What is the role of the unemployment rate? Part 1 of a series on EI reform

What is the purpose of the unemployment rate?

According to Statistics Canada the unemployment rate is the “number of unemployed persons expressed as a percentage of the labour force” which isn’t particularly helpful.  The agency defines unemployment as follows: “Unemployed persons are those who, during reference week, were available for work and were either on temporary layoff, had looked for work in the past four weeks or had a job to start within the next four weeks”.

So it looks like in the formal definition of unemployment, the unemployed don’t actually have to be seeking employment.  This is a huge distinction when looking at potential reforms to the EI program.

My thesis is that the EI program is distorting the local labour market picture in many regions of Atlantic Canada and that is leading to bad public policy decisions.

The biggest impact in recent years has been around the attraction of immigrants and the challenges bringing in temporary foreign workers. 

There are communities in the region that have a headline unemployment rate of 15% or higher but when you ask employers on the ground they say there is not a single person available for work.  How is this possible?

At least in theory, when there is a high unemployment rate it should be relatively easy to find workers.   This is not the case in dozens of communities across the region because a large share of the unemployed – I would argue – the vast majority – maybe 80% or so – are not actually unemployed in the sense they are available for work and actually looking for work.  They are collecting EI cheques until their seasonal job begins next year.

When fighting for increased flexibility around immigration and TFWs while in government I had federal government officials say “why should we increase your immigration levels when you have such high unemployment?”

You see the challenge?

Of course, it is getting better.  The Atlantic Immigration Pilot Program and other initiatives are making it easier but I contend it is still far far easier to attract immigrants to Toronto than it is to Caraquet – and that imbalance puts the latter at another competitive disadvantage.  

One solution I propose is that we publish an unemployment rate with all seasonal EI users backed out.  I realize that Statistic Canada ‘seasonally adjusts’ the data but again, on an adjusted basis, there can be thousands and thousands in a region that are ‘unemployed’ but not actually seeking work.

What would be the unemployment ‘rate’ then?  If in an area where 40-50% of all workers collect EI at some point during they year what would happen to the rate if they were removed?

I contend the unemployment rate should reflect real unemployment in a community  – specifically – the number of people that are available and looking for work at any given time. If we don’t know this – the rate is 15% or 5%, what good is it?

In my paper for the PPF, I propose other options. I will discuss those further in future posts.