Employment Insurance Levels on the Rise- this is more than a “technical recession”!

caneiThe latest GDP numbers have confirmed that Canada has officially entered into its second recession in less than 10 years. Without much but denial from the federal government- many questions remain on the nature and extent of this new recession. How long will this recession last? How will it impact different sectors and regions? How many workers and families will it affect? As with most economic questions – we must look deeper into the data for clues to make such predictions. One such measure is the Employment Insurance (EI) claims data. The Employment Insurance statistics are an administrative data source.  The level of EI claims are a very sensitive indicator on the health of the labour market. The Conference Board of Canada uses EI claims as one of the single inputs of the labour market into their modelling of a  leading indicator index on the economy. The EI data is far from perfect and excludes many of the unemployed especially those in short term unemployment- but it can provide a strong timely indicator of the functioning of the economy. Given it is administrative data, it goes beyond the data quality of unemployment numbers estimated by the Labour Force Survey which are subject to large sampling errors. The data looks at EI claimants rather than those actually receiving benefits.  The waiting  and processing period of EI can delay the statistical outcome of being counted as a person collecting benefits for up to a four months. Therefore focusing on claimants provides a timelier look at the economy.

(Employment Insurance Claimants are defined as those that have filed a claim and are awaiting a decision to determine their eligibility. The waiting period attached to this process can range from 4-8 weeks. Claimants have a high probability of eventually becoming beneficiaries – for more information on this table see the notes for CANSIM table 276-0004)

Analysis of the Employment Insurance data provides the following summary highlights:

1) The number of EI claims have risen 17% in a year over year change from June 2014 to June 2015, and notably 14% over the first 6 months of this year (latest data available is June 2015). With many new more stringent Employment Insurance eligibility requirements- as compared to previous periods- this has undoubtedly biased the number of claimants downwards. So one must take the 17% as an underestimate when comparing to earlier recessionary periods in our recent economic history.

 

2) A regional breakdown of the EI Claims shows that several provinces have experienced a rise in the number of claimants. This indicates the recession is digging a wider hole in the economy beyond that of the oil sector and Alberta. Year over year change from June of 2014 to June of 2015 in EI claims have risen in Alberta 42.3%, Saskatchewan 12.6% and Ontario 9.2%. (using data from CANSIM table 276-0004 in which are Statistics Canada seasonally adjusted counts). Given the newer rules of EI eligibility, especially those relating to seasonal workers, it will be difficult to fully assess the regional aspects of EI levels as compared over time, as we know some areas have higher concentrations of seasonal workers such as in Eastern provinces, and Northern areas of the country . However a more complete analysis of the data focusing on the level of seasonality of the data from these provinces could provide some evidence. Such a task is beyond the scope of this short article.

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3) The third summary point that arises from the data focuses on the trend in EI claimants as compared to past recessions. As mentioned in the last point, the EI data contains a large seasonal component making it difficult assess the raw data. In making the analysis somewhat clearer, the trend or signal in the monthly EI time series was extracted (blue line in graphs). The data reveals that the relative economic impact compared to previous recessions is beyond a technical recession that pundits have labelled. The evidence is quite clear- that so far in this early stage of the recession, at least according to the growth in EI, this current recession is larger than the 2002 recession that was the result of the Dot.com meltdown. However it is not as great as that witnessed during the Great recession of 2008. As can be seen in the trend line- the acceleration has not changed from its upward trajectory and therefore we are definitely not at the end of this recession. So it is difficult to compare given this recession has just started. The message is fairly obvious from the trend line- this is much more than a technical recession. (The blue trend line or signal was extracted using the raw non-seasonally adjusted data from CANSIM table 276-0004. The algorithm to extract the trend was the STL with LOESS seasonal decomposition method which used localized polynomial regression combined with a moving average function. This algorithm is similar to the ARIMA method- but is less susceptible to outliers. However it can be more difficult to obtain the greater sensitivity of the ARIMA method. Given the task was to merely create a visual display the STL was chosen.)

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4) The coverage rate of Employment Insurance Beneficiaries as a proportion of the unemployed is the last measure that was calculated. This measure is quite important in determining the overall effectiveness of the EI program in reaching its functional goals in providing relief to those experiencing job loss. As can be seen in the last chart, the coverage rate has declined substantively from the past levels and reached a low point of 38% in 2011.(calculated using Employment Insurance Regular Beneficiaries over the total unemployment using data from CANSIM tables 276-0040 and 282-0087) This due to the continued dismantling of the program, where now less than 2 of 5 unemployed workers actually qualify for this job loss insurance- a tragic outcome for workers. These lows in EI benefit payouts occurring during the longest economic stagnation and recession prone times in the history of Canada. The coverage rate has increased a small amount in the past year- but this is mainly due to the uptick in unemployment- and not due to any new more worker friendly policy.

 

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Summary- Employment Insurance claims have shown a dramatic rise in response to the recessionary period that Canada entered in the first half of the 2015. Given the new more stringent eligibility rules for collecting EI benefits, the rise in the number of claimants is under representing the extent of job loss when compared to previous recessionary periods. This is contrary to what many have concluded- that the Canadian economic recession was merely- a “technical recession”. The question that many ask- why has the unemployment rate not spiked in a traditional manner when entering this recession. The historical linkage and loss of protective power in EI benefits may actually be part of the reason. That is, as benefits have been cut back in terms of benefits paid, as well as the much tighter eligibility rules- the lack of insurance benefits forces many who face job loss- to find some income protection in jobs that are low paying, part-time, self-employment and other necessary non-traditional employment transition and workforce adjustment mechanisms. In the short term- such ad hoc work force adjustment may be less costly in terms of short term outlays- however the longer term inefficiencies and social outcomes measured from a skill development, training, and many related social outcomes to job loss much more costly to the economy and society.  Wider labour market measures- seem to suggest that this is the new trend within the process of workforce adjustment and transition mechanisms. The EI claim data also point to a much wider recession across more sectors and regions of the economy- wider than the oil sector, and more decentralized than Alberta as many economists have suggested. Lastly- the data in terms of trend predicts that the job loss and EI claims associated with it, will remain high for at least the next several months.

About Paul Tulloch

@ptullochott
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