Despite the increase in unemployment rate, jobless benefits aren’t keeping pace

Canada’s jobless rate has been marching higher as the economy gets squeezed by higher interest rates, but the number of people getting Employment Insurance benefits has barely budged in recent months.

 

Around 484,000 people received regular EI benefits for unemployment in May, down slightly from last August, according to Statistics Canada data. Over that time, the ranks of unemployed grew by 179,000 or 15 per cent. EI recipients amount to 34 per cent of total unemployed people – the lowest share since at least 2000.

 

The disconnect adds to long-standing criticism that the EI program is becoming tougher for jobless individuals to access. But it also reveals how the labour market is functioning in this period of higher interest rates and sluggish economic growth, and who is bearing the brunt of the slowdown.

 

Canadian companies have reduced their pace of hiring, but they’re also laying people off at slower rates. Meantime, the population is growing fast – largely through temporary and permanent immigration – and this infusion of job seekers is driving up the unemployment rate, which is now at 6.4 per cent. Youth (aged 15 to 24) are particularly struggling to find stable work in this environment.

“In other words, the labour market is fairly solid for those who already have a job, but it’s become extremely tough for those looking for work,” Royce Mendes and Tiago Figueiredo, economists at Desjardins Securities, said in a recent report. “Youth graduating from high school and postsecondary institutions are facing similar challenges to new immigrants insofar as their unemployment rate has been steadily rising since last year.”

 

Indeed, the youth unemployment rate has jumped to 13.5 per cent, the highest level since 2014, not including the pandemic years of 2020 and 2021. Youth accounted for 29 per cent of the unemployed in May, but just 9 per cent of those receiving EI jobless benefits that month. (Statscan doesn’t report EI beneficiaries by immigration status.)

 

“The EI program is less relevant for youth,” said Brendon Bernard, senior economist at job-search site Indeed Canada.

 

To qualify for regular EI benefits, someone must have contributed to the program via payroll deductions; have a valid job separation, such as getting fired; and have worked at least 420 to 700 insurable hours over the previous 12 months, depending on their local unemployment rate. (Insurable hours are those which someone worked and was paid for.)

Youth, temporary residents and recent immigrants may struggle to fulfill these criteria because they have weaker attachments to the Canadian labour market. This is less of an obstacle for a long-tenured employee who gets fired.

 

But such layoffs are relatively rare in today’s job market. The Desjardins report shows that the job separation rate – the share of workers who are employed one month, then unemployed the next – is running lower than in the two decades leading up to the pandemic. (This accounts for people both losing and leaving their jobs.)

Labour economists have been calling for an overhaul of the EI program for years, saying that the financial support is meagre and difficult to access. In the 1980s, more than 80 per cent of the unemployed received EI payments, compared with around 40 per cent in the years just before the pandemic.

 

At Wednesday’s interest-rate announcement, Bank of Canada Governor Tiff Macklem said that a weakening job market is “not affecting all workers in the same way. It’s particularly affecting new entrants in the labour market.”

For young people finishing school and newcomers to Canada, “it’s taking longer to find that first job,” he said.

 

 

 

This article was first reported by The Globe and Mail