OTTAWA - The most severe recession in decades is exposing the gaping holes in Canada's vaunted social safety net.
Only six months into an economic downturn, social advocates and the jobless say the employment insurance system that was supposed to cushion the fall is in reality either inadequate or so hard to access that tens of thousands of newly unemployed just don't qualify for benefits.
As is always the case in times of economic troubles, it's the most vulnerable in society that are being hurt most by the recession.
And it's those Canadians, along with a smattering of individuals with unusual circumstances, who are finding the EI system not as advertised.
After giving birth last May, Maninder Rehsi of Maple, Ont., north of Toronto, was only able to acquire 430 insurable hours of work before her employer Progressive Moulded Products succumbed to the recession and went out of business, idling 2,000 workers, including her husband. Under EI requirements for her region, she was out of luck because she hadn't accumulated 600 insurable hours over the previous 12 months.
Now Rehsi says her husband's benefits are close to exhausted and she doesn't know how they'll make ends meet if they don't find a job soon.
Martin Smith of Guelph, Ont., a British manufacturing engineer who was recruited by auto parts maker Linamar (TSX:LNR) four years ago and had been paying EI premiums ever since, only to find out that for him the system was a one-way street.
When he was laid off for about seven weeks this winter, he was told his permit allowed him to work only for Linamar, hence he didn't qualify because he couldn't seek employment elsewhere without a new work permit.
Or Deonarine Persaud of Toronto who lost his nine-year job at a car parts supplier last May and is now barely getting by on his wife's Wal-Mart Canada (NYSE:WMT) salary, after his EI benefits of about $400 a week ran out.
"It's not like I don't want to work," said Persaud. "I used to work 50, 60 hours a week sometime. There are no jobs, not just for me, lots of people can't get jobs now."
Canada's previously robust labour market began stalling last spring and went into a tailspin last fall, dropping 357,000 jobs since October. Economists believe as many as 600,000 Canadians could become victims this year of the worst recession in decades and possibly since the Great Depression.
It is precisely for such times that unemployment insurance was created and worked relatively well during the recessions of the early 1980s and 1990s.
But unlike the past two slumps, when about 80 per cent of the unemployed collected unemployment insurance, today less than 43 per cent, or 560,000 of the 1.3 million Canadians who were officially jobless in January, are collecting benefits.
What's more, they are likely covered for fewer weeks and are earning far less. Regardless of a worker's salary before being laid off, EI's top payout is $447 a week, and the average payout is abut $325 a week, the equivalent of minimum wage.
That's significantly less than the $595, in today's dollars, that EI recipients were receiving in 1995, according to a calculation by the Caledon Institute, an Ottawa-based social policy think tank.
Sylvain Schetagne, an economist with the Canadian Labour Congress, explains that successive Conservative and Liberal governments in the late 1980s to mid-1990s, cut away at the employment insurance safety net until it was in shreds.
At the time, Ottawa was fighting massive budget deficits accumulated over the previous two decades and cut social spending and other costs to help balance their books.
In the January stimulus budget, Finance Minister Jim Flaherty extended the period under which qualified EI recipients can collect benefits by five weeks, but did not increase the level of benefits nor relax eligibility rules, as many asked.
Even with the change, jobless Canadians today are less likely to qualify for benefits, will earn less and for fewer weeks than in the 1990s or 1980s.
What made the biggest difference was when the criteria for qualifying was changed in the mid-1990s from one based on weeks worked to hours. Since a minimum of 15 hours qualified for a week, the change almost tripled the minimum requirement to receive benefits in areas of high unemployment from 180 insurable hours to 420.
In low unemployment regions, the requirement goes up to 700 hours and new and returning entrants face an even bigger hurdle -- they need to have worked 910 insurable hours to qualify.
That leaves a lot of temporary, part-time, contract workers and new entrants into the labour force, such as graduating students, immigrants or even those who had exhausted previous benefits, out in the cold, says Schetagne.
"This system was designed so Canadians most likely to lose their jobs would not get access," he says.
The other major rip in the net is that benefits have not kept up with inflation. Today, recipients can only earn 55 per cent of insurable income up to a maximum of $447 a week, a big fall-off from the early 1970s, when the formula was 75 per cent of insurable income. Successive changes trimmed it to 66 per cent, then to 60 per cent, and finally to the current rate.
Even at the top rate, today's benefits are barely enough to pay for most mortgages, Schetagne points out.
"People don't realize how small (benefits) are until they fall into it. Then they say, `Oh my God, I can't feed my children, what am I going to do?' They're forced to sell their house, take lower-paying jobs, exhaust their savings."
There are two explanations for why the EI system was gutted, or as governments of the day put it, "reformed," says James Struthers, a professor of Canadian studies at Trent University in Peterborough, Ont.
The first was to save cash-strapped Ottawa money. The second was based on the prevailing deregulation mood of the times that put faith in markets and not governments to solve social problems.
That's the nice way of putting it. The blunt way, says Struthers, is that governments felt benefits were too generous and that some Canadians were avoiding the plentiful work that was going begging during a period of economic prosperity.
The pogey-collecting Canadian sunning himself on a Florida beach was an obvious overstatement.
Even if some did abuse the system, it's certainly not true today, he adds, given that the unemployment rate has jumped 2.2 percentage points to eight per cent in the past year. Many estimates have the jobless rate topping 10 per cent by the end of the year, still below the 13 per cent rate in the 1981-82 recession and the 11 to 12 per cent rate in the early 1990s.
Liberal finance critic John McCallum agrees that legislation tightening EI passed under both Conservative and Liberal governments went too far.
But he added the key problem is that the Harper government is refusing to make fundamental changes that reflect today's harsher reality of an economy in serious decline.
One feature of EI is that it adjusts eligibility requirements based on the jobless rate in any given area. That is reasonable and even desirable when jobs are plentiful, says McCallum, but makes no sense when Canadians are being laid off across the country, and jobs are in scare supply.
"It's not right that some people have to have worked 420 hours to qualify and some almost double that in a context where jobs are disappearing at a frightening rate," he says.
There is a perverse irony to the government's Scrooge act when it comes to employment insurance, says Struthers.
Aside from keeping Canadians from hitting bottom, the intent of employment insurance, along with pensions and old age security, is to act as what economists call an "automatic stabilizer" that prevents the economy from falling too far, too fast.
The thinking is that while the jobless purchase fewer goods and services, any money they do get through EI he will spend on necessities. Their contribution to the consumer economy, while reduced, acts as a brake on the economy's fall.
"If you depress the level of benefits when we're entering a deep recession, the automatic stabilization effect is much weaker and that will prolong the time it takes to recover and force more and more unemployed workers onto social assistance, which is even less generous," Struthers explains.
"It's counterproductive because it is increasing our risk of turning a short recession into a deep depression," he says.
