Following the devastating effects of the Great Depression, the Canadian government unveiled Unemployment Insurance in 1940 to assist Canadians through difficult times.
In the recession of 1982, the program helped 76 percent of the unemployed and during the 1990 recession, fully 83 percent of the unemployed received benefits. However, current coverage is only about half of what it was in the recession of 1990. In fact, Statistics Canada data indicates the share of unemployed Canadians able to obtain EI has fallen since the tightening of the rules in the 1990s, from a high of 83.8 percent in 1990 to 44
percent in 2007.
Broken down by region, 65 percent of Atlantic Canadians received EI; 49 percent in Quebec; 40 percent in Ontario; and 37 percent in Western Canada.
In 2005, Ottawa changed the financing rules for EI and a new law set premiums at the beginning of each year at an amount just sufficient so that the program would pay for itself in the coming year. But the premium was not to vary by more than 15 cents on every $100 of insurable earnings in any single year.
This new premium rate‐setting rule has a perverse consequence: Premiums go up in bad times and down in good times. Fortunately, the 2005 law also permitted the government to override its own premium rate setting mechanism. This helped to avoid premium increases in 2009 and 2010 which would have removed about $4.5 billion from the economy and effectively cancelled much of the government’s own stimulus
efforts.
While the Canadian Chamber believes reforms to Canada’s Employment Insurance (EI) program are necessary to advance the fundamental goals of promoting employment and productivity, we must avoid lowering the bar and instead focus on a number of other initiatives aimed at strengthening EI and restoring fairness to both businesses and employees.
Operating the EI program as a true insurance program – that is, one which provides insurance against unintended periods of unemployment – would facilitate further reductions in EI premium rates over time. Further reducing EI premiums for both employers and employees, would reduce real wage costs to employers making it more attractive to hire more workers, and increase real wages received by employees. It
would put in place incentives to boost productivity.
There has been some progress in removing the social‐program aspects of EI from the regular premium structure. In Quebec, effective January 1, 2006, the provincial government began charging for and delivering maternal, parental and adoption benefits under the Québec Parental Insurance Plan (QPIP). The QPIP replaced maternity and parental benefits previously provided under the EI program for eligible Quebec
residents. EI premiums for employers and employees in Quebec were reduced to reflect the fact that Quebec residents no longer receive maternity and parental benefits under EI. The end result has been greater transparency with respect to payroll taxes collected to fund the province’s parental leave program and the federal government’s employment insurance program.
Another issue that needs to be addressed pertains to the higher premium rate paid by employers compared to employees (i.e. employers pay 1.4 times the employee premium rate). The rationale behind this is that employers have greater control over layoff decisions and, therefore, should bear a higher overall share of program costs. In recent years, however, EI benefits totally unrelated to layoffs (for example, parental leave
benefits) have contributed to higher program costs. There is little justification for requiring employers to pay more for these benefits than employees do. The federal government must gradually reduce the employer EI premium rate to equal that paid by employees.
Lastly, if employee EI premium payments exceed the maximum contribution limit, employees are refunded the difference between what they have paid in any given year and the maximum annual contribution limit when they file their yearly income taxes. Employers, however, are not afforded the same treatment. Hence, even though an employee has contributed, for example, the maximum amount in previous employment with a different employer in a given year, the employee’s current employer must contribute on the basis of current, not previous, earnings paid to the employee in that year. While it is difficult to quantify the exact level of over‐contributions by employers, the level is certainly in the several hundred million dollar range.
Given the fact that EI premiums represent a barrier to job creation, the Canadian Chamber believes that the federal government must immediately devise and implement a system that allows for over contributions to EI by employers to be refunded by the federal government. Ultimately, Employment Insurance should also play the role of economic stabilizer – particularly during periods of economic decline. It should draw down
accumulated savings from premiums collected during the flush years to pump money into the economy during the lean years, thereby helping thousands of businesses to stay afloat and their workers from needing Employment Insurance in the first place.
Recommendations
That the federal government:
1. Facilitate further reductions in EI premium rates by operating the EI program as a true insurance program.
2. Reduce the employer EI premium rate to equal the employee premium level.
3. Implement a system that allows for over‐contributions by employers to be refunded.
4. Revise the premium rate setting statute to reflect the value, importance and overall effect that lower premiums can have for businesses and employees during periods of economic stagnation.
Submitted by the Greater Sudbury Chamber of Commerce
The Economic Policy Committee supports this resolution but believes its own resolution “Employment Insurance (EI) Reform” contains more specific and detailed recommendations. This resolution would replace the 2007 resolution “Employment Insurance Program” falling off the Policy Book.