The problem with EI/UI
by Fred McMahon


The Globe and Mail

So you think only 40 per cent of unemployed Canadians collect benefits under the new Employment Insurance rules? Well, not in Atlantic Canada. The EI system here is radically different. The number collecting EI often exceeds the number who are officially unemployed.

This isn’t just a statistical anomaly. Only people who tell StatsCan they’re available and looking for work are counted as unemployed, and not everyone who collects EI is available and looking for work. So the number of people on EI in some Atlantic provinces can be up to 40 per cent greater than the number officially unemployed.

This is an Atlantic tradition. In the good old days of Unemployment Insurance — to which many want to return — almost as many as two people collected UI for every one officially unemployed in some months.

Unemployment is highly seasonal. It peaks in winter, when people in many industries are laid off. Workers can collect EI if they’re laid off, but — unlike with UI — not if they quit or get fired. Because lay-offs are more common in winter, a greater percentage of the unemployed collect EI than during the rest of the year.

But regional differences persist year round. (See charts.) Human Resources Development Canada, which administers EI, is unsure why and has commissioned a study to find out.

Some factors are clear. You don’t have to be unemployed to collect EI. People with low wages, the self-employed, and people involved in job sharing may be eligible for benefits, and there are special programs like maternity leave.

These rules apply across Canada. At least five additional factors lead to regional differences.

Fishers can collect EI through the off-season without obligation to accept other work.

In many Atlantic communities, UI/EI has been a way of life for two generations. It has reached the point where any may simply not think of themselves as available for work when they’re collecting EI. (Officially, they may have to be, but StatsCan survey staff do not report back to EI officials.)

Atlantic communities and businesses are expert at maximizing EI revenues. Work schedules are organized to qualify people for EI.

Regionally extended benefits allow people to collect EI longer for fewer weeks of work in Atlantic Canada than in most other parts of the country.

Government plays along. Some programs are specifically directed at providing just enough work to qualify people for EI.
This may seem a good deal for Atlantic Canada. We reap far more from EI/UI than we pay in. But, it’s a deadly poison for the Atlantic economy.

The UI/EI merry-go-round of low-skill, often subsidized, temporary jobs followed by weeks of benefits discourages training and education. The system traps people in low productivity jobs and dampens economic activity.

It inflates wages. Employers have to pay a premium to get people off EI/UI. Thus we’ve had labour shortages in areas with double-digit unemployment. That weakens job creation.

UI/EI subsidizes people to remain in low-employment rural communities. This braked urbanization in Atlantic Canada. Throughout the rest of Canada — and for that matter, the Western world — urbanization has been a key generator of wealth and economic dynamism.

Since the end of World War II, millions of people have moved from poverty and low-productivity rural work to high-productivity, affluent urban jobs. That helped generate the astounding economic growth through the golden quarter century following the war. The pace of urbanization slackened in the early 1970s, and that was a key factor in the subsequent worldwide slowdown in growth.

But here government policy deliberately starved our urban centres of needed growth. The UI/EI system turned unremunerative, low productivity rural jobs into highly remunerative careers. This highlights the unfairness of the system. In 1995, UI paid nearly $600 million to Atlantic families with incomes more than $40,000, but less than $500 million to families with income less than $20,000. More than $100 million went just to families who made more than $70,000. EI is little better.

So, in effect, UI/EI bribes people to remain in rural communities. To understand the cost of that, try imagining the state of the Ontario economy if Ottawa had spent billions to keep people on uneconomical farms. Now imagine something more perverse — government luring people back to even smaller, more inefficient farms.

That happened after nasty communist revolutions in such places as Cambodia, Vietnam, and Mao’s China. And it happened in Atlantic Canada with the fishery. By the early 1990s — thanks in large part to big UI subsidies — nearly 2 1/2 times as many people worked in the fishery here as in 1961. UI helped destroy the northern cod stocks, too, by paying far too many people to pursue too few fish.

In short, the system has undermined Atlantic Canada’s growth prospects, marginalized thousands of workers, and even helped destroy our fish. It has not been good for Atlantic Canada by any measure.

Fred McMahon is senior policy analyst at the Atlantic Institute for Market Studies.

Information for chart: ratio total EI beneficiaries to unemployed

January 1998:

canada: .64; nf, 1.38; pei 1.40; ns.90; nb 1.17; que .73; ont. .46; man .69; sask .63. alb. .54, bc .55

july 98:

can .50; nf, .65; pei .98; ns. .66; nb .87; que 57; ont. .39; man .56; sask .44; alb. .44; bc .44

Total beneficiaries include all recipients of EI benefits, including those in special programs such as maternity leave. In 1997, total beneficiaries varied from a high of over one million in January to a low of just under 600,000 in September; regular beneficiaries were just over 800,000 in January and 400,000 in September.