The Economics of Employment Insurance in Canada
With the uprising of new, harsher restrictions during the devastating third wave of the COVID-19 pandemic, thousands of workers are being sent home after numerous business closures ordered by the Ministry of Health in Ontario.
The government has offered temporary relief programs for those structurally unemployed (that is, unemployment due to external circumstances affecting the economy), such as the Canadian Emergency Revenue Benefit (CERB).
However, alongside these forms of welfare lay a fundamentally important piece of policy, first enacted in 1940 by the Canadian government: Employment Insurance.
This crucial form of welfare has aided in the wellbeing of the unemployed for decades, but how is being amended to help unemployed Canadians, who were hit the hardest during the COVID-19 pandemic?
The Roots of Employment Insurance
The origins of Employment Insurance that exists in the status quo today can be traced all the way back to 1935, in which Canada’s first unemployment insurance was enacted. However, the Judicial Committee of the Privy Council took down the newly created bill in 1937 due to the fact that employment was within the jurisdiction of the provincial governments.
These actions lead to the new constitutional amendment to allow for unemployment to be added to the list of exclusive federal powers in 1940. The goals of this unemployment insurance were to maintain governmental fiscal policies (Fiscal policies being government spending policies that are enacted for the main purpose of balancing the economy).
Moreover, Employment Insurance was created to expand on Canada’s social welfare programs, while also becoming the preferred method of fixing the issue of wealth inequality and helping those who were unemployed.
Employment Insurance in 1940 was granted towards non-governmental workers with incomes under $2000. The theory behind Employment Insurance was that workers would pay a premium rate of their earned income, which would make its way to Ottawa’s consolidated revenue fund.
When workers became unemployed — regardless of the circumstance — they would receive compensation from the government, which approximated up to 60% of their total income.
However, Employment Insurance only became universal in 1971, with the implementation of the Unemployment Act. Many more people were eligible for Employment Insurance, which broadened the effect it had on the economy. The premium rates had to be adjusted to 1.4 percent to compensate for an unemployment rate of 4% nationally.
Moreover, the widespread implementation of Employment Insurance also helped ease financial tension within the Canadian government. Because EI outlays increased during the early 1980s, the government was giving out more money in EI than receiving in premiums.
This self-adjusting fiscal policy helped bring the economy back during the early 1980s recession, as greater government spending leads to more aggregate demand, which helped Canada get out of the recession.
During times of economic growth, (i.e. the mid 1990s,) EI contributions exceeded EI outlays, which led the government to have a surplus.
How it’s Being Adjusted During the Pandemic
The COVID-19 pandemic has had a significant impact on numerous Canadian families. The historical unemployment rate in Canada hovered around 7.65%, with the rate rising to an all time high of 13.7% in May of 2020. This excess amount of unemployed has created a strain on Employment Insurance, with significantly more people claiming EI than paying premiums.
Nearly 900,000 jobs were cut short this year due to COVID-19, compared to the previous year.
The Liberal government announced that they have made moves to add more insurance weeks within EI. The government plans to add 12 weeks of eligibility to the $500-a-week Canada Recovery Benefit and the Canada Recovery Caregiving Benefit, raising the maximum number of weeks available to 38 from 26.
As part of the Government economic response to COVID-19, the Government announced that it is freezing the EI premium rate for 2021 at the 2020 premium rate level of $1.58 per $100 of insurable earnings.
These changes to Employment Insurance all have the same fundamental goal: keeping more money in the pockets of Canadians, through increased insurance periods to the freezing of EI premiums.
Giving more money to Canadians means that there will be more money circulating through economies, which will help Canada escape the recessions caused by COVID 19. Furthermore, freezing EI premiums indirectly gives more money to Canadians, as they have more money stored in their bank accounts. This will promote more spending and will help the unemployed get back on their feet as COVID-19 restrictions are slowly reduced.
Is it Currently Feasible For the Unemployed?
Although Employment Insurance has been widely considered a success within Canada, it doesn’t come without numerous flaws in the system.
Primarily, those who aren’t employed within your typical “9–5” jobs may not be covered by employment insurance. Those who are self employed may be out of luck when it comes to Employment Insurance, as a vast amount of these workers are not eligible for benefits.
Moreover, there are tough restrictions on EI eligibility for part time workers. All workers involved in EI must work a set amount of hours to be considered acceptable for EI. However, many part time workers are unable to meet these guidelines, thereby having no source of income during their unemployment.
The EI program fails to achieve its objective of providing temporary income support to all individuals who experience involuntary employment-related income losses, and those who are employed in special circumstances are being disproportionately affected the most.
Moreover, EI in itself doesn’t provide significant help towards those affected the most. Currently, the maximum amount one could receive weekly is $595. However, this rate isn’t available for everyone, as the basic formula for calculating EI is 55% of your gross earned income.
Although this money is crucial for families to survive during the pandemic, many are still on tight budgets. This is especially true for those who have severe diseases or long term disabilities.
This is the reality for many Canadians impacted by COVID-19. Although the policies enacted by the government are a good start to maintaining the wellbeing of all Canadians, there are still significant flaws within the system that need to be addressed. Till then, Canadians need to brace for the next few months, as more and more citizens become vaccinated.
Hopefully, then, Canadians will be able to return to their normal ways of life.
