that are expanding their payroll. I am referencing page 22 and then moving on to page 25.

Ms Smith, I think you said that if the rate dropped to $2.85, then 80% of the 300,000 small businesses that might be involved would have to pay less than they do currently. If indeed you said that, why is it that we are now looking at a reserve to be built up in the employment insurance account to avoid the need for large premium increases in times of economic slowdown, when we know that small business in Canada is the largest employer and one of the fastest growing ones? It would seem to me to make perfect sense to have reduced that contribution rate to a level at which indeed that could take place, in order to avoid just that situation of economic downturn.

Ms Smith: First, a clarification on the first statistic. I did say that about 80% would pay the same or less, but the number of firms involved was not 300,000. That 80% translates into about 525,000 firms. I can't remember the number of -

Mrs. Brown: You said - and I have written it down here - perhaps 300,000.

Ms Smith: The 300,000 I mentioned are the ones that we anticipate would qualify for the temporary relief.

Mrs. Brown: You went on to say that if that rate was dropped to $2.85, then 80% of that 300,000 would pay less. That's what you said. I wrote that down.

Ms Smith: I did say that.

There's a different analytical base. Let me try to explain here. On the number of firms that might pay the same or less, we haven't attempted an analysis to take into account what their growth patterns and the change in their business structure might be over the course of the next few years. It's a static analysis. We looked at firms that were in the database - I believe it might have been a 1991 database - and just said if this kind of premium structure had been in place in that year, who would pay more, who would pay less, and who would pay more or less the same? That's what that 80% is referring to.

.1220

Then we start moving forward and we ask what is our best guess at the number of firms, given the economic outlook and given the criterion of having $30,000 in premium payments in a year, etc. Under those circumstances, how many firms might qualify for this type of temporary refund? That's where the 300,000 comes from.

Mrs. Brown: May I just make the comment that throughout yesterday and today - and I'm not a statistician, by any means - I've noted that you have used different years as bases for your analysis. You've used 1991, 1992, 1994, 1995. I find, in terms of what my expectations would be, that may tend to skew some of the relativity of your comments over time. I'll just leave you with that.

Ms Smith: To the maximum extent possible we've tried to calibrate things so they're as relevant to today as possible. The reason you're seeing that phenomenon is that we're also trying to use the most recent available data we have. Depending on the data source, some of them are quite old and some of them are much newer. It's a data challenge we have to live with. But we've tried to make the data as relevant to today as possible.

The Chairman: Are there any other questions from the Liberal side? If not, I have two requests for information concerning the premium side of the program.

First of all, I would be very interested in receiving from the department an evaluation or an analysis of the administrative complexity associated with administering the current program; that is, what Mr. McFee was referring to before about the nature in which premiums have been calculated and collected under the current program and how that will change under the new program. Is that available?

Mr. Noreau: We would be glad to provide you with that, Mr. Chairman, because it's a very good story for all businesses that are now saddled with filling out those forms and have to keep different sets of books, a set of books for UI and a set of books for their own purposes, and it's a very good story for my department. You should hear the employees of the department applaud the changes they see coming to this famous, or infamous -

The Chairman: ROE.

Mr. Noreau: - record of employment. So I'll be very happy to provide you with the facts on this, sir.

The Chairman: How long will it take before we can have those? Are they done?

Mr. Noreau: I think we can pull that together in a day.

Can I commit to that, colleagues?

The Chairman: I would appreciate some extensive information on that.

That's the first concern. The second concern is an aspect of the program that was not referred to very much, and that is the premium reduction wage loss plans. They exist under the current program and are referred to in clause 69 of the new bill. I'm not talking about the premium rebates to small business, which are a relatively new feature of the program. I'm referring to the wage loss plans that qualify firms for reductions in their premiums and apply more or less to the large firms, such as General Motors.

What I'd like to have, because I understand this part of the program will remain essentially unchanged under the new law, is some information on, for example, the number and nature of firms that have used these programs in the past, the extent of the premium reduction that has applied to those firms, and the loss in premium revenue that entails for the government, as well as the loss in equivalent benefit costs to the government that have been the result of the application of those premium plans in the past, and a non-technical language description - in the regulations, it's absolutely impossible to figure out how they work - of how these wage loss, premium reduction plans have operated and how, I presume, they will continue to operate under the new system. Is that question fairly clear?

.1225

Mr. McFee: You'll understand, of course, that we don't have the statistical information at our fingertips, but the analytical information is available and can be put together fairly easily. We'd be more than pleased to do that.

Mr. Noreau: Just to add a piece of fact on your first question and to provide you with more data, Mr. Chairman, the Canadian Payroll Association has estimated that the simplification of this record of employment would save, at a minimum, between $100 million and $150 million worth of administrative workload for small businesses in this country. So this is no small piece of this reform, although it is only administrative.

The Chairman: That has stimulated the interest of our small businessman on the committee, Mr. McCormick, who has a question.

Mr. McCormick: Thank you, Mr. Chair.

The changes in the legislation all the way through seem to be very fair. We can go on and debate the numbers, and we will, too. I represent the riding of Hasting - Frontenac - Lennox and Addington, which is eastern Ontario. There are nineteen ridings from Oshawa to the Quebec border, and I happen to represent the area with the second-highest unemployment rate and the second-lowest income. We're going to have a very favourable number of wins, so I like a lot of what I see.

In reference to the record of employment, you mentioned that many businesses have two sets of books for that purpose. Well, I've been involved in business for twenty-some years and have encouraged many people, some of whom probably love me and some who probably hate me, to go into business. Many of those businesses - more than would ever want to admit to it - do not have the two sets of books, and I would use myself as an example.

Often, you make a typographical error or whatever when you do an ROE - tens and tens of thousands of businesses are doing these things themselves rather than going to their accountants - or the error might even come from the other side if they aren't able to quite read the form right. Right at the busiest time of the year you get the request to redo these things months and months later when there are many more things you could be doing. That's one of the many things that irritates small businesses on top of the paper burden. The government wants you to redo all this, and you redo it all again because you don't have the two sets of books, but you come up with the same figures. There are some wonderful, great games here that are going to be acknowledged by the Canadian Federation of Independent Business. For all those individuals, this is really terrific, and I thank you for that on behalf of the small businesses.

The Chairman: Thank you, Mr. McCormick. I don't think that was a question. It was more of a comment, and it's much appreciated.

Mrs. Brown: I just have one thing that I would like to pursue. It doesn't involve the witnesses but it does involve this committee, so I would like to deal with it before we break for lunch. I'm going to put a motion on the floor -

The Chairman: We are about to break for lunch. Is this a point of order?

Mrs. Brown: This is a request, Mr. Chairman, that I have pursued through you for some weeks - since before Christmas - to have the presence of legal counsel during these proceedings until we get to clause-by-clause, specifically for Bill C-111.

Because of the nature of the legislation and its complexity, I would hope that my Liberal colleagues would support this. I'd like to put a motion on the floor that the committee request that we have legislative counsel appear with us to help us as we move through Bill C-111. I believe we will need that support in order to ask questions and for clarification from a legal perspective. I know I have the support of my Bloc colleagues, so I would like this committee to put forward that request to the appropriate bodies.

The Chairman: The request is noted and it's under investigation. I'll report this afternoon to the extent that we can meet that request under the rules of the House.

.1230

We have been aware of your request on this matter for some time. The clerk who has been handling that is not here this morning, but I'll talk to him over the lunch break and get an idea for you of how well we're going to be able to meet that request.

By the way, we have two researchers from the Library of Parliament who are following the hearings and are also able to help out in that matter.

[Translation]

Ms. Lalonde, is it concerning the same topic?

Ms. Lalonde: No, it's another request. Mr. Chairman, I would like to get the documents we're supposed to receive tomorrow this afternoon so that we can read them. We'll listen in the same way, but it will allow us to... Sometimes I trip over something I find difficult to understand, and when I do, I realize that we're three pages further along. I don't even have time to read the text like the others. So if we could get them in advance, we could do our homework like good students.

Mr. Noreau: We don't have them.

The Chairman: You can take note of the request, and do what you can?

Mr. Noreau: Agreed. I'll check at lunch to see if they've finished the translation.

The Chairman: In the early afternoon, you might tell us if it's possible or not. Agreed?

Ms. Lalonde: I second Jan's first motion.

The Chairman: And now we'll break for lunch and come back at 1:30 instead of 2:00, because we're going to finish the afternoon with a clause-by-clause consideration of Bill C-96, which has been set for 4:00. So our meeting on Bill C-111 will be between 1:30 and 4:00. Is that okay? Thank you.

The meeting is adjourned.