Fraser Forum

Outdated EI system adds to Atlantic Canada’s labour challenges

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Outdated EI system adds to Atlantic Canada’s labour challenges

As restrictions ease and the economy begins to recover, many Atlantic Canadian businesses report they are unable to find workers to staff their operations. Historically, workers in the Atlantic provinces have been more likely to use Canada’s employment insurance (EI) system than their peers in the rest of Canada. However, given the current labour shortages, policymakers should take a closer look at how this outdated program contributes to today’s challenges.

According to the employment insurance (EI) program statistics for August, more than 267,000 Atlantic Canadians currently receive some form of EI benefit. The total value of these benefits is more than $3.3 billion.

Recent media reports are filled with businesses reporting they can’t find workers, in sectors ranging from manufacturing to construction to hospitality. Even before the pandemic, businesses in Atlantic Canada reported the greatest difficulty hiring new employees in the country.

While there are many dimensions to the worker shortages (including changing demographics), it’s important to understand the incentives created by the current EI system. For starters, EI often creates a disincentive to work. While it’s intended to help workers who endure hardship (job loss, for example), in reality, generous benefits and low eligibility requirements create a situation where large numbers of workers would prefer to stay home or work only part of the year, rather than seek fulltime employment.

In fact, right now workers in the region can qualify for EI benefits with as little as 120 hours of work. While this is expected to be phased out in September, workers in the region will still likely face the lowest eligibility requirements in Canada to access EI benefits. Simply put, there are strong incentives to either not work or work as little as possible.

Research has also found the program encourages unemployment (and seasonal employment) while subsidizing inefficient industries by providing a pool of temporary workers who can afford to work in temporary jobs because they receive EI benefits. The intent of the EI program may be good, but problems with its current design cannot be ignored in the context of Atlantic Canada’s labour market issues.

The good news is that a better EI system is possible.

One such option is to implement unemployment insurance savings accounts (UISAs) where employers and employees make payroll tax contributions into mandatory personal savings accounts. The contributions remain the personal property of the account holder (employee) and would be invested in diversified portfolios similar to a Tax-Free Savings Account (TFSA).

Workers would be able to withdraw from their account when unemployed and retain any remaining balance at retirement for their personal use. In the case of insufficient balances, a parallel program (funded by general tax revenues) could supplement payments from “underfunded” accounts. UISAs would powerfully incentivize workers to find new jobs relatively quickly and minimize unemployment spells. It would also be an efficient vehicle to cover self-employed individuals.

As the Atlantic provinces emerge from COVID, EI remains a long-standing public policy challenge that continues to have negative effects on the labour market. If the federal government wishes to help the region’s labour shortages, it should seriously consider EI reform.

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