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EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 16, 1996

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[English]

The Chairman: I'd like to call the meeting to order. We are going to Winnipeg, Manitoba. The first presentation will be from the Advisory Committee of the Workplace Education and Language Training. Beverly Fox, can you hear me?

Mrs. Beverly Fox (Member, Advisory Committee of the Workplace Education and Language Training in Manitoba): Yes, I can.

The Chairman: Welcome. As members of this committee, we certainly appreciate and would like to hear your input into ways to improve Bill C-12, an act respecting employment insurance. You have approximately half an hour, to be divided between your presentation and the question and answer session. You may begin.

Mrs. Fox: Thank you very much. I would like to address the committee not just for myself, but also I've asked Lisa Allard, our training facilitator, to join me as well.

Distinguished ladies and gentlemen, thank you for the opportunity to present our views on Bill C-12 and the possible termination of funding under CRF. It is our understanding that there will no longer be funding available to industry for direct delivery of education programs, and that is what we wish to address today.

We would like to express our appreciation for the action government is taking to decrease the deficit, and we acknowledge the difficulty in making those decisions during this turbulent time in our history.

We would like to make our presentation in four main sections: firstly, a historical view from the Kitchen Craft perspective, or the company I'm employed with; secondly, a student-teacher perspective; thirdly, an industry or business perspective; and fourthly, a summary and some recommendations.

I found it very interesting that recently government changed the name of unemployment insurance to employment insurance. The emphasis on employment will also be an underlying theme of our presentation.

To start, I'd like to give you a historical viewpoint from the Kitchen Craft perspective. Approximately eight years ago I was personally approached by Workplace Language Training to try a new program of teaching immigrant employees how to communicate in English at the workplace. Upon taking the idea to our executive, who were also the owners of the company and, by the way, ex-teachers, I was advised that we had no time for extra-curricular activities and we should focus on the task at hand, which was making cabinets. At this point we had approximately 400 employees and marketed our product mainly in Canada.

After a year or so of prodding they finally agreed to try a class, and since then there has been no going back. We run on average two to four ESL classes each year, with approximately eight to ten students per class. More recently we have offered tutorials to higher-level students, for example at the supervisory level, to help them improve their written communication skills.

Today we boast almost 1,000 employees, with product regularly being shipped throughout Canada and the U.S.A. Most recently we are pioneering our way into Russia and Japan. What changes we have made. Our plant has gone through three major expansions and we've had numerous machinery upgrades and engineering adjustments. Just to keep our staff informed on these issues takes a dedicated amount of time, effort and finances.

We feel this is our responsibility and we do so without question. But what about those who don't have basic language skills to understand our efforts? Are we also responsible for educating the hundreds who come to us with education that is not compatible with our environment?

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We have a basic belief that everyone is entitled to employment. Years ago we had many jobs available that could be performed with basic language skills, but these are rapidly fading. With the development of the team concept and the 360-degree feedback, employees are constantly being asked for their views, opinions and ideas, but are being judged and rated on the responses via performance appraisals. All of these did not exist ten years ago when one of the first big waves of immigration hit.

Through the efforts of Workplace Language Training, some of these employees have been able to move on to supervisory positions and remain viable and positive contributors to our company and society in general. But we can't do it alone. Recently our executive made a very important decision - to hire a full-time teacher, who is here with me today. They have realized that the success of our company hinges on effective communication between management and staff. Part of her duties will be to continue in some format the programs that were started by Workplace Language Training.

Would this have happened without the early programs being conducted? Maybe, but I do know for sure that this decision would still be in its infancy and still a few years off in the future. The seed was planted and we are now pruning the tree.

With that parting comment, I'd like to introduce you to Lisa Allard, our training facilitator, who will present the teacher-student perspective.

Mrs. Lisa Allard (Representative, Advisory Committee of the Workplace Education and Language Training in Manitoba): Thanks, Bev.

I want to start by saying that I believe that workplace language training programs are a very efficient way of using training dollars. My presentation will hopefully inform you of how my students feel about the program and why we feel the programs are more effective than generic language programs. I will include some direct quotes from my students, and in our summary we hope to offer some ideas for change. We emphatically want to be part of the solution, not the problem.

I've been teaching adults for eight years, four of those in workplace settings, some with Kitchen Craft and some with other companies in Winnipeg. I've found that most of my students were not able to have the luxury of settlement language courses when they arrived in Canada. Most of them needed to start work immediately to raise their family. They didn't want to be dependent on government, so they took jobs immediately. They picked up a little bit of English here and there, but it wasn't enough. They worked hard and did what they could, and they were proud that they were able to support their families.

Ten years ago or however many years ago, that was enough. But times are changing. Now factories, as Bev has mentioned, insist that their workers be able to communicate within their work group and discuss the effects and give ideas as to changing the workplace environment. This is a monumental task for my students. Many of them have difficulty just talking to their supervisors and asking for more supplies. So you can see that this is a big challenge for them.

Having trouble with volume...can you hear me now? I hope so.

The Chairman: We can hear you.

Mrs. Allard: If you didn't catch that last part, ask me questions later and I'll repeat it.

As I said, just backing up a little bit, they have a big task at hand to be able to communicate to their supervisors, to be able to give ideas, to give input. They can't just go and work for eight hours now and say that's enough. This is a monumental task for them.

For many of them, without more language training they could be out on the street in a few years. This means they would be collecting employment insurance and it would be very difficult to retrain them then. A lot of money would have to go into retraining at that point, not to mention the social aspect of the retraining and being unemployed.

Industry is becoming more technological and extremely competitive, and there is no place for workers who can't keep up with the changes. This is a hard fact and one that my students are aware of. They are very willing to work hard to learn the language, to learn what they need to survive in the company - and not just to survive, but to give back to the company. This is what they want to be able to do.

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In a generic English program they do not learn the specific things they need, things such as being able to label the different parts of wood or to be able say the different types of wood or label parts on a door. That doesn't come up in a generic English class and that is what they need.

These are the skills that my students need to survive. By continuing funding for workplace language courses we'll be proactive and we'll make the best use of training dollars. The students get the specific language they need. They remain employed and are assets to their company, their community and their country.

Once the company sees the value of training the employees they have, they can be encouraged to take on the full cost of language training in-house. If this funding is totally cut, I believe the long-term costs of unemployment and retraining will more than eat up any short-term savings.

I'd like to share with you some direct quotes from my students. When they heard that there was a possibility of funding being cut, they voluntarily chose to express their concerns. They thought that the funding cut was coming through Kitchen Craft so some of their concerns were addressed to Kitchen Craft management, but I'll forward them to you.

One of my students from Laos said:

That's from Bounnam Kimanivong.

Another student said:

That's from Lino Silva.

Another employee said:

That was from Mireya Ulloa.

In closing my portion of the presentation, I'd like to say that over the years I have attended a number of recognition ceremonies for the workplace language classes. It never ceases to amaze me how students who barely had enough confidence to speak up and ask questions at the beginning of a class will stand up and make a presentation in front of their classmates, supervisors and executives during the ceremony.

Their level of confidence dramatically increases and this is a benefit to them, the company and our community. Who wouldn't want to be a part of creating positive, contributing members of our society?

Thank you very much.

Mrs. Fox: To continue, I'd like to now give you the business perspective. TQM, total quality management, ISO, international standards organization, and paradigm shifting are all terms of the 1990s that did not exist ten years ago. In my interactions with other woodworking human resource managers, I've been made aware that they have needed, like ourselves, to elevate hiring criteria to include basic communications skills.

This decision was very difficult for us, but it had to be done to protect both the success of our industry and thousands of jobs. This will inevitably help our future, but what about our past? We still have employees in our organizations who may not be able to meet the challenges of the future without continuing language training. This also brings the fact to light that if industry and immigration do not work together, the problem could continue to compound.

In Manitoba, over 85% of businesses employ less than 100 employees. Like many other companies in Canada, they are struggling to survive - dare I use the term? - this ``recession'' or this global restructuring. They do not have the perceived luxury of extra funds to spend on language training when they have to cover increased production costs, marketing and advertising expenses, and city, provincial and federal taxes.

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Without government help to at least get the programs in the door, many companies will not have the opportunity to experience the benefits of having an educated workforce. This lack of opportunity will only help to suppress the weak and to lower our overall standard of living, and this, I feel, is not what Canada is about.

As mentioned earlier, we in business realize it is our responsibility to ensure jobs in a hopefully progressive and safe environment. We must do our part to continue training and to hopefully train our employees in what matters to ensure our businesses continue to thrive.

We can only achieve success with a total team effort. We need the employer, employee and government. These programs are very inexpensive compared to other government programs and studies, with an average class costing approximately $5,000. We ask that you take language training to the federal level of commitment and reconsider your position on eliminating CRF funding to industry under Bill C-12.

The fourth part of our presentation is our summary and recommendations. I would now like to summarize by offering a few ideas that, with a little brainstorming, could become viable options to continuing support for workplace language training.

Number one: change direction. Maybe offer incentives to companies to hire teachers. With a diminishing enrolment in the current education system, it would be beneficial to use the skill bank of available teachers and move them from the schools into the workplace. Current workplace language staff could audit the use of the teachers and the portion of their training spent in language training could be funded. Companies in similar industries or locations could share teachers if there is no full-time need.

Second, you could change the structure of the current program. May we suggest a decreasing scale for funding? It could possibly be 100% funding in the first year, 75% in the second, 50% in the third. If an employer discontinued the program after termination of funding, they would be required to pay back a portion of or all of the funding. This would allow the employer time to experience the benefits of the education and also allow time to build support for continuation of the process.

Our second idea on this point is to continue the same administration with costs shifting more to the employer, possibly based on the size of the corporation, and possibly with some costs shifted to the students.

A third change in structure that would make the program more effective would be to continue the same terms and conditions but to be more specific to the needs of students. In other words, the contract could take eight groups for ten hour-long sessions versus one group for eighty hours.

In closing, I guess there are no quick-fix solutions to solving all of the deficit problems, but we hope we have contributed in some way to your understanding of the importance of the workplace language training program. We thank you for your kind attention and we are available for questions.

The Chairman: Thank you very much. We will move quickly to the question and answer session. We will start with the Liberal side, Madam Augustine.

Ms Augustine (Etobicoke - Lakeshore): Thank you for your presentation. It's interesting that you focused on the issue of workplace education and language training because we feel that those are important areas.

Yet at the same time it's important to note that the legislation pertains to unemployed individuals. So I want to ask that as you involve yourself in this workplace education and as you work with individuals who are concerned about their future, what role do you see employers playing in this respect and do you think they should be contributing to the cost of the preparation of individuals for the workplace? And how do you see the province working with us in terms of the provision of educational materials for the individuals you serve?

Mrs. Fox: I do believe that employers should cost share, but I want to emphasize again in our presentation that the present cost we have to encourage us to survive in our own industry is a great cost. So although I agree with possible cost sharing, I think maybe it should be at a smaller percentage.

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I think the employer should offer the work site and any support they can for conducting the courses. It's worked very well in our organization, and I think that should be continued. I've often said of my involvement that employers should be more involved in helping with the presentations, with the education process, and developing the curriculum we are involved in. It of course takes up time of the people in the organization to do that, as well. So out-of-pocket expense I would like to see limited, but more participation.

To address the provincial side, maybe I'll turn it over to Lisa. I hope she can answer your questions.

Mrs. Allard: Right now what's happening is that the provincial government is coordinating the workplace language training program, which means they have a coordinator involved who helps in the training of the teacher and goes on-site to make sure everything is running smoothly and the quality of the program is up to level. This I think is a very important way the provincial government has been involved. I'm not sure if that role could be expanded, but right now they've done a wonderful job coordinating.

Maureen Campbell and Dale Klassen in particular have done a great job coordinating the whole program, getting it rolling and keeping the teaching going at a very high-quality level.

I also just wanted to say, from the Kitchen Craft perspective, that it is one industry that has really stepped out and said they saw it as being a need and then has taken steps to hire me as a teacher to meet some of these needs.

As Bev mentioned in her presentation, many companies don't have that luxury. Being smaller companies, they can't do it. This is where the cost sharing comes in. As Bev suggested in her ideas, if it starts out where at first 100% is done by government - they get the program in the door and see that it works, and it's made specific to the company so that it's paying off in quality, it's paying off in production, it's paying off in personnel problems in that communication improves, and all those things pay off down the road - then I think they'd be more and more willing to take on the cost of it.

This is why I see workplace training programs as a very effective way to spend training dollars. Eventually, I think it could happen that government could be stepping out of it more and more as more companies get sold on the idea, see the necessity of it and jump on board themselves. This is again why I think it is very important.

The Chairman: Thank you very much for your presentation. We certainly have taken notes on the points you have raised. We thank you for giving us your perspective on Bill C-12. It is our hope, of course, to come out of this committee with a much-improved bill. Thank you very much.

Our next presenter will also be from Winnipeg, from the Manitoba Restaurant and Foodservices Association, Mr. Michael Moore, executive director.

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On behalf of the Standing Committee on Human Resources Development, I would like to welcome you to our hearings. As you know, we are reviewing Bill C-12, An Act respecting employment insurance in Canada. We look to individuals like you to provide us with some advice on ways and means in which we can improve this piece of legislation.

You have approximately 20 minutes. That time will be divided between your presentation and a question and answer session.

Mr. Michael Moore (Executive Director, Manitoba Restaurant and Foodservices Association): Thank you very much. The Manitoba Restaurant and Foodservices Association appreciates the opportunity to present the views of the restaurant and food services industry operators in this province on Bill C-12. My name is Mike Moore and I'm the executive director of the Manitoba Restaurant and Foodservices Association.

The MRFA has an active membership of over 500, representing the interests and welfare of all Manitoba restaurants. The unemployment insurance program is very important to restaurant operators in this province because of the employment-intensive nature of the food service industry. Labour accounts for 30% of a restaurant's operating expenses in Manitoba. So any payroll tax increase has a significant impact on costs.

The Manitoba Restaurant and Foodservices Association initially supported the government's reform of the unemployment insurance system because there appeared to be a recognition of the growing burden of payroll taxes and their impact on a labour-intensive business's ability to retain and create jobs. However, we are concerned that the government is losing sight of this objective. Rather than reducing premiums, this bill increases UI costs for the food service industry by 17%.

We still support many of the reform principles contained in the legislation. Proposals that tighten entry requirements and that encourage individuals to take more responsibility for themselves are necessary and should result in a less expensive, more sustainable program. However, we are extremely concerned about one particular change that will jeopardize thousands of industry jobs.

The focus of my remarks today will be on first-dollar coverage and the devastating impact this change will have on part-time employees, particularly students attempting to save for their education or put themselves through school.

We know from the throne speech that this government cares about Canada's youth. We agree with comments in the speech that young Canadians deserve a climate of opportunity and that this should be a national objective. As an industry, we would like to accept the government's challenge to create new approaches to assist young people in finding their first job. Unfortunately, we'll be forced to cut back on the first-time job experiences we currently provide.

We are the largest private sector employer in this province. We create jobs for over 26,000 Manitobans. Our industry opens, for many Manitobans, their first door to the job market. This is especially true for young people. A very significant percentage of our labour force is made up of youths under the age of 25.

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We do not believe it is the intention of this government to discourage youth employment. That is why we wanted to appear today. We are here with the objective of proposing solutions that will help improve this bill to make it a job creator, not a job killer.

Let me begin by explaining why this bill will kill industry jobs. I mentioned earlier that a third of the revenue that operators in this business take in goes directly to the employees. Only 5% is netted before taxes. If we look at a typical Manitoba restaurant, gross sales would be about $308,000 per year. The 5% margin is $15,000. Most of a restaurant's other operating costs are fixed.

Passing costs on to consumers is not an option in today's tough, competitive market. Our industry has already lost 5% of its share of the food dollar to groceries and grocery stores since 1991 thanks primarily to the arbitrary, punitive nature of the GST. This leaves operators with no choice but to cut hours and staff. If we look at the typical consumer in Winnipeg, Manitoba, and I think throughout Canada, the option of raising prices is not there. It's an extremely competitive market in Manitoba. We have over 1,800 restaurants in the province for a population of about 1.1 million or1.2 million.

The first-dollar coverage will seriously impact the ability to create jobs, give employees pay increases and maintain a viable business. Our preference would be for the government to abandon proposals to convert to a first-dollar coverage system. There are valid and defensible reasons for a maximum weekly insurable earning system.

Employees working under 15 hours a week in our sector are primarily students whose attachment to the labour force is limited. Their part-time job is not their first priority, nor should it be. Research shows that students who work a moderate number of part-time hours while attending school do better in terms of grades than those who do not work or who work over 20 hours a week. School drop-out rates increase when students work an excessive number of hours. Educators support industry efforts to limit student part-time hours so that there is a balance among their school, social, family and work activities. Some educators would say that we don't do enough to limit the hours and that we could work more on this area.

I've asked Mr. Bob Ritchie to come with me today. Bob is a past president of the Manitoba Restaurant and Foodservices Association. He is currently on the board of directors of the Canadian Restaurant and Foodservices Association and is the marketing director for Chicken Delight of Canada and Chicken Delight International.

Mr. Bob Ritchie (Past President, Manitoba Restaurant and Foodservices Association): Thank you very much, Michael.

Members of the committee, Chicken Delight is a Canadian-owned, Manitoba-based company with 42 franchised and company-owned locations in Canada and numerous others in the United States and the West Indies. Our world headquarters are in Winnipeg, where currently there are16 units. The company has been in business continuously since 1952, and in Canada since 1958. In total, Chicken Delight in Canada employs over 700 people.

In 38 years in Canada we've seen many profound changes within our industry, including a myriad of increased operating expenses, taxes, rules, regulations, paperwork and other costs. First-dollar coverage, in our estimation, will be yet another cost burden.

We've reviewed the financial impact of first-dollar coverage for one of our restaurants, a 100-seat facility with about 20 employees. Currently we pay about $5,000 in UI premiums. First-dollar coverage will increase our cost by about $1,000 or 20%. This may seem insignificant in the context of an $18-billion program, but it represents about 2% of that store's profit before taxes last year. If that effect is multiplied when you look at the other 41 units, you begin to get the picture of the impact this will have.

Moreover, our customers, like most others these days, are extremely price conscious. In fact, the food service marketplace is very price competitive and predatory. Customers react if we increase the price of a cup of coffee by 5¢ or a chicken snack by 10¢ or 15¢. We can't continue to increase our prices without losing some business. Our margins just get skinnier and skinnier every year.

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We continue to advertise, of course, and to discount. In fact, we do 24 million coupons in our particular market alone every year. We do this not even really to build business any more but simply to compete, to keep our volumes up and to keep our equipment and our employees working.

Top lines are not much better, it seems, than five or ten years ago, and bottom lines are worse. Simply put, first-dollar coverage will affect our ability to create jobs, to give employees pay increases and to maintain a viable business.

Our students currently working less than 15 hours a week who average $5.40 to $6 an hour will see their hourly rate decrease by 16¢ to 18¢ per hour. We feel that's a significant loss for some of the student employees who are saving for university.

Our preference is for government to abandon proposals to convert to a first-dollar coverage system. There are valid and defensible reasons for a maximum weekly insurable earnings system. Employees working under 15 hours a week in our sector are primarily students whose current attachment to the labour force is limited. Their part-time job is not their first priority nor in fact should it be.

Research shows that students who work a moderate number of part-time hours while attending school seem to do better in terms of their grades than those who don't work at all or who for some reason work over 20 hours a week. That's what our research has shown us. School drop-out rates increase when students work an excessive number of hours.

My own 18-year-old daughter has been working weekend mornings and some holiday days for almost two years at the same hotel-restaurant. She's an energetic, well-motivated, A student who intends to enter university this fall and who appreciates not only the lifestyle experience of working in our ``people industry'' but also the money she earns to help pay for personal expenses and to save for other things she will soon need.

We know that educators support our industry efforts to limit student part-time hours so that there's a balance among their school, social, family and work activities and I also personally support this view.

We accept the rationale that converting to an hours-based system would mean less administration for both government and business provided there are not further modifications to the legislation, but we're already hearing about modification involving gaps in employment. This would undo the only legitimate reason we see for converting to an hours-based system.

We do not accept the rationale that first-dollar coverage will take away the incentive to hire part-time as opposed to student employees. Employers in our industry do not schedule according to the UI program per se but according to the ebbs and flows of consumer demand and business volume. Peak periods occur over meal periods, for instance, and the busiest meal periods vary from restaurant to restaurant. In fact, they vary from hours of the day and days of the week and whether it's a weekday or weekend, by local events, by weather, by holidays and so on.

Employers also schedule according to the needs of their part-time employees who want to maximize their earnings in the minimum number of hours. You need to understand that flexibility in scheduling is one of the major attractions of part-time jobs in our industry.

If the committee is seriously considering changes to the legislation to deal with situations where there's a gap in employment for purposes of earnings calculations for benefits, you have to understand that there are implications for an industry such as food services. It would be basically impractical and totally unworkable.

The pattern of work of part-time employees is uneven because this is what employees desire and ask for. They have the ability to decline shifts when their school work gets too heavy, for instance. They often ask not to be scheduled during the exam periods or because of other school or family obligations or circumstances. My daughter is an example of that.

Tracking every gap in employment would be very costly and time-consuming for operators, particularly for smaller operators who don't have the infrastructures and the mechanisms to control and monitor that kind of thing. In addition to totally negating any efficiencies that would be derived from first-dollar coverage, it would limit an operator's ability to provide the flexibility their employees seem to require.

We see the proposals for a $2,000 earnings threshold and a small business rebate as acknowledgements, in fact, of the cost impacts and unfairness of first-dollar coverage. Unfortunately, neither option will provide more than marginal relief for food service employees, full-time employers or full-time students. According to the most recent figures from departmental officials, based on taxation records, the $2,000 rebate will apply to only about 34% of full-time students working in Canada. Employers, of course, will not be eligible for the rebate.

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The small business rebate is basically inadequate. It's completely inadequate, in our estimation. First, it's only a temporary measure. Second, it only applies to selected companies. In two years' time all Canadian businesses will be hit with the full cost impact of the change.

If the government is determined to proceed with first-dollar coverage, there seems to be a way to mitigate the financial burden and to save student jobs and also to advance the government's political agenda, and that is to introduce a student premium exemption. Our counterparts at the Canadian Restaurant and Foodservices Association, the CRFA, have been working with departmental officials to pare down the costs of this option. From the department's first estimates of $1 billion, the CRFA has been able to develop a process that would cost less than $200 million. This involves a $5,000 earnings exemption per annum targeted at students. It would work basically the same way as the exemption under CPP, but it would apply only to full-time students and their employers.

According to departmental figures, 75% to 76% of full-time students earn less than $5,000 per year compared with the 34% who earn under $2,000. Student UI eligibility would begin the first hour after the student's earnings reach $5,000.

You know, our industry appreciates the opportunity, ladies and gentlemen, to participate in shaping the future of Canada's social security system. I think we all believe in the basic Canadian values of justice, tolerance, compassion and fair play. We support the government's role of helping those who are most vulnerable and creating a climate wherein our young citizens will have a brighter future. The student exemption would seem to me to complement the government's national agenda of facilitating the creation of jobs for youth. It would reinforce the stay-in-school message and would allow students to save for and contribute to their education at a time when governments are pulling back their support for these things.

The workplace experience, in fact, that students could accumulate while going to school would greatly enhance their opportunities for full employment upon graduation.

This bill will, it seems, have the hardest impact on small entrepreneurs, who offer the best job creation potential in this country, in our estimation, and on the youth, who are trying to acquire an education and a future.

We find it impossible to understand how the committee could ignore the cost and job impacts of first-dollar coverage when so many jobs are at stake. We find it even more incredulous that the committee might consider proposals to address the gap issue, as it were, which will in fact negate the real advantage of first-dollar coverage, administrative simplicity among other things. It will also further constrain student employment.

Ladies and gentlemen, we urge you to hear and understand our message. The future of our industry and the thousands and thousands of young people we employ: that's what is at stake. We implore you to please work with us to put a student exemption into place.

Thank you.

The Vice-Chair (Ms Augustine): Thank you, Mr. Moore and Mr. Ritchie.

We'll now have a round of questioning, starting with Bloc member Mr. Paré.

[Translation]

Mr. Paré (Louis-Hébert): First, I would like to thank our two witnesses, Mr. Moore andMr. Ritchie, for having steadfastly defended workers with the most precarious situation in the job market, namely part-time employees and students. I think that you have given us a good summary of the situation, and I must say that in my riding in the Quebec City area, the restaurateurs I met with express the same fears that you have today.

You are correct in saying that the bill will have a devastating impact on part-time employees and students, and I thank you for having reminded us that we must ensure that students are not forced to work more hours in addition to their studies in order to earn a living, because this will have consequences on the progress of their education.

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If I understand you correctly, the new situation in which we will find ourselves will force students and the most precarious employees to work more hours because they will lose approximately 16 to 18 cents an hour in income.

My question concerns what you said in your presentation, that is that you will have to reduce the number of work hours of these young employees. I would like you to explain why you will have to reduce their working hours once this bill is passed and I would also like to know who suggested that.

[English]

Mr. Moore: That was me. The reason that would have to occur is that also there would be increased costs to the employer. Obviously, as the employee pays into the system so does the employer. So if the employer has increased costs, as I said before, the profit margin being so slim at 5% on average, the only way to make up for the increased costs relating to the system for the employer is to cut back their expenses in some manner.

The most flexible of those expenses is the 30% attributed to wages. Therefore, one would have to reduce employees. Again, as the member so rightly put it, the most vulnerable of those employees often are the students.

[Translation]

Mr. Paré: I have another brief question. If you must reduce the number of hours in order to adjust your costs, won't you end up with too few employees for the operations that have to be carried out in your businesses?

[English]

Mr. Moore: Unfortunately, that may be a circumstance where service may suffer. However, I guess on the bright side - if there is such a thing - it will suffer at every establishment so that one will not be further behind others. The customer unfortunately will suffer from that, because the market will not accept increased costs, as Mr. Ritchie explained. Therefore, you will either do less or try to do the same amount with fewer people.

Mr. Ritchie: We're also dealing here with a question of a number of hours in a week and a number of hours in a day. Wherever possible, obviously, employers would be inclined to cut back an hour here, an hour there, a bit here and a bit there, perhaps even close a little earlier or open a little later.

While on the surface it seems to be kind of a short-term solution, what it eventually results in, of course, is less customer service and less customer expectation of what they can get out of an establishment. In a chain operation it could be a disaster, even in a small family-owned business.

Employers do what they have to do when costs get out of hand, and they look to the first opportunity to cut back. If you multiply that over the thousands and thousands of establishments in this country that would be affected by it, I think you could conclude that the effect would be devastating.

The Vice-Chair (Ms Augustine): We'll now move to the Liberal side of the table, with Dr. Easter.

Mr. Easter (Malpeque): Thank you, Madam Chair.

You basically talked about your concern as a cost issue. We had the president of the Canadian Restaurant and Foodservices Association in here. I believe he was from Vancouver. He outlined concerns much as you have. So a few of us on this committee...

I'm from Prince Edward Island. I went home and did a little survey of the fast food places. I talked to the employees at McDonald's and Dairy Queen, and it wasn't their desire to work less than 15 hours, but some of them certainly felt they were pressured to work 15 hours or less because of that factor in the current legislation. So this gets rid of that 15-hour trap, we certainly believe, and still puts all restaurants on basically the same level playing field. Everybody is in the same boat.

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Personally, I believe you're using your concern for students to a certain extent and blowing the cost factor out of proportion. You said the premiums for a 100-seat facility would increase about $1,000. I'm in business too and we're all concerned about increased costs. I think you indicated that would be 2% of costs before tax. What would it be of your total cost of operation? I personally believe it to be minuscule. Do you have a figure on that?

Mr. Ritchie: No, I don't have that exact figure, but I can tell you that we worked it out very quickly based on current figures as to what it would add to our top line, so to speak. Then we figured what it might cost if we multiplied that over a number of our units.

If you want to do statistics and take fractions and that sort of thing, you might make a case that it doesn't seem to be very much. But in this day and age, and I think I can speak for some of our franchisees who are very, very conscious of their rising costs, if they knew what we knew here they'd be astounded. I guess it depends on what side of the fence you're on and where you're coming from, but for a small operator, even a small franchise operator, it's a considerable amount of money. Whether or not you view it that way in the whole I can't say, but our view is that it's considerable.

Mr. Moore: This is especially so given the fact that, as we say, there's only a 5% margin before taxes. My numbers are exact for the province of Manitoba, related to sales of $555 million annually for 1,781 restaurants, which averages out to $308,000 with a $15,800 profit margin. That's not much to operate a business on, especially given the onerous hours an owner-operator must operate the establishment, declaring $15,800 for the entire year and then facing taxes. Whether it's $1,000 here or $1,000 there, that's a significant portion of one's bottom line.

Mr. Easter: I know a lot of restaurateurs in the city of Saskatoon and I know it's not an easy business to be involved in. But I'm just making the point that I believe this cost is not going to be excessive and it certainly won't make you non-competitive, from where I sit.

In fact, I think you should look at the other side of the coin. I'm from Atlantic Canada. We believe that by giving part-time workers and multiple-job-holders the opportunity to come into the employment insurance system, to take advantage of some of the training and skills programs and to be able to draw out benefits, who now can't, that may be a benefit to the economy and the business community. They will now have more money to spend in the off season. You might even gain from this proposal if you looked at it as an investment rather than as a cost. Do you see any point in that?

Mr. Moore: I think the differentiation you just made is important: part-time, working at a restaurant as a second source of income, versus student. I believe we made the delineation clear that the $5,000 exemption we're discussing is for students only. It was not to impact all part-time employees; it was a student exemption.

So maybe we are agreeing that the value of the experience for a part-time worker...because of the flexible hours, it is very attractive for someone to be able to work lunches and lunches only or odd-day weekends so that the part-time worker can take advantage of that necessary second income. What we were discussing was the exemption related to students. Perhaps we have come to agreement on that, that the exemption would apply to students, not to part-time workers who are not students.

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Mr. Easter: As a point of clarification, does the $1,000 figure you used for a 100-seat facility relate just to the student part-timers or to total less-than-15-hour employees?

Mr. Ritchie: In that particular instance we looked at a situation where we identified a heavy proportion of students, in the vicinity of 80% to 85% of that. Again, depending on the definition of student - and that's another thing we're prepared to discuss - a good number of the people who are a good fit for our particular kind of operation, at least in that unit, are students going to high school and university.

The Vice-Chair (Ms Augustine): Thank you, Mr. Easter.

Mr. Regan.

Mr. Regan (Halifax West): Gentlemen, you are probably aware that one of the objectives of the government in this process has been to create administrative simplicity in the employment insurance system, not only from the point of view of the government but principally from the point of view of the vast number of businesses across the country that have complained about the record of employment and the complications involved in filling it out and the consequences of the week-based system, which is very complex. How do you reconcile an exemption of the kind you have suggested with the need to have administrative simplicity?

For example, wouldn't you agree that you would need a new set of rules simply to define who is a student? Wouldn't the fact that employers would now have to track students separately destroy some of the administrative simplicity we are trying to achieve and result in increased costs for employers and the government?

Mr. Moore: We concur that it would be simpler to paint all employees with the same brush. I guess we're trying to argue on the basis of what's fair. Certainly the definition of full-time student is accepted, and any academic institution would be able to define full-time student for you. I know as someone who has previously worked in athletics that the Canadian Intercollegiate Athletic Union had to adopt a very strict definition of what constituted a full-time student for participation in varsity sports. Obviously the onus would be on students to indicate their status as such: proof of registration, an enrolment receipt from a post-secondary institution. A form signed by the official from a secondary school might also need to be considered.

Certainly administrative simplicity would not be served. If the government chose to go in that direction, I would then beseech the government to apply the same administrative simplicity principles to the application of the GST as it relates to groceries and restaurant meals so that they are treated with the same simplicity. In that this doesn't exist, I guess we're trying to be fair to the students to enhance their employment opportunities.

The Vice-Chair (Ms Augustine): Mr. Moore, Mr. Ritchie, thank you so much for being with us this afternoon. We appreciate your presentation and we'll keep your brief in mind as the committee continues to do its work. Thank you so much.

Mr. Moore: Thank you very much for your time.

The Vice-Chair (Ms Augustine): We'll break for a minute or so as we go to Toronto.

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The Vice-Chair (Ms Augustine): I'd like to call the meeting to order. Welcome, Mr. Daniel Bell from the Canadian Automotive Repair and Service Council to the Standing Committee on Human Resources Development. We are examining Bill C-12.

Mr. Bell, please introduce your colleague at the table. Thank you.

Mr. Daniel Bell (Chairperson, Canadian Automotive Repair and Service Council): I have brought with me Mr. Wes Pratt, who is the national director for the standards branch within our organization.

The Vice-Chair (Ms Augustine): Please begin. You have a few minutes to speak to us or to read your brief, whatever is your desire. We will ask questions after. We have half an hour with you. Thank you.

Mr. Bell: Thank you. We appreciate the opportunity to address the committee. I have a draft paper here that I will read from.

Since its inception in 1988, the Canadian Automotive Repair and Service Council, CARS, has served as the prime agent addressing the human resource needs of the repair and service sector of the Canadian automotive aftermarket.

As the industry sectoral council responsible for these issues, CARS has developed and implemented several strategies to nurture the establishment of a training culture and instil a long-term commitment to training by the industry partners within our sector.

CARS works in conjunction with governments to set and maintain national industry occupational, training and certification standards. CARS, through the implementation of national standards, is improving the image of industry, creating a broader base of interest and awareness of the career opportunities available within the automobile aftermarket.

CARS has in the past and will continue in the future to work very closely with Human Resources Development Canada and provincial governments to advise and consult on labour market issues and implement the human resource strategies necessary to address the needs of our sector.

CARS has led the way in programs such as youth internship, creating career opportunities for target groups, apprenticeship standards and certification as well as upgrade training for our existing workforce.

CARS has fostered a strong relationship nationally with both public and private training providers, enabling us to implement programs that are industry driven and focus development on skill needs that promote entry to, as well as lasting employment in, our sector.

As the national voice for the Canadian automotive aftermarket repair and service industry, CARS is mandated to represent the interests of 341,000 people and the many employers within the sector who contribute in excess of $50 billion to the Canadian economy annually.

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It is in this capacity that we appear before the Standing Committee on Human Resource Development to comment on the consequences of the bill and to advise the national government on the need for strategic measures that will assist newly empowered employment insurance skills loans and grants recipients to make the effective decisions required concerning the purchase of training.

What are the key sectoral issues arising out of the bill? First, the reform of Canada's unemployment insurance system promises to have a revolutionary impact on many of the training initiatives currently in place. The relationship that CARS has with Human Resources Development Canada through the sectoral partnership Initiative, SPI, has provided us, we believe, with a unique insight into what potential impacts may result and will enable us to offer advice on their management based upon our actual experiences in instituting programs such as the CARS Investment in People, or CIIP, Career Choices in Motive Power and Youth Internship Programs.

The sector council approach, in which industry maintains close contact with and provides continuous input into the development and the maintenance of national standards plus the recruitment and selection of participants to meet skills needs, solidifies our investment in and long-term commitment to the creation of a strong training culture.

CARS has had a successful history of involvement in working with governments at both the federal and the provincial levels as well as with training providers in several of the reform areas tabled within the bill.

CARS Council feels the shift to a market-based training program will have a positive outcome and enable industry to have a greater involvement in establishing the program standards and the design of effective training programs that truly meet our needs.

If managed correctly, the reforms in the bill will result in a positive effect and act as a catalyst to the creation of a strong culture in Canada. A training culture that is driven by industry and focuses on the development of effective programs to meet needs will enable Canada to have a productive and competitive work force to carry it into the 21st century and beyond. This training culture will have full industry support plus a long-term commitment to continuing development to keep pace with the emerging and changing technologies.

The current training system in Canada has demonstrated several inefficiencies due to the complex process of negotiating the development and purchasing of programs government to government as well as government to delivery agent. CARS believes this is a process that was developed with the very best of intentions but resulted in the creation and institution of programs meeting the requirements of the complex agreements rather than the needs of the recipient or the user of the program. This process has removed the recipient from the equation and led to ineffective program development not relevant to industry's needs.

The shift to individual responsibility and its outcomes as proposed, and the shift in emphasis from college or delivery-centred responsibility to one where the individual assumes that responsibility, is potentially viable. But it will require focused attention to certain aspects to ensure its success.

A key area will be standards. There will be a need to create and implement national industry-driven occupational training and certification standards to ensure all training is user designed and meets identified needs. There will be a need to develop and implement a national industry-driven accreditation process to enable the evaluation and recognition of excellence in the delivery of training. This standard must apply to both public and private trainers. There will be a need for harmonizing the pricing and fee structure coast to coast to maintain a level playing field.

Another key area will be labour market information. Since Canada's present system of training delivery tends not to be market based and directed at individuals, no resource is in place to assist them in making effective training decisions today.

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Additionally, because individuals in our sector have not made these decisions, some form of career counselling will have to be applied to develop the skills required to make such decisions.

These issues will require the development of a comprehensive and complex labour market information system, one that is user friendly and will give individuals the direction to begin to manage their training needs. It must include needs assessment, career counselling, course or program selection, and financial assistance and funding options.

Of vital importance is income support for apprenticeship programs. Apprenticeship in Canada has a long and successful history of human resource development. It is a vocational training program or system that is workplace based. In apprenticeship programs, registered participants receive the majority of their training on the job and some in school.

Statistically, the age of the apprenticeship is 27 years. In addition to the usual financial responsibilities, apprentices earn money while they're in the workplace. Under the current system of skills loans and grants, most apprentices would not qualify for assistance. Therefore it is critical that a specific system - one that will not create barriers to access training - be designed to meet their needs.

A final key issue or concern is sectoral management of human resource development programs. CARS Council, as stated, believes the effective self-management of human resource development demonstrated under the sectoral partnership initiative enables sectors to take a more active role in the process of assisting national governments with the reforms tabled in the bill.

Sectors have successfully ensured all stakeholders in the process are consulted and participate in all aspects of the human resource development and in the establishment of a strong training culture.

Sectors have already initiated change to the educational system in Canada that will facilitate implementation of this bill.

In conclusion, true partnership has been formed by governments and industry. These partnerships ensure financial participation by our industry not only in delivery dollars but in much needed capital support for the training network.

These partnerships have seen the provinces and those who deliver training work with our industry sector councils to ensure accountability in every aspect of the relationship, and to ensure our diminishing resources are effectively used and effectively managed.

The federal government's success in sectoral partnership initiatives will pave the way to reforms suggested in the bill. The decision on training must rest with the users. A system of accountability promoted by the sectoral partnership initiative will ensure effective management of those resources.

As you are aware, most of our comments today are directed towards...[Technical Difficulty - Editor]...questions.

The Vice-Chair (Ms Augustine): I thank you for your presentation, which is very thorough and well laid out in the documents we have before us.

We'll now go around the table with some questions for you, starting with the Bloc member,Mr. Paul Crête.

[Translation]

Mr. Crête (Kamouraska - Rivière-du-Loup): I thank you for your brief which was very clear.

In the second paragraph of page 2 of the document, you say that the current training system in Canada has been inefficient and ineffective in a complex negotiation process for the development and purchase of government programs.

Could you elaborate on what may have led to such results? You seem to be saying that we work much harder on negotiating agreements than on training users.

Moreover, do you feel it would be advantageous in the future to have quite a high surplus in the unemployment insurance fund? And will the money be replaced in similar processes? If we have a very high surplus, will the money be invested in bureaucratic processes? Do you think there are other more appropriate solutions?

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[English]

Mr. Bell: I must apologize, but we have not been successful, sir, in getting the full transmission. Is it possible that you could repeat the question? I apologize.

[Translation]

Mr. Crête: No problem, I will start over.

In the second paragraph of the second page of your brief, you state that the training system in Canada has not been found to be effective because of the complexity of the negotiating process for the purchase of government programs.

Since you are saying that often more time was required to negotiate agreements than to provide answers concerning user needs, I would like to know if you believe that the decision to create a significant surplus, for instance in the order of $5 billion, in the unemployment insurance fund and to reinvest that money in programs where government intervention is very frequent, seems to you to be an effective way of solving the problem that you have noted in the past. If not, what other solutions would you propose?

[English]

Mr. Wes Pratt (National Director, Standards Branch, Canadian Automotive Repair and Service Council): My name is Wes Pratt and I'll answer that question.

In our opinion, we feel, from what we've seen through the sectoral initiative in managing the allocation of the funds, that yes, some efficiencies will definitely be gained. The accountability that is incorporated into the process will ensure the fund surplus you talk about will definitely meet the needs and the uses of the individuals as assigned. This is provided, of course, there is the adequate factor of the career counselling and/or information system that enables the people to have the resources to make the decisions relevant to the training.

I hope this answers your question.

[Translation]

Mr. Crête: That answers my question in part, but I would like to know if you think it's desirable to have a system in which users and trainers could exert some control over the way programs are adopted. For example, what would you say if the unemployment insurance fund was controlled by the employers and employees who finance it at 100%, particularly with regard to assessing its funding?

[English]

Mr. Pratt: Yes, definitely. I think the user is the person who has the ultimate value-added of the training program. Their ability to make the decisions and to accredit the quality of the program very much implicates or controls the quality of the delivery as well.

The trainers and the people who deliver the program are the vendors or the suppliers of what the user needs...[Technical Difficulty - Editor]...consultation on resources on more efficient ways to handle the task. But I feel the ultimate responsibility for the quality of the program delivery rests with the recipient and the user.

The Vice-Chair (Ms Augustine): Thank you, Mr. Pratt.

We'll now move to the Liberal side, and I have two questions, one for Mr. McCormick and the other for Mr. Proud. Let's start with Mr. McCormick.

Mr. McCormick (Hastings - Frontenac - Lennox and Addington): Thank you, Madam Chair. My questions are about apprenticeships, a very important and much needed fact.

We've heard there are many shortcomings in the apprenticeship system and over the programs. Everyone is always saying we don't do it right or we don't do it enough and there are many problems.

I just wondered what some of these problems are from your viewpoint on your side of the table and how the partners involved could perhaps work at solving some of these problems.

Now I come to the second half of my question. Under this proposed legislation, one of the five employment tools is the skills loans and grants. Could the financial support going to the individuals in this program be used for apprenticeships? Could this type of approach help, and could it be even better than the existing system?

Mr. Bell: I will answer both your questions. I will start with the latter part of the first, if I may. I think the effective management of the loans and skills grants will be a better use of the available dollars. I think this is providing, as we suggested here, that the apprentices have the opportunity to apply for them and the system doesn't hold them back from this opportunity because of the fact that they are already, for part of their term, in a year earning substantial wages that would disqualify them from getting a grant.

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Effectively used, it would be a tool that would certainly help apprenticeship.

The Vice-Chair (Ms Augustine): Mr. Proud.

Mr. Proud (Hillsborough): I want to follow up on something Mr. McCormick asked dealing with the apprenticeship part of it.

You said in your brief that the apprenticeship program within your industry has been a fairly successful one. My overall, general question is, do you think that with these new proposals we can enter new fields with apprenticeship?

Although we have good apprenticeship programs in some sectors, I personally don't think we've gone far enough with apprenticeship training in a lot of sectors that are out there in the new economies and things like this that are coming on.

From your purview of this legislation, do you see that there's a possibility that this can expand and make the apprenticeship programs even better across the country?

Mr. Pratt: Yes, definitely. There are some broad opportunities to address that issue of expanding the apprenticeship and its applicability to other trades and other occupations across the country.

Through the youth internship initiative we've seen that there are opportunities to go into areas where apprenticeship traditionally hasn't had encroachments.

Also, more importantly, when we have the ability to have more authoritative information to the users, more programs specifically designed to meet the needs they face in the realities of gainful employment will become evident.

The Vice-Chair (Ms Augustine): Thank you, gentlemen, for participating and leaving with us a brief for consideration.

Mr. Bell: Thank you very much.

The Vice-Chair (Ms Augustine): Welcome to the Standing Committee on Human Resources Development, Mr. Dungan. We are examining Bill C-12, and we're very pleased to have you with us this afternoon. We'll ask that you proceed. If you'll speak with us or take us through your presentation, then we'll have a few minutes for questions and answers at the end of your presentation.

Professor Peter Dungan (Adjunct Associate Professor of Economics, University of Toronto; Associate Director, Policy and Economic Analysis Program, Institute for Policy Analysis, University of Toronto): Thank you. My name is Peter Dungan and I'm a professor of economics at the University of Toronto. I thank the committee for hearing me. Since I understand we're running late, I'll try to keep it brief.

The research group with which I work at the university includes Professor Thomas Wilson. He couldn't be here today, unfortunately, because he had to teach.

We use computer simulation models of the Canadian economy to analyse aspects of public policy. We try to do forecasting, more or less successfully - mostly less. We also use these models to conduct policy. We can use them, for example, to try to say what the world would have looked like if a policy had been different in the past or we can use these models to say what alternatives we do have for the future.

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From time to time, of course, we've looked at aspects of the unemployment insurance system. In particular, there is one study that we were asked to conduct by HRD about two and a half years ago. I'd like to discuss that study with you today because it has some implications for the legislation this committee is examining.

In those days it was called the unemployment insurance system and the study was called ``The Unemployment Insurance System as an Automatic Stabilizer in Canada''. Now first of all, what the heck is an automatic stabilizer? Generally speaking, we're familiar with the notion that fiscal policy at least potentially could work to counter economic cycles. The idea is that if the economy goes into recession the government should maybe spend more money to put people back to work, to keep the money flowing through the system, to keep the recession from getting any worse or maybe indeed to get us out of it.

It works the other way too. We can't forget that when the economy is trying to boom, it's trying to go over its full employment level. It should be incumbent on the government to cut spending or to raise taxes to try to cool the economy off. That's the idea of what sometimes is called Keynesian fiscal policy, which these days sometimes isn't in very good odour, but that's kind of ironic because for the most part it's never been used anyway.

It turns out that it's very difficult for governments to decide when to use fiscal policy and to go ahead and do it. First of all, you don't usually realize you're in trouble until you're really in trouble, the way our economic data tends to go. Then you have to decide what to do and then you have to enact the legislation to do it. And then it takes a while for that to take effect. Usually by that time the horse is out of the barn and, if anything, your economy is starting to recover, so you only end up throwing extra spending into an economy that's already in recovery.

So in fact in Canada and in most of the developed industrial countries, counter-cyclical fiscal policy has been fairly rare. The times when it has been used are very few and the times when it has been used effectively are even fewer.

If that's the case, what's all this business about how we've managed to protect our economies from things like the great depression? Why don't we have great depressions any more?

The story often is that because governments know how to run policy these days we don't have something like the Great Depression. Is there any truth to that? Well, in fact there still is. That's because the most important kinds of fiscal policy that we run, which are counter-cyclical, happen automatically. They don't happen with governments deciding to do something.

For example, think of just the income tax system. If the economy goes into a downturn all of a sudden, people lose their jobs or their wages are cut and automatically they pay less taxes, so government is working to not take the same amount of money out of the system as it did before.

As for welfare, to the extent that, for example, people become unemployed and go on welfare, welfare payments build up so extra money goes into the system. No government had to decide to do that. As long as the mechanism is operating it works automatically to cushion the system.

Not surprisingly, the unemployment insurance system is one of the critical elements of these automatic stabilizers. Of course, if we go into a downturn people lose their jobs and with a very short delay the government stops collecting taxes from them, stops collecting their unemployment insurance premiums and starts giving them money. That's counter-cyclical fiscal policy. It works automatically and it works very swiftly.

Of course, the opposite is true in a boom. As the economy starts to recover and people get work, they go off UI and start paying their UI premiums, which immediately tends to make the government's fiscal situation look better. That will in a sense stop the economy or slow down the economy from going into an excessive boom where we're going to get inflation taking off.

The unemployment insurance system is an important element of these automatic stabilizers that have indeed kept our economy from going into the huge cyclical ups and downs we saw before the Second World War. In the run-up to the current legislation HRD asked us a few years ago to try to use our computer tools to figure out how big UI's contribution was to this automatic stabilization, if it was effective as a stabilizer and how it could be made more effective.

So that's what we did. We used our models to say, for example, suppose at the start of the 1982-83 recession there'd been no UI system. How much worse, if any worse, would that recession have been? We did the same thing for the 1990-1992 recession. According to our research the unemployment insurance system was a very important automatic stabilizer.

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For example, in 1982-83 the Canadian economy fell about 4.5% from its pre-recession levels. Without the UI system that drop would have been over 6%. There would have been over 100,000 additional jobs lost as a result of the downturn if the UI system hadn't been there to backstop, to automatically try to stabilize things. Obviously it's no cure-all. It didn't stop the recession from happening. It did stop it from getting significantly worse. The same thing happened at the very beginning of the 1990-1992 recession.

By the way, we also compared the unemployment insurance system against the items you would call the other major stabilizers, such as the income tax system, the welfare system at the provincial and local levels, and other federal transfers. We found that dollar for dollar the unemployment insurance system was by far the most effective stabilizer. Just in absolute terms it was on a par with the size of the other federal transfers and the income tax system. Those things were contributing to automatic stabilization as well, but dollar for dollar the UI system, in terms of its impact on the federal deficit, was giving you the biggest bang for the buck in terms of stabilization.

So it is important that in Canada we have an effective UI system as an automatic stabilizer against the next major downturn or indeed to insulate us from the ravages of perhaps the next major boom, the danger of our economy going over full employment and the Bank of Canada having to step on the brakes very hard.

We found something else as well. Although the UI system began the recession as a very important stabilizer, that effect was lost within a couple of years. Why was it lost? It was lost because the UI system went into deficit. When it went into deficit the legislation as it existed at the time required the government to raise the UI premium rate for those who were still employed. That's a very bad tax. It's a bad tax because it's a direct tax on the employment of individuals and you're imposing it just at the time when the economy is trying to recover.

While we found, for example, that in 1982-83 the UI system saved maybe 1.5% of GDP and maybe over 100,000 jobs before the premium increases kicked in, after four years you were almost in a state in which you would have been better off if there had been no UI system at all.

The effects of raising the premium rates so impeded the recovery in 1984-85-86 that in the long run you almost would have been better off if you hadn't had it there at all. It was even worse in 1990-1992, because with deficits being an even worse problem then, the UI premium was increased almost as soon as the UI system started to run a deficit. Once again, as far as we can tell, that impeded the recovery of the economy in 1992-93.

The results of our study indicate that UI had the potential to be a very important stabilizer, but it was short-circuited in the longer term or indeed in the medium term because of the need to raise the UI premium rate as soon as the overall system went into deficit.

The current legislation proposes that in the good times the UI system build up a surplus of at least $5 billion and probably somewhat more. It's the seven good years before the seven lean years. This will be very important for the operation of the UI system in, God forbid, the happenstance - I'm sure it will happen - that we have another major recession in the years to come.

If that reserve is there the UI system does not have to raise its premium rate just as the recession is starting to come to an end, just as the economy is faltering its way into an initial recovery. Because the cushion is there, the need to raise the UI premium rates will be postponed several years, we would hope, until the economy is starting to boom again. Indeed, the economy would need some cooling off, which the UI premium rate increases would provide.

Our work suggests that the current provision in the act to build up a surplus is very important from the viewpoint of the operation of the UI system as an automatic stabilizer.

How big should that surplus be? It is useful to know that even with such premium increases as occurred in the 1982-83...[Technical Difficulty - Editor]...into a deficit of well over $5 billion in just that period, and those are 1982 dollars. That would translate into one and a half times that much today.

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In 1990-1992 the UI system, again because it's such an effective stabilizer, because it works so quickly, blew us into a deficit of well over $8 billion after just two years. That was even with some premium rate hikes. That suggests to me that a minimum of a $10-billion surplus is what we would be looking at as reasonable for the UI account, and possibly somewhat more than that. We could go through $5 billion very quickly in a modest recession. Again we'd be faced with the need to raise the UI premiums just at a time when the economy does not need it.

Of course, that's not to say that over the next couple of years we need to build up such a surplus very quickly. I note that in the most recent federal budget the tentative plans are to reduce the UI premium rate on January 1, 1997 by only 5¢ per $100 of contribution. That may have just been a prudent working hypothesis. In other words, from the present this is the employee's contribution. The current rate is $2.95 per $100. In the budget, buried in a footnote, you see it's supposed to go to $2.90 on January 1, 1997. Our own forecasts indicate that a sufficient surplus will have been built up by that time, so something more of a reduction could be contemplated. That would be important, too.

As I said, this is not a good tax. We don't have to go hog wild, but reducing the UI premium rate somewhat more over the next few years is compatible with building up a decent surplus. That's the main gist of my remarks. It has to do with the macro implications of the UI Act, based on the research we've done.

The Vice-Chair (Ms Augustine): Thank you, Dr. Dungan. We'll now have some questions from around the table, starting with the Bloc member.

[Translation]

Ms Lalonde.

Ms Lalonde (Mercier): Thank you very much, Mr. Dungan. It was very interesting.

Ever since this reform was announced, I've had questions concerning the maximum insurable earnings. You talked about premiums, and I believe that in this reform, after conducting simulations, a maximum insurable salary of $39,000 is the amount always used.

The government has therefore decided to lower the maximum from $42,400 to $39,000, which means that large corporations that pay big salaries and overtime will contribute less to our collective effort than small and medium-sized businesses which will have to participate a great deal and be penalized by this reform.

I know that in certain countries, premiums are paid by higher income earners and that in other countries, premiums are deducted from the entire payroll.

Isn't there a way to reduce premiums for all by increasing the number of workers and companies involved? Such premiums would then have both an economic and social affect.

[English]

Prof. Dungan: First of all, I should simply say that this isn't a particular change that we've looked at in any detail, so all I can give you is an opinion. If you are asking me whether or not I would be in favour of increasing the maximum insurable earnings, making it somewhat higher than perhaps it is now, my tentative answer would be yes, I would.

In a significant downturn of the economy, for example, it's not simply low-income people who lose their jobs. It can be higher-income people as well. The UI system would be paying out relatively more to them if the maximum insurable earnings were higher; it would represent more insurance for them.

As you point out, in the good times or even in the recovery times, there would probably be a tendency for there to be a need to collect somewhat less from lower-paid workers than would now be the case. It wouldn't be totally so because, after all, if one insures the higher level, then one has the obligation to pay it out as well. But if anything, raising the maximum would not work against UI as a stabilizer. It might indeed somewhat reinforce it.

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[Translation]

Ms Lalonde: Thank you very much. That was very interesting. You undoubtedly also have written studies.

[English]

Prof. Dungan: The written study that I would put forward would be the study that we actually prepared for HRD, for the ministry. It was actually published by them a year ago. I have sent an abstract of that to the committee chairman by fax.

[Translation]

Ms Lalonde: That's very interesting. Thank you very much.

[English]

The Vice-Chair (Ms Augustine): That is available.

We'll now move to the Liberal side, starting with Mr. Allmand, then Mr. McCormick andMr. Nault.

Mr. Allmand (Notre-Dame-de-Grâce): Thank you.

Many business witnesses before this committee have argued that the UI premiums paid by employers in particular kill jobs. I want to have your view on that. We even had a witness here today who said he'd rather pay the employment benefits out of income tax rather than through premiums because he feels it would kill jobs.

I've heard different views on this. We've had, as have most western European countries, payroll taxes for a long time and they've had relatively high employment rates in spite of them. I'm thinking of Sweden, Germany, the U.K.

The argument goes that if we lower premiums, there will be an automatic creation of jobs. In other words, that money will go into Canadian jobs, not necessarily jobs in other countries due to globalization. Since you're an economist and you're dealing generally with this area, how do you respond to those arguments?

Prof. Dungan: I would caution, first of all, simply because it is an area that's been much studied. It's important to pay attention to the nuances. Although it is not totally my area of expertise, I guess I am relatively convinced by the side that says, let's speak just about the employer part of the UI premium. It says that in the long run, employers basically pass that tax through to workers. In other words, what happens in the long run -

Mr. Allmand: Is it passed to workers or consumers?

Prof. Dungan: It's not passed to consumers. It would be the workers in the sense that when the markets have settled down, there is a certain price that employers are willing to pay to get the services of a worker. How that gets shared out between money that goes to the worker directly and money that goes to the government in terms of payroll taxes washes out in the long run. The point is that in the long run - and this long run can be fairly long - if you have a certain amount of payroll taxes, the wage that goes to the worker will be that much less.

I would say the reason for this... Maybe it's a settlement, a little bit of the paradox of why you can have economies with high employment and high payroll taxes, yet make the argument that if we lowered payroll taxes now we'd get more jobs. In those economies that have high payroll taxes and high jobs, the payroll taxes have been there for a while. They were gradually passed through to workers; workers were earning a lower take-home pay than they otherwise would have been because the employers were paying the payroll taxes. Because that doesn't happen automatically - if, for example, we suddenly today raised the payroll taxes in the country - employers would not be able to get workers to agree to lower their wages by an equivalent amount right away.

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The cruel fact is that the way it works, in my view, is that employers say that they have to pay more to hire a worker now. They have to pay him or her the same wage as before and they have to pay the government more. So they say they are going to hire fewer workers, and they do. In that way it costs jobs, because in a sense fewer workers are working.

In any market, if you demand less of something, the price goes down. What will happen over the years, as you have higher unemployment than otherwise would be the case, is that workers gradually bid down their wages against each other. Eventually the employer will say that they can hire the same number of workers as they could maybe five years ago and they are paying out of their pocket the same as they used to, but it happens that they will pay more payroll tax and a lower wage because a spell of unemployment has caused the workers to ask them for a lower wage.

So eventually...[Technical Difficulty - Editor]...but you've had to suffer a spell of unemployment along the way.

Of course, the opposite works in the case of a reduction in that tax.

What I'm saying is that because it's a long-term adjustment of passing this tax on to workers, the critical thing isn't as much the level of the tax as how you change it. Given enough time, wages will adjust to any level of payroll taxes, and you can go to relatively full employment. But if you change the payroll taxes significantly, either up or down, then you will have to go through a spell of adjustment in which the nominal wages of the workers will be adjusting to that.

The Vice-Chair (Ms Augustine): Thank you. I'm very conscious of the time and of the fact that the members have to vote at 6:15 p.m. I think the bell is going to start ringing, so I want to ask both my colleagues to pass on their questions.

We'll of course look at the material to which you referred. We will say thank you for your presentation to us this afternoon.

Prof. Dungan: Thank you.

The Vice-Chair (Ms Augustine): We'll now take three minutes while we set up for our next venue.

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The Chairman: We are now going to Vancouver, British Columbia. Our next presenter will be Professor John Cragg.

Welcome. As you know, the mandate of this committee is to come up with some improvements to Bill C-12, an act respecting employment insurance.

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Over the past few weeks, we have benefited a great deal from input given by Canadians from coast to coast to coast as to ways and means in which we can in fact improve this piece of legislation.

We, of course, look forward to your comments. We have approximately between 20 to30 minutes, including a question and answer session. If you can perhaps give us an overview of your thoughts, we'd like to engage in questions and answers. Thank you very much.

Professor John Cragg (Individual Presentation): I should say first of all that I think there are a great number of strengths in the bill. It's important for these to be retained in any amendments that are made to it.

I would particularly stress the switch to hourly earnings and hourly based calculations for the employment insurance program as opposed to the weekly system that we had in the past. It is important to realize that the previous system had built into it an encouragement to employers to provide short-term, part-time jobs simply to avoid the tax implications of the unemployment insurance system. With the variety of jobs in the economy changing and becoming more flexible, it's desirable to have the system cover all jobs so that the playing field is levelled for all types.

I would also indicate support for the change in the way of calculating benefits, particularly the 20-week period for the calculation of benefits. Again, with the switch to hourly calculations for the program, it becomes even more easy for people to manipulate the system if they're unscrupulous. I think a 20-week period would give a more equitable calculation of what entitlements should be. I'm not entirely happy with that, and I'll come back to that in a moment.

Finally, though, one can argue that there are disadvantages to it. I'm in favour of the clawback for those who are in fact, over the course of a year, earning a great deal of money and who become eligible for unemployment insurance benefits.

I think the present system has created a great deal of animosity, because we have basically taken money through taxation from employees who are really not very well paid. Then, in many cases, the money has been transferred through unemployment insurance benefits to those who are perceived as earning a great deal.

I think this causes a great deal of friction and resentment. I think the clawback is a way to solve that problem, in spite of the difficulty that there are times when you can argue that people will feel that if they're contributing to unemployment insurance and if whatever they got was clawed back if they became unemployed, they wonder why in the world they are contributing. Despite that feeling, I think the clawback is an improvement.

Finally, I would again say that it's an improvement over the present system. This is, of course, contingent on the belief that money is going to be taken out of the total package in unemployment insurance.

There are some points in which I think it would be advantageous to improve the present bill. One of these areas is in the calculation of benefits. I think we may want a more flexible system. The 20-week period could be disadvantageous, unfairly so, I think, to two types of people. Those I'd be most concerned with are people who fall into the position such that their employer is seeing weakness in business occurring. Very often we would want the employer's initial reaction to that problem to be toward going to shorter hours and part-time work.

Now if this succeeds in bridging the problem, of course, the person remains in employment all the way through. On the other hand, if it doesn't succeed in that way and the person is laid off in the end, then the 20-week period for calculation might mean that the earnings on which the calculations are based are in fact unrepresentative of the earnings of the employment for which the premiums were paid and so on.

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It would be desirable for people such as that to switch to a system where either the 20-week period or a longer period - say of a year, 52 weeks - could be used at the discretion of the claimant to calculate benefits. This would get rid of the anomaly of people who had artificially low earnings in the 20 weeks relative to what their pattern over a year would be.

There is a second thing that could stand improvement. The bill makes provision for monitoring of the system, with a report to Parliament once. You've got to realize that changing a complicated system such as unemployment insurance is going to produce changes over a period of time, both as people become aware of the changes and, of course, as economic conditions shift. It would be highly desirable to make provisions for an ongoing monitoring of the system, say with reports to Parliament being required every two years or so.

Third, it should be made clear that any clawed back funds are going to be returned not to general revenues but to the employment insurance fund.

Finally, on what may seem to be a technical note, but is not, it would be desirable to change the way in which the calculations of premiums are made. The proposal in the bill, carried over from the existing one, is to balance things out over the business cycle. The trouble I have with that is the business cycle is not a well-defined term. Business cycles are not like, say, the cycles of the weather, which are pretty predictable up and down, though in some years we have harsher winters than in other years and so on. The business cycle is a lot less predictable and a lot less well-defined.

It would be better to define the premiums so that the fund breaks even at some specified level of economic activity or of the unemployment insurance rate and to accept the fact that the government really has an obligation to the level of employment and of unemployment and that, since to a certain extent it is within the discretion of the government to change what levels we experience, the government itself should set a target.

If it can get a better target on employment, then rates could be lowered. If it has to acknowledge that success has been less, then rates could be raised.

A system that tends to try to even things out over the business cycle will simply have the effect or the danger that higher rates will kick in at exactly the time when one doesn't want them because unemployment is already high, or, conversely, the lower rates will kick in when they're not particularly needed because we're in a boom.

To finish, there are two places where I have disappointments with the bill.

We have to realize that the unemployment insurance system and the employment insurance system that is being proposed really contain employment insurance elements and also elements of social welfare programs. I think the social welfare programs are desirable in themselves; it is not clear to me why they should be financed by a payroll tax that falls particularly heavily on the lower-income earners.

The payroll tax involved is in fact a particularly regressive tax.

You can argue that insofar as the program is insurance it is fair that those who get the benefits from the insurance should pay for them, but it is not at all clear to me that it makes sense to load social programs onto this type of tax.

In fact, it may be creating resentment, because, looked at as insurance per se, the present system is not a good deal. The typical person is not getting out of the expected benefits what they're paying in premiums.

This is something to be thought about.

Other suggestions have been raised to put more benefits of essentially a social welfare nature into the program. I think already there is a fair amount of political unrest, with the feeling that people are paying for insurance that is not a particularly good deal. I think insofar as the payroll tax provisions can be made to pay for the insurance aspects of the program, we would have a fairer system and a system that would basically attract more support.

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The other and related area in which I wish a somewhat different approach had been taken is in the training provisions. Our training programs tend to concentrate on those who are already unemployed, and that's true of the training provisions here. To a considerable extent, I think it would make sense to make sure that all programs are geared not only to those who are actually unemployed, but to those who are in danger of becoming unemployed so that the transition from one area of employment to another could be made easier. You would then be less dependent on first becoming unemployed to get the training. I think this would make for a more flexible labour market and basically one that would provide a more smooth transition of labour from one occupation to another.

I would, however, finish this presentation by saying that I basically support the changes. I think it's important that the substance of these changes be maintained in whatever amendments come to the bill.

The Chairman: Thank you very much for a very thoughtful and extensive presentation.

We're going to have a quick five-minute round. Madame Lalonde.

[Translation]

Ms Lalonde: Do you include so called active measures in what you refer to as to excessive payroll taxes, that is part II of the bill which includes labour force training and various labour force integration measures?

[English]

Prof. Cragg: To a very large extent I would include those in there. I don't really think they're part of the insurance program. I think they're more part of a wider program, one that we should look at not as benefiting necessarily those who are primarily at risk for being unemployed. I think we should regard the whole training program of all levels of government as being directed at getting a better, more equitable labour market, one in which individuals are better able to maintain their income through their own efforts of work. In that sense, I think it would be better to look at those not primarily as related to unemployment insurance, but rather to the overall functioning of the labour market.

[Translation]

Ms Lalonde: I'm very pleased to see that you're in favour of the idea of extending premiums to high-wage earners and capital intensive corporations so that we are in a position to offer more adequate coverage. You also say that right now, the burden falls on people with relatively low salaries and companies that are generally small and medium-sized.

[English]

The Chairman: Now we'll have a brief question from Mr. Nault of the Liberals.

Mr. Nault (Kenora - Rainy River): Thank you, Mr. Chairman, and thank you, Dr. Cragg.

I'm trying to get a sense of this debate that revolves around the UI system and training. There are many, of course, who have advocated in the past that the best process as it relates to training would be to have a separate tax or a separate way to fund training in the country as a whole, leaving UI and the insurance system as a pure insurance system or as close as you can get to being a pure insurance system. Unfortunately, as you know, in today's environment, if any government advocated raising taxes in one form or another, they'd have a great amount of difficulty in doing that.

Based on that particular complication that governments have, do you think this is about the best alternative one can come up with in order to get the training dollars necessary to help that workforce that's under-skilled and to prepare for major downsizing in areas of the economy that are changing before our eyes?

I think it's important to try to get some explanation from you, Doctor, in that particular area because there's a perception among a lot of people that this program is in fact being diluted from the insurance program and that we're putting a number of things in it, which is not acceptable.

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Can you give me an explanation as to what you would prefer to see, as it relates to training, if in fact we had an alternative to the one we have now? You don't mention that.

Prof. Cragg: The first thing I would say is that I'm not sure the resentment of taxes you mention doesn't apply equally to all forms of taxes. I think paying for training through the unemployment insurance premiums is not really seen by the taxpayer as different from being paid from any other tax source.

My answer to your overall question is that I would prefer to see it paid from general government revenues and implicitly that the taxes, particularly the income tax, be adjusted in accordance.

I would also worry that, as you were pointing out, there may be a much larger need for training, particularly for those who are in danger of becoming unemployed or who are finding that the employment they have is becoming steadily less satisfactory. These needs may be increasing. I think you would find a great deal of resentment, much more than in raising general taxes, if it were said that this training has to be loaded onto the unemployment insurance or the employment insurance premium.

I think that of the two dangers, to piggyback the training onto whatever the unemployment insurance premiums will finance is not a particularly sensible way of going about our training programs. If you say this is the only source of funds we can have, then yes, I'm in favour of training programs, I'm in favour of maternity benefits, I'm in favour of all sorts of things that are basically being paid for through the unemployment insurance system.

Mr. Nault: One other question I'm somewhat interested in is this whole jurisdictional debate that's unfolding before our eyes. One of the problems that's going to be encountered here once we begin the whole process is deciding who's responsible for training and who isn't. Quite frankly, with my very large federalist bent, I believe it's fine for the provinces to say it's their jurisdiction and the federal government should get out of it.

I'd like your opinion on what you see unfolding in provinces like British Columbia, Ontario and Quebec, if in fact it is turned over completely. Quite frankly, it would be very easy to just go back to a straight insurance program, say that part II of the act doesn't exist any more, and tell the province to figure out where it's going to get the revenues to enter into training programs.

What's your opinion on whether it should be a national training program through national general revenues of some kind or the employment insurance system, or whether in fact the provinces should be given the whole program itself in the sense of the ability to raise their own taxes and then design their own programs for what they think is best suited to the training and education needs of the workers in their province?

Prof. Cragg: I'll confess to being a strong federalist myself, to begin with.

While there's a lot to be said for training programs in terms of strong local input, and in this case provincial input, I think we also have to realize that the danger of turning it over to the provinces alone would simply be that the provinces would tend to take the attitude that it is not desirable to be training people for the country-wide labour market.

I think that in looking at the labour needs of the country, a narrow provincial focus is not sensible. British Columbians may need training for jobs that are not in British Columbia but elsewhere, just as people in Ontario or Alberta or the Maritimes or wherever might well be in a position where they'd be better off to move. They should be encouraged to move by having the appropriate training to some other province.

So I basically am not in favour of simply turning it over to the provinces and saying let's hope it works.

The Chairman: Thank you, Mr. Nault.

Professor Cragg, thank you very much for your very thoughtful presentation.

We are going to stay in Vancouver and hear from David Green from the University of British Columbia.

Professor David Green (Department of Economics, University of British Columbia): Do you want me to start?

The Chairman: Yes. Welcome to the committee. We look forward to your thoughts and ideas on how to improve Bill C-12, an act respecting employment insurance here in Canada.

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We have approximately 20 to 30 minutes to hear your presentation and also have a question and answer session.

Prof. Green: I was going to start with some comments that run off from an area of expertise that I have that's based on research in one area of the impact of UI, which is the impact of UI on employment durations in particular.

I'm going to try to organize my comments around four questions. First, does the Canadian UI system alter the timing of job termination? Second, if so, how does this occur, and is the effect large? Third, running off of those comments, should the UI system be changed, and how? Fourth, how does all of this run in with the bill that's under discussion at this point?

I'll answer the first question: does the Canadian UI system, as it exists now, alter employment arrangements. I think the answer is clearly yes. Craig Riddell and I have done some research in which we looked at the impact on job durations of the 1990 shift in the entrance requirement from 10 weeks to 14 weeks. There was somewhat inadvertent action that occurred because of the battle between the House of Commons and the Senate.

We found that, in those regions, the proportion of jobs that ended at 10, 11, 12 and 13 weeks in 1990, went down substantially, while the proportion of jobs of longer durations went up substantially. That in itself indicates that the UI system is having a very definite impact on work arrangements in those areas.

Before leaping to the conclusion that this would indicate that workers are in some sense just lazy bums who could have adapted to longer weeks if the system were only a little less generous, let me point out that there are two other important findings in that paper. One is that almost all the adjustment occurs in lay-offs, not in quits. That's first. The second is that very few workers appeared to be able to move right to 14 weeks exactly, which was the new entrance requirement in that period. Many ended up working beyond that point.

The implication that we drew from this is that, first, the UI system is deeply embedded in the labour market in those areas. Second, the reaction comes from both sides of the market. It's not simply workers adjusting to the system; it comes from the firms as well.

In other work, which was with Tim Sargent, I looked at the impact on seasonal versus non-seasonal job lengths. We found that there's very little impact to speak of in non-seasonal jobs, but there are very substantial impacts in seasonal jobs.

The first question was: is there an impact? Yes, mostly in seasonal jobs. Is it large? Again, yes, for seasonal workers.

Now what happens when we take the system and make it a little less generous, as this bill would do, at least in some regards? The Green and Riddell paper, the first paper, would indicate that workers are able to adjust. Almost all of those who work between 10 and 13 weeks before the increase in the entrance requirement were able to qualify for UI in the second year. But if we look at the other paper, which looks at longer-term impacts, what we find is a bifurcation in the employment lengths. We find a lot more short jobs and a lot more long jobs. So there's going to be an increase in inequality, particularly among the seasonal workers.

We also find that there's a real adjustment in terms of industrial mobility. There's a real response to these changes in terms of workers moving out of seasonal sectors and into other sectors, and a strong potential for geographic mobility impacts too. So there will be big adjustments here, especially in the long run, which implies large costs to the individuals involved.

Given those costs, is it worth it, based on these results, to actually alter the UI system, in particular the UI system in the way it relates to seasonal workers? I believe the answer is yes. The UI system as it stands now subsidizes seasonal industries and encourages work patterns that would not be described as efficient. There's no reason to believe this inefficiency will go away over time. At the same time, we have to recognize that these inefficiencies, these work patterns, developed over a long period of time. They were not sudden. When we go about trying to undo some of them, we have to take into account the large human cost that will result.

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In part, what we need to think about here is it's not the case that we want a large portion of our population living in Scarborough and Richmond. We have to be thinking about the large costs of adjustment that come about, and therefore about a gradual readjustment towards a more efficient system.

In that sense, it seems to me the way we're going to evaluate whether this bill is successful or not will have to do with how we manage the adjustment - how we spend that $800 million or so that's going to be used in job retraining, etc. - as opposed to whether it really gets us the $1.2 billion net savings for the deficit.

I would say if there's one element of this proposed plan I would like to change it's the overemphasis on the bottom line. I suggest it would be reasonable to consider a plan that is in some sense revenue neutral. By revenue neutral I mean the money that is saved by making the system less easy to use in terms of seasonal repeat use could be used almost one for one in the sorts of adjustment programs already being considered here in the bill.

What about the current bill? There are several features that seem to be useful steps towards a better UI system.

The first is the use of hours rather than weeks. There is definite evidence that the labour market as it exists now is undergoing a polarization - that there are more workers at shorter weeks and shorter hours in the year and more at longer hours and longer weeks. That's part of the growing inequality in earnings in the Canadian economy, and it's most heavily felt by the young people.

It's exactly those young people, the people caught at the short end of the hours and weeks distribution, who we should be trying to help. We should be trying to use the UI system to help them adjust to the labour market. It's also the case that we don't want to leave them out and make them feel as though society has basically jumped ship on them.

Second, reducing the benefit rate based on claim history also seems a useful step forward in reducing the subsidization of seasonal industries. Also, the idea of starting everyone with a clean slate at the outset seems an effective way to phase this in gradually. It's not clear to me why we need to impose a much harsher initial penalty on new entrants to the labour market in terms of making them work more weeks to collect UI - that is, as I understand it, to increase from about 20 weeks to about 26 weeks before we switch over to the hour system.

If we're concerned with these people getting caught into repeat use of the UI system, then this kind of direct approach, using reduced benefits for people who use the system repeatedly, is the correct, direct way to go about this. It's not clear to me that to penalize young people when they first enter the labour market, who we'd like to encourage perhaps to switch jobs in order to find the best job for themselves, is necessarily the best step.

Next, the calculation of benefits over a fixed-week window will encourage people to work more weeks. It effectively mimics an increase in the entrance requirement, but does so in a way that doesn't have the all-or-nothing dimension of an increase in the entrance requirement. That is, you'll still get benefits even if you don't make it to the new higher level.

This, however, seems to be a place where we're going to impose incredibly large costs on people who are now tied in closely with the UI system. This is a place where we're going to have workers who currently face an entrance requirement of twelve weeks, who might not be very well off in terms of their overall earnings and may face requirements like mortgage payments, being told just six months after this bill becomes an act that their entrance requirement effectively moves to fourteen weeks. That is, in order to collect as much UI as they can, they're going to have to go to fourteen weeks of employment, and then within six weeks after that they're going to have to go to sixteen weeks of employment. In other words, very quickly there's going to be a really radical change in the system facing them.

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I suggest that a slower movement might be reasonable, again with the notion that it's taken a long time to tie this knot. It's taken a long time to develop a system in which people are integrally tied into the UI system, and we should untie the knot slowly - not take a knife, cut through it, and worry about the casualties later.

In summary, I would argue that UI has a substantial impact on the labour market, that it is very much tied in with the outcome that we see and in a way that probably we would not like.

Several of the proposed changes in the bill seem to me to be a step in the right direction towards addressing those problems; however, I would argue that we want to move slowly and that probably we should not put emphasis on the bottom line as much as we make sure that the human costs of the adjustment will not be large.

To me, there seem to be two extremes here in the response to what's going on with the UI bill.

One extreme would be to say: I agree that there are problems with the UI as it stands, but we lack the political will to introduce new programs that will take over the parts of the redistributive system that are being cut out when we make the UI system more efficient, and therefore we just shouldn't do anything; the devil we know is better; we should just stick where we are, because at least there are some elements of redistribution that we want to keep.

I don't think that's the correct approach. I think we definitely need to change the UI system.

At the other extreme is an approach that says we should move quickly, alter the system immediately, and take care of the other problems later on.

Again, I don't think that's the correct approach.

To me, the correct approach seems to be a middle ground, maybe a Canadian solution, something that is more of a compromise: we would make the changes in the system that will move it away from subsidizing seasonal work patterns, but at the same time we would reinvest the money we saved in the short run in order to help people adjust away from the system as it stands now, and the system of employment as it stands now.

That's about all I want to say.

The Chairman: Thank you very much for your presentation.

We have approximately five minutes for questioning. Unfortunately, we're being called for a vote.

On behalf of the committee, I express to you our warmest and sincerest gratitude for what I think was an excellent presentation.

Madame Lalonde.

[Translation]

Ms Lalonde: Did the study you conducted on the duration of work in relation to unemployment insurance relate to what happened in the case of Bill C-113?

[English]

Prof. Green: The first one was a result of the battle between the House and the Senate over the GST. It was in 1990, when the Senate refused to pass anything coming up from the House.

The entrance requirement at that point was variable across the country, according to the unemployment rate in your UI region.

The part of the act that made that entrance requirement variable had to be renewed every three years. It had what I think is called a sunset clause. It was due to be renewed in 1990, but because nothing was being passed at all, it was not renewed.

The entrance requirement reverted to what was a sort of default in the legislation, which was a 14-week entrance requirement. That meant that in the high unemployment rate regions the entrance requirement very suddenly jumped from 10 weeks - you needed to work 10 weeks in the previous 52 - to 14 weeks.

[Translation]

Ms Lalonde: As you've pointed out that this adjustment stems largely from the fact that companies have changed their layoff habits, do you think that the elements of your study could be transposed to what will happen to people who work between 15 and 24 hours a week right now? Those people are being asked to double their working hours in order to be entitled to the same benefits they get now. For people who work 35 hours or more, there's no problem, but for those who do between 15 and 34 hours, this can't be considered a simple adjustment.

It therefore seems to me that it's difficult to completely transpose what was done then in the proposal of our bill.

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[English]

Prof. Green: [Technical Difficulty - Editor] One of the features of this bill that is truly different from anything before is this hours-based system. I'm aware of no other system in the world that does this, so we are more or less taking a leap in the dark. I think there are real benefits to this, and the benefits come from the fact that we are seeing a movement towards more of these short-week jobs and short-hours jobs, and we'd like those to be covered under the UI system for it to be true insurance.

As you say, I think there will be real costs to people who are currently adjusted with, say, around 20 hours per week under the current system. Again, I would suggest that we want to make this move, but we want to make it gradually. There should be a program of policy in the act that brings these things in step by step. In some sense we should wait for some of the savings and some of the benefits while we help the people who have become embroiled in what exists now, through no fault of their own.

The Chairman: Thank you very much, Madame Lalonde.

Mr. Nault.

Mr. Nault: Dr. Green, I think this is an excellent presentation, mainly because it focuses on probably the most key element in the whole bill, and that is the change to hours, which a lot of people who have come here have either not understood or have not spent a lot of time thinking about.

On the seasonal employee side, where I come from in northern Ontario a great number of the people who work in these different industries are seasonal employees. There's a strong belief that because they work seasonally, but long hours during those seasons, of course this hourly change will have a significant benefit for them. I'd like your impressions of that. Being from B.C. you might have some knowledge in the forestry industry as well.

Of course, the other issue is that the numbers show that some 77% to 80% of all UI recipients work over 35 hours a week now, and the number of part-time people that the opposition keeps talking about is a very small amount. How do you see us gradually phasing that small number of individuals who are part-time and who work less than 25 hours a week and won't get caught in this net that people keep talking about?

Prof. Green: Let me go through the two steps. On the first question I would say that it still depends a lot on how many weeks the individuals are working, even under the new system. The reason for that is that the benefit calculations will be based on a fixed window.

For example, in a high unemployment region it will eventually be based on a 16-week window. Now, if you work a lot of hours in a few weeks and then have several weeks of zero earnings within that 16-week window, those zero earnings will be averaged in as well. So there's going to be an offsetting influence here and it's not clear to me exactly how it's going to come out. I'm not sure anyone knows exactly how it's going to come out.

In terms of the second issue, I agree that the percentage of people who are actually working part-time is not large. I would suggest that we might want to work through something like grandfather clauses. Allow it to be the case that for a transition period people can choose which system they are under, maybe only for one year, for one season. That way people can have a look down the road, know what's coming, and adjust in ways - like their mortgage payments, for example - hopefully not causing too much disruption.

The Chairman: Professor Green, we certainly appreciate your presentation. Thank you for giving us some insight as to how we are going to improve Bill C-12.

The meeting is adjourned.

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