E-I Spells Post-Recession Welfare

If increased welfare rates after the crisis don’t surprise you, who’s on that welfare might.

With every recession in the past, welfare caseloads peaked after the immediate crisis was over.

The recession of the early 1980s hit Canada hardest in 1981, but the number of welfare recipients in Ontario topped out in March 1983. The Canadian economy suffered another blow in 1991 and 1992, but the number of Ontarians on welfare was at its highest in March 1994 as the long recovery was beginning.

The reason for this lag effect can be spelled out very simply: EI.

Employment Insurance is the first line of defence in an economic downturn; those who lose their jobs turn to it quickly. Benefits are individually based, there’s no means test and nobody says you should liquidate your RRSPs. It's not a lot of money, but $457 a week in maximum benefits ($22,850 maximum in one claim) will get you by for a while.

But EI is temporary -- the longest it can last is just under a year. The recent recession began in late 2008, so people who turned to EI started to exhaust their claims towards the end of 2009.

More than 10 per cent of those who exhaust EI will eventually come to the welfare door. This means up to 90,000 EI claimants across Canada will apply for assistance, including up to 30,000 in Ontario. So regardless of economic recovery or anything else going on in the world, the use of social assistance will continue to increase for a while.

None of this is a surprise. What is a surprise is who is coming onto welfare. The usual suspects are lone parents, and historically, this perception has been correct. In the late 1990s in Ontario, lone parents were the largest single category of social assistance recipient.

Then everything changed.

In 2000-01, there were approximately 95,000 lone parents and 92,000 single persons receiving welfare in Ontario. Now, single people without children make up the fastest growing segment of social welfare recipients in Ontario. As of January 2010, there were 144,000 of them – an increase of 57 per cent. Most of this increase has taken place in the last two years. Meanwhile, fewer than 75,000 lone parents receive benefits, a decrease of 21 per cent over 10 years – and that’s following the sharpest recession since the Great Depression. So what's up?

A breakdown of the respective incomes of lone parents vs. single people without children offers some clues.

A mother with two children who is on social assistance receives 53 per cent of her income from federal and provincial child benefits that are paid in addition to welfare in Ontario, but a single person receives just 11 per cent from the government, mostly in the form of GST credits. This makes single people particularly vulnerable to falling back on welfare, while getting more than half their income from child benefits can keep lone parents off.

With the implementation of a $10.25 an hour minimum wage in Ontario on March 31, a 37.5-hour work week for a person earning minimum wage will result in gross income of $20,000 a year, while the single welfare rate pays just over $7,000 a year in maximum benefits. This means single people who choose or are forced to choose welfare are settling for an income that’s just over one third what they would make with steady work.

This implies that welfare is dealing with the hard-to-serve – generally people with no Grade 12, insufficient business English for the workplace, and a variety of social or appearance-related deficits that bar them from employment. Clearly, work incentives don’t provide all the answers, but benefits paid outside of welfare could be a big part of the solution.

It’s not that there are fewer single parents than before or that it’s tougher to be a single person than to be a lone parent, but getting over half your income from regular child benefits is obviously making a big difference when it comes to welfare and this recession.