Income Support System

·          Employment Insurance (EI)

·          provides a level of income replacement to those workers who are temporarily out of work and meet strict eligibility conditions

·          Social Assistance (SA)

·          provides minimal income support to those who do not qualify for Employment Insurance

Key Concepts

·          Employment: any legal activity carried out for pay or profit

·          Unemployment: involuntary loss of wage income

·          Underemployment: when the education and training required for the job is less than the education and training of the worker who is doing the job

·          Self-Employment: providing services on contract, producing products, or sell someone else’s product on their own initiative

·          Part-Time Employment: refers to people who usually work fewer than 30 hours each week, can be voluntary or involuntary


·          Frictional unemployment: when workers move between jobs, or return to the workforce

·          Cyclical unemployment: when jobs are lost due to a temporary downturn in the market

·          Structural unemployment: when workers do not possess the required skills for the market, do not live where jobs are available, or are unwilling to work at the offered wage

Unemployment Rate

·          The percentage of the labour force that is unemployed

·          Canada usually has a higher level of unemployment than the U.S. and other countries

·          Many issues are not considered in the unemployment rate, such as levels of part-time employment

Labour Force

·          The number of people 15 years of age or over who are working or are looking for work

·          Excludes large segments of the population such reserve residents, students, people not looking for work, retired people, institutional residents (prisoners, mental patients)

Participation Rate

·          The ratio of the labour force to the working age population

·          Working age population includes those people excluded from the Labour Force

·          In 2006, the Labour Force Participation Rate in Canada was just over 67%

Costs of Unemployment

·          Loss of output to the economy

·          Loss of tax revenue

·          Decrease in government revenue

·          Loss of profits

Theories on Unemployment

·          Keynesian:

·          lack of demand for commodities because people have less money to spend—government should spend to maintain demand

·          Monetarist:

·          unemployment can keep inflation in check, which stimulates investment with low interest rates

·          Political economy:

·          system pursues interests of corporate elite, not that of the unemployed


·          The average rate of increase in prices

·          Measured as percentage increase in Consumer Price Index (CPI)

·          Bank of Canada aims to keep inflation at 1 to 3% a year

·          Inflation and unemployment have an inverse relationship: full-employment increases production costs, raising the price of goods; an abundance of labour keeps costs down

Minimum Wage

·          Lowest wage that an employer can legally pay someone

·          Set by the province

·          The purchasing power of minimum wage has decreased over the last two decades

·          In most parts of the country, individuals earning the minimum wage live below the Low Income Cut-off for their area

Factors Influencing Unemployment

·          Economic Factors:

·          Business cycles

·          Industrial adjustment

·          Cost of production and productivity

·          Changes in technology

·          Factors Influencing Unemployment

·          Structural Factors:

·          Labour surplus

·          Skill supply and demand

·          Movement between jobs

·          Seasonal lay-offs

·          Internal migration

·          Policy Factors

·          Interest rates

·          Exchange rates

·          Education and training

·          Monetary Policy

·          Fiscal Policy

Efficiency/Equity Debate

·          Efficiency: economic growth with a flexible and increasingly productive labour market

·          Equity: existence of adequate levels of health and security for all people, and a reasonably equal distribution of income and wealth

·          Can we have both?

Two Pillars of Income Security

·          Employment Insurance

·          Worker’s Compensation

·          Social insurance schemes

·          Provide income loss protection for those in labour force

Employment Insurance

·          Provides temporary financial help to eligible unemployed Canadians

·          While they look for work or retrain

·          While they care for newborns or newly adopted children

·          While they are sick

·          While they are caring for gravely ill family members

EI Eligibility

·          Contributed to EI through wages

·          Worked minimum number of hours

·          Hours depends on rate of unemployment in region

·          Claim period is the amount of time an individual can collect EI benefits, depending on weeks worked and unemployment rate

Types of EI Benefits

·          Regular Benefits

·          Maternity/Parental Benefits

·          Sickness Benefits

·          Compassionate Care Benefits

·          Family Supplement

·          Fishing Benefits

History of UI/EI

·          Created during World War II

·          Originally called Unemployment Insurance

·          Canada last Western country to implement UI

·          1970s saw an expansion of benefits to include sickness and maternity

·          Benefits were reduced and restricted during 1990s

Employment Insurance

·          Individuals who have paid into EI qualify

·          Regular benefits are 55% of average weekly insured earnings

·          Maximum benefit of $413 per week

·          Minimum numbers of hours worked required

·          Changes in policy have made eligibility requirements more difficult to meet

The New EI System (1995)

·          Name changed from UI to EI

·          Based on hours worked, not weeks

·          More closely tied to earnings level

·          Benefit rate declines according to number of weeks collected

·          More emphasis on helping individuals return to work

·          Enhanced protection for low-income families

EI Benefit Levels

·          Benefit levels have dropped since the changes in the 1990s

·          In 2003 $18.5 billion was paid in EI premiums

·          Less than $12 billion  was paid in benefits in the same year

·          This is a major concern among labour and business groups

Worker’s Compensation

·          Insurance for employers and workers

·          Replaces the courts in compensation for workplace injuries

·          No-fault compensation protects employers and employees, regardless of whether negligence was involved

Maternity and Parental

·          Adoptive parental benefits started in 1984

·          Paternity benefits started in 1987

·          Both were replaced by parental benefits in 1990

·          Parental extended to 35 weeks in 2000, taken by only one parent

·          15 weeks of maternity benefits for pregnant women only

Clawback Rule

·          Benefits must be repaid if net income is over $48,750

·          Intended to discourage higher-income workers from repeatedly collecting benefits

·          Maternity/Parental and Sickness benefits are exempt

·          Max repayment is 30% of income over $48,750

Worker’s Compensation

·          Early programs instituted due to employers concerns about lawsuits (late 1800s)

·          85% of workers covered under provincial WC programs

·          WC covers costs of rehabilitation, loss of income for worker, and loss of support for dependants in the event of worker’s death

·          Most programs are funded by employer contributions, and coverage varies by province

History of WC

·          Originated in UK and U.S. in late 1800s

·          Difficult for workers to sue employers

·          Employer’s defences called “Unholy Trinity”

·          Based on concept that if workers didn’t like the terms they could go elsewhere

·          Voluntary Assumption of Risk: worker knew the risks involved

·          Fellow Servant Rule: if fellow worker responsible, employer was not

·          Contributory Negligence: if workers own conduct contributed to injury, employ not responsible

·          Situation changed with rise of unions at end of 1800s

·          Employer’s defences were loosened

·          Increased number of lawsuits against employers

·          Workmen’s Compensation Act (1897) in England

·          World-wide problem

·          Royal Commission in Ontario led by William Meredith, 1913

·          Meredith Principle

·          Workers give up right to sue for work-related injuries, regardless of fault, in return for guaranteed compensation for accepted claims

·          Workmen’s Compensation Act, 1914

·          Other provinces soon followed

State of Labour Market

·          Less than 1/2 of Canadian workers have standard jobs

·          Increase in non-standard jobs (i.e. part-time, self-employment)

·          EI serves as economy stabilizer

·          Strong correlations between net EI spending and performance of the economy

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