The Debate About Employment Insurance

Employment insurance (EI) provides temporary financial assistance to individuals while they are out of work. Workers on EI receive 55 percent of their normal wage (to a maximum of $447 per week for 50 weeks). The qualifying period ranges from 420 to 700 hours of work. The higher the unemployment rate in the region where the person works, the lower the number of hours required to qualify for EI benefits. For example, if the unemployment rate is 6 percent in a region, workers in that region must work 700 hours to qualify for EI benefits, but if the unemployment rate is 13 percent or more in a region, workers in that region only need to work 420 hours to qualify. EI also includes coverage for maternity benefits (maximum of 15 weeks), parental benefits (35 weeks maximum), sickness benefits (15 weeks maximum), and compassionate care benefits (6 weeks maximum). These benefits are also available to self-employed individuals under the new "Fairness for the Self-Employed Act."

The EI program is funded by employee and employer contributions (the government does not make contributions). In all jurisdictions in Canada except Quebec, workers pay 1.73 percent of their earnings, up to $43,200 of earnings. Thus, the maximum amount of EI premiums that an employee is required to pay is $747.36 per year. The premium rate has been trending downward in recent years. In 1997, for example, the rate was 2.90 percent, but it dropped to 2.1 percent in 2003, and is now at 1.73. However, it is estimated that the rate will soon have to rise to 2.06 to reach the breakeven point. Employers must contribute 1.4 times the amount that workers contribute. Thus, the maximum annual employer premium is $1,046.30 for each employee who makes $43,200 or more.

EI benefits have been temporarily extended for workers who had been employed for a long time and who have previously made only limited use of EI. To qualify for extended benefits, a worker must have paid at least 30 percent of the annual maximum premiums for 7 of the last 10 years, and have received no more than 35 weeks of EI in the last 5 years. Qualified workers will receive anywhere from 5 to 20 extra weeks of EI, depending on how long they have worked. The extended benefits are available from October 25, 2009 to September 11, 2010.

It is an offence for employees to withhold information or to provide false or misleading information about their employment status. Employees who receive EI benefits they are not entitled to must pay a monetary penalty. The maximum repayment is three times the benefit received for each false or misleading statement. Employers who provide false information on the Record of Employment form, or provide false information about the reason an employee was separated from the company may be fined up to $12,000.

Most people agree that it is a good idea to have a safety net for workers who, through no fault of their own, lose their jobs. The recent recession has reinforced the importance of employment insurance, but there are conflicting opinions about what the specific provisions of employment insurance should look like. One view is that it should be easy to qualify for generous employment benefits because workers are required to contribute to the fund, and they should get financial help if they lose their job. The opposing view is that it should not be too easy to qualify for generous benefits because that will reduce a person's motivation to continue working and will increase the unemployment rate.

In 2009, a bipartisan Employment Insurance Working Group was formed to examine options to reform the EI program. Liberal leader Michael Ignatieff proposed shortening the qualification period for eligibility to 360 hours (9 weeks of work), but critics argued that while such a move was well-intended, it would increase the budget deficit, reduce people's motivation to work, and increase the unemployment rate. To support their argument, they cited a study entitled "Long-Term Effects of Generous Unemployment Insurance: Case Study of New Brunswick and Maine, 1940-1991." The study found that before 1950, the unemployment rate was similar in the two jurisdictions, but when seasonal unemployment benefits were introduced in New Brunswick, its unemployment rate increased compared to Maine's. Further changes to Canada's EI program in 1971 (which required individuals to work only 10 weeks in order to get 40 weeks of benefits) caused additional differences to develop over the next two decades. In 1990, the unemployment rate in New Brunswick was just over 29 percent, but in Maine (which continued to have a much less generous EI program), the unemployment rate was just over 4 percent. Critics cite studies like this one to argue that generous benefits cause people to be more interested in collecting EI than to continue working. More generosity in the EI program also means that employers will have to compete not only with other businesses for workers, but also with government generosity. At the broadest level, critics argue that expanding EI benefits will cause potential employees to stay out of the labour market, reduce the supply of skilled labour, keep unemployment rates high, and suppress productivity.

The small business sector is concerned about the impact of changes in EI benefits as well as increases in premium rates that employers and employees may have to pay (EI funds have been depleted because of increasing claims as a result of the recession). The government could raise the annual premiums employers pay by about $90 for each employee by 2011, and the amount each employee pays by $65. The Canadian Federation of Independent Business (CFIB) estimates that such a premium increase would result in 200,000 less workers having jobs. Catherine Swift, president of the CFIB, says it is unrealistic to assume that rates won't go up, but she notes that rate increases will cause small business owners to think twice before they hire new staff. This, in turn, will dampen economic growth. A better idea is to give small businesses an EI tax credit.

Questions for Discussion

1. Why do you think that maternity, parental, compassionate care, and sickness benefits are included in EI?
2. A variety of concerns have been expressed about EI. What kinds of changes might be made to EI to address these concerns?
3. Consider the following statement: Since people respond to incentives, we should not be surprised if reducing the qualifying period for EI benefits or increasing the level of EI benefits will reduce people's motivation to work. The solution is to make EI benefits hard to get because that will reduce the level of unemployment. Do you agree or disagree with this statement? Explain your reasoning.

Sources: "Defrauding the Employment Insurance (EI) Program Is a Serious Offence," www.servicecanada.gc.ca/eng/ei/fraud/fraud_serious.shtml, accessed March 18, 2010; "EI Premium Rates and Maximums," www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/ei/cnt-chrt-pf-eng.html, accessed March 17, 2010; "Fairness for the Self-Employed Act," www.hrsdc.gc.ca/eng/employment/eiFact_sheet_C56.shtml, accessed March 17, 2010; "Extended Employment Insurance Regular Benefits for Long Tenured Workers," www.hrsdc.gc.ca/eng/employment/eiFact_sheet.shtml, accessed March 17, 2010; Richard Blackwell, "Small Business Sector Pans EI Premium Hike," The Globe and Mail, March 3, 2010, p. B6; Joan Bryden, "EI Reform Hampered by Spiking Cost Estimate," Winnipeg Free Press, August 7, 2009, p. A12; Niels Veldhuis and Amela Karabegovic, "Easier EI Makes for Higher Jobless Rate," Winnipeg Free Press, July 12, 2009, p. A11; Dan Kelly, "EI Reforms Should Include Training; Making Eligibility Too Easy Could Result in Labour Shortage," National Post, July 7, 2009, p. FP6; Patrick Grady, "High EI Benefits Discourage Work," National Post, June 25, 2009, p. FP11; Jack Mintz, "Rethinking EI," Canadian Business, March 3-March 16, 2009, p. 20.