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

Money: What is Inflation?

· 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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Cite this article as: William Anderson (Schoolworkhelper Editorial Team), "Labour Force: Income Security & Insurance," in SchoolWorkHelper, 2019,
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