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
Unemployment
· 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
Inflation
· 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
