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Does EI Inhibit the Overall Economy?

Saskatchewan Premier Brad Wall caused a bit of a stir in January when he pointed out some inefficiencies in Canada’s EI system. Now Mr. Wall got slapped on the wrist for being insensitive and too conservative by many media outlets, but I believe he has a pretty strong case.

The employment insurance program is ridiculously abused in this country and in many cases it is used to support seasonal workers as they do nothing for months at a time. Wall’s main argument is that the artificial stability that EI brought to borderline-sustainable areas prevented the natural supply-and-demand pattern from bringing workers to western Canada where they are needed.

I have read very similar comments from government officials in North Dakota and Montana. In the USA you have record level of unemployment levels, yet these two states are absolutely begging for workers and offering great wages as well. If so many people were hard up for work you would think there would be lines of people heading out Bismarck et al, but instead people are saying to themselves, “Why would I go do hard labour in the energy sector, in an area that is cold in the winter, when I can just sit at home at get paid for it.” This labour mobility issue is looming larger and larger.

Just Another Brick In The Wall

Premier Wall concisely stated his problems with the current version of EI when he said, “In some regions, a person can work just over 10 weeks and receive almost a year’s worth of EI benefits. A worker in Regina will work roughly twice as long for significantly less; yet, employees and employers pay identical premiums into this $22-billion a year program.” He went on to claim that EI works to, “discourage labour mobility in a way that hurts the national economy and ultimately individual Canadians.”

It’s pretty tough to argue with this logic. Saskatchewan workers are in effect, paying Canadians (through equalization payments and EI payments) to sit at home in provinces that really don’t need the labour right now and not come to Saskatchewan. I would be much more excitable than Mr. Wall is on the subject if I were in his shoes!

Not All Handouts Are Created Equal

For those of you that are not familiar with the Canadian EI program, what it seeks to do is apply different standards to every part of the country. For a place like Alberta which has a very low unemployment rate, it is much harder to collect EI. For other places where jobs are hard to come by, you can work a very short part of the year and then collect unemployment insurance for the rest of it.

In this manner, the government basically subsidizes thousands of workers across the country in many different industries every year. Just from personal experience, I can give three specific abuses that illustrate the systemic problems with the system:

1) The local peat moss factory where I grew up needed a larger labour force in the summer than in the winter. They offered fairly high wages during the summer months, and then when winter came every year they would downsize substantially and lay off employees (probably about 80% of the overall workforce).

These workers would usually get near the maximum EI payment for the other half of the year which was $485 a week. When you consider that there are hardly any deductions at all on that money, that is an insanely high pay rate. The government was paying perfectly healthy people NOT to work year after year.

2) Very similar circumstances to the first example. My brother fights forest fires during the summers (yes this does impress the ladies), and the men (generally it is an all-male group) are some of the fittest men in the general workforce. Many of these guys earn 30-35K working 5 months or so in the summer, and then apply for the same maximum EI rate of $485 a week.

Since most of these dudes are not lazy, they simply work under the table a few days a week at a garage, for farmers, or in the construction industry in order to supplement their income. This isn’t abuse of the system by 2 or 3 people, this is a systemic built-in model that is widely used to soak up government dollars.

As a student, my brother is not allowed to collect a fraction of the payments these guys pay for sitting on their butts or working under the table. What incentive is that providing him with!

3) The final example that I’m familiar with is the common use of EI to supplement the income received by educational assistants across Canada. These EAs (also referred to as Teacher Assistants, or Para-professionals) don’t earn a yearly salary like teachers do, and so every winter and summer vacation they are technically laid off.

This is a great example of an instance when government tax dollars are essentially part of a compensation package that makes no sense. Obviously these people should either be paid more during their school year, or they should easily be able to fine work during their consistent time off every year. It certainly makes little sense the way it is set up now, and Premier Wall is right in stating that it is a disproportionate tax on his constituents.

I’m Fine With A Safety Net, But Does It Have To Be Made Of Silk

I’m not anti-employment insurance. I think EI is a necessary safety net for many people, and used properly, it can actually increase the labour mobility that we need. I think some form of bonuses should be included for people to find work sooner, or even better, for people to go back to school and take vocational training, or get better educated in an area that is “in-need.”

I do think the current system of EI is ridiculous, and it is actually a great example of why big government policies simply don’t work. How do you create a system that can be fair to a single mom that loses her only source of income and has obvious problems moving to a new area, relative to a young 20-something who is perfectly capable of work, but would rather only work half of the year.

We need to substantially trim EI benefits, offer better incentives (instead of harmful disincentives) and provide extra support on a case-by-case basis instead of having huge loopholes for high-earning seasonal employees to jump through (I’m still frustrated by the idea that people in seasonal industries want government assistance at all. I mean you knew going into the job that it was seasonal, so why should the government supplement your compensation package?).

With high tax rates from earned income and generous EI benefits, we are creating huge disincentives to actually find work. This will continue to be a problem until we develop the political will that Mr. Wall and North Dakota/Montana politicians are advocating for.


  1. Daisy

    EI is problematic, but I’m glad we have it. I’ve only had to be on it once, and it was torturous. It definitely doesn’t pay enough to live on, so Im glad I have savings to cover the difference. Seasonal workers can’t necessarily go on EI right away – they need to work for a certain amount of hours over a certain period of time, and I’ve known some seasonals that didnt make the cut and had to find permanent employment. It depends on the circumstances, though.

    • My University Money

      You’re right Daisy, in that it is definitely good to have, I just wish there weren’t so many cases where it was abused.

  2. Aaron

    Great article. It made me think. I’m sure EI and other policies could use some reviews modifications.

  3. passiveincome

    Canada’s policy is really old, same as the banking system. As there are more immigrant moving in, in additional to the cultural change, our policy should also change. My uncle told me 10 years ago, the people in his company work half a year and on purposely got cut and collect EI. They come back to work once EI is finished. However, nowaday in toronto, job is hard to come by, so less people will do this. There is obviously a bug in the system. However, personally, I hate CPP more than EI. CPP to me, is a scam. For the self employed people, CPP is double!

    • My University Money

      You’re preaching to the choir buddy. If I could just keep my money in my pocket, and get the government to concentrate on letting the market do its job, and providing essential services, I’d be a lot happier.

  4. GReg

    This article makes an assumption that seasonal workers should just leave their home, friends, family during the off-season and go work elsewhere. We need to look at things with a humanist perspective.

    • My University Money

      See this is where you and I differ Greg. I’m all for humanism… just as long as you don’t as for my money to do it, or distort an efficient economy. What is wrong with wanting people to move to get a job?

  5. Brian

    Honestly, I didn’t know it worked like that. I do agree with your points – I’m all for supporting temporarily unemployed people, but not seasonal workers. Move where the jobs are people…

    • My University Money

      Yah… I don’t want to come across as a dick either. If someone has hit a rough patch, and they need some temporary support, it’s pretty tough to say no.

  6. Liquid Independence

    I like the idea of having a general safety net for anyone who wants to use it. But I also wish I could have the option to opt out of the IE program altogether.

    • My University Money

      I agree! This would be an excellent opt-out choice. In fact, why not privatize EI altogether in that case?

  7. Mike

    Research studies have shown that EI does not, repeat, does not hurt labour mobility in Canada. For more proof, just look at all the people working in Alberta, coming from Nfld or Nova Scotia. also look at recent Census results. If anyone thinks that living on half pay (EI) for a significant part of the year is any fun, just try it…

    • My University Money

      Mike, I’d be interested in reading those studies, because anecdotal evidence of “a few Newfies working in Alberta” doesn’t cut it. I definitely know that it has been proven time and again that government involvement in any part of the open market distorts outcomes.

      • Mike

        My University Money: please see my posting in response to yours.

  8. Mike

    I’d suggest the following study, covering research done on this subject by 12 authors –

    Its conclusion: “To anticipate our conclusion, we can say that on balance there is no evidence that regional
    variation in the unemployment insurance system has altered internal migration patterns in
    Canada in a substantial manner. Simulations based on empirical estimates suggest that even
    the complete elimination of the legislated regional variation in the system would not be a large
    enough shock to have an important effect on regional labour markets. This conclusion implies
    that if a change in the degree of regional variation in the Employment Insurance system is
    contemplated, justification for such a change is not to be found in the removal of incentives for
    people to remain where the generosity of the program is relatively great.”

    • My University Money

      Interesting study Brian. This Globe and Mail article: details some extremely valid criticisms, including support for my anecdotal theory about industries abusing the system. They also recommend for equal footing across Canada. Here is a quote:

      “It isn’t efficient, says Arthur Sweetman, an economics professor and Ontario Research Chair in Health Human Resources at McMaster University. “It’s hard to make the labour market work well because of EI,” he said. “People are sitting at home when they could be productive.”

      Employers have also learned to exploit the system. Auto makers use EI to subsidize the retooling of their plants by essentially mothballing their workforce. Municipal school boards lay off bus drivers, cafeteria workers and cleaners in the summer.

      “A lot of companies across the country structure their work life around the parameters of EI,” says Dr. Sweetman, who reviewed some of the Mowat research. “It’s a way that Canada has chosen to operate and politicians are fully aware that this is happening.”

      • Mike

        No doubt, the system as it now stands is way too complicated, combining hours, weeks, best weeks, regional unemployment rates, special rules for new entrants, minimum divisors, and so on. As noted, local unemployment rates are poor predictors of how hard it is to find a new job. That’s because they’re not ‘predictors’ at all, being a 3-month lagged average of seasonally-adjusted rates. Those unemployment rates are always ‘late’, never current or timely. Yes, some employers exploit the system but I doubt this matters very much in the big picture. Nevertheless, we always have to ask what is the alternative, what should we do differently.

        Bottom line though is that, in any country, it’s the economy that matters, and something like UI (or EI as we call it rather disingenuously) only operates at the margins. Remember all those economic studies and pundits in the 80s and 90s that lambasted our UI system for higher unemployment rates in Canada than in the USA… how would they now explain the exact opposite?

        • My University Money

          You’re definitely right that the study completely disproves the extreme stances taken “back in the day.”

  9. Marianne

    I’m a produce farmer’s daughter so I can speak a bit about your sod farm example. There were only a few people on our farm who were eligible to collect EI throughout the winter time. For the most part, the people my parents hired were students and migrant workers. The few people who had made careers out of farming would have to go on EI over the winter. Keep in mind that even though the growing season is only from April-October, workers have to start getting ready in February and don’t finish up until November. This means they are only on EI for about 3 months or so. How do you suppose that we would find responsible, mature people capable of managing others that are willing to put up with 80 hour work weeks, unpredictable working weather conditions and just plain dirty jobs who then have to find some other job for 3 months out of the year?! Where do you think these people exist? And anyways, a little over $400 a week is not enough for a family to live comfortably on for long. If this were such an awesome way of ‘beating the system’ why isn’t everyone doing it?

  10. Marianne

    There’s another issue that bothers me a bit here. Let’s do the math on one seasonal worker situation- we’ll pick farm work. Let’s say that the farm operates with two full-time managers and 30 summer students (and migrant workers but this situation has nothing to do with them). Assuming the students make $10/ hour, work 60 hours a week and 3 months of the year the employer will pay $5533.92 in EI premiums (using the 2012 rates). Assuming that the 2 full-time workers make $15/hour, work 60 hours a week and work 9 months of the year the employer will pay $1660.18 in premiums for them. The students quit after 3 months and go to school- not collecting EI. The full-time workers collect EI for three months over the winter, go to school and take agricultural courses and get welding tickets (which they actually do because they don’t have time to brush up on this stuff during the summer…) and collect $3296 in EI payments. This leaves an extra $3800 to go towards some other unrelated EI case. This scenario is not uncommon for seasonal work because most of the time the only people available to do it are students.

    • My University Money

      Marianne, your example indirectly supports my stance without you realizing it. The logical conclusion to your second post is that the EI gets transferred away from the farm. That money is subsidizing someone else. Much like if I work my whole life and pay into EI, yet never consume any of it. If you really think about the big picture of the economy, EI subsidizes your farm. If a worker is seasonal, then they should be paid a rate that will compensate them for the whole year or they should be able to find new work. If you wanted to guarantee that they stay at your farm then you should be responsible for compensating them in order to accomplish that. Why does it fall on anyone else’s shoulders to make sure a worker gets paid to stay at your farm waiting for work? If the economy was allowed to sort itself out, the result would be you raising your grain prices, and the consumer either choosing to pay that fee (the true cost of production) or going with a cheaper/more efficient option. Instead we badly distort this natural supply and demand by artificially shifting wealth around, which doesn’t work as outlined by your example.

      • Mike

        MUM and Marianne – I too believe in fair prices and minimum economic distortions. But should redistribution and wealth sharing always be bad? There can be reasons to subsidize certain products or services in a region or country, directly or indirectly. Or, back to mobility issues, you may indeed want to help some people to continue living and working in certain regions, rather than force everyone into overcrowded cities with attendant traffic, pollution and social problems, time wasted on commuting, etc.

        As far as EI is concerned, I’ve paid EI all my life and hope to never get anything back, the same way as I pay for house and car insurance and hope to get nothing back. For me, that’s entirely fair and OK.

      • Marianne

        Canada has a unique situation because of our climate that lends itself to needing EI. There are seasonal jobs here that are not seasonal in the States. These are not just farm jobs, they are construction jobs, landscaping jobs, retail jobs that deal with summer hobbies etc. The ‘natural supply and demand’ that you speak of was distorted as soon as we could take advantage of the fact that our very close competitors in the States do not have to shutdown for half of the year. Farmers already can’t compete with the price of produce coming from the States. Make this any worse and you won’t have any Canadian farmers left which apparently is OK by you who would go with the ‘cheaper’ option of buying US produce. The same goes for all of the other seasonal jobs. It is hard enough to compete without having an extra ‘seasonal tax’ added on. I work in the motorcycle industry- you can bet there are a few layoffs over the winter. What you describe would kill our economy.
        I think a little ‘wealth sharing and redistribution’ is what it takes to keep an economy like ours going and I don’t think it’s a bad thing. I have no problem paying a measly amount of what I make into EI. Like anything, I think all systems should be re-evaluated over the years to make sure that they are operating properly and smoothly and I don’t doubt that there are some changes needed to the system right now but it sounds like you’d rather scrap the whole thing and let everyone fend for themselves which I don’t agree with.

  11. Gerard

    MUM, you can’t have it both ways. You criticize Mike for presenting anecdotal evidence, so he comes back with a full study, then you cite a newspaper article in which a prof riffs a couple of observations off the top of his head. If the original study is flawed, presumably somebody’s done a better study that you could cite as counter-evidence? (And note that I say this from a province, Newfoundland, with both massive distortions due to EI *and* huge numbers of out-migrant workers.)

    • Mike

      Thanks Gerard – and by the way, there are more reported studies. Mind you, the quote below is from govt so could be tainted a bit. But combined with the rest, I think the evidence is by now pretty clear that EI does not interfere much with worker mobility.

      From the 2010 EI Monitoring & Assessment Report, at –
      “A number of studies in the past decade have looked at the determinants of labour mobility and whether EI plays a role in the decision to migrate for employment. Results of these studies indicate that factors such as personal and labour market characteristics, as well as moving costs, play a key role in mobility decisions, while EI generosity does not seem to affect mobility decisions. It appears that EI is not a barrier to mobility, as eliminating regional EI extended benefits and regional EI differences in the VER would increase the volume of migration by less than 1%.”

  12. Darrell

    Here’s a different slant for you to consider. As a seasonally employed professional in the GOVT of sask workforce I find this totally ludicrous!I work highway maintenance am a single parent and live in a rural remote area. The only local(an hour commute in the winter in rural sk is a 100km drive) options for work in the off season which don’t require being in a camp type job(mining, oil,forestry etc)on a 3week in 1 week out basis; are paying minimum wage or slightly better.minimum wage doesn’t pay the cost of the commute to such work! We are trained to perform our jobs for the public by the public and it is not feasible to expect trained professionals to bounce from one profession in the summer to another in the winter and maintain a trained capable workforce. This puts us in a position of training a new workforce every year to replace the attrition of skilled,trained employees forced to move or change occupations by unrealistic ei regulations.If the public thinks our roads and infrastructure are bad now wait till they are maintained by an inexperienced yearly rotating workforce or better yet a profit driven private sector company cutting corners to boost their profit margin. No thanks

  13. Mike

    I spent years in college, and work in Fisheries/wildife/forestry, seasonal work. What people dont understand is how much our country benefits from these sectors, the monies derived from largely seasonal sectors run our country. I do not like being off for periods of time, but finding work to fill in my slow seasons is hard, who wants to expend money on someone thart will only work 3-4 months a year. Alot of the peoples comments here seem to be from urban areas who dont have a grasp on how our economy works. This insensitivity and lack of understanding can cut both ways. Provinces like mine, BC and AB flow money into the have not provinces, and alot of that money is from our resources, sectors like mine. I have a BC attitude, and I think why should we be subsidizing provinces and places ive never been or will never be the same kind of insesitivity. Shut off the ei for seasonal workers…then we should be able to limit the monies flowing out of our provinces as well, use it to keep our sectors going…and when that welfare tap runs out on the provinces and places benefitting from us…we’ll see who ends up moving.

    • rod

      I have been a seasonal worker for 30 years! The $25000 a year in tax that I pay more than offsets the $4000 a year in EI benefits that I receive. To add the seasonal forest sector is so short of qualified capable skilled workers that the government is trying to set up training programs to get more people in seasonal forestry! As well with the shortage of workers the year round sawmills are having a harder time getting enough product in which takes security away, and there is a tremendous amount of money from forestry which helps support everyone so I wish all would quit whining about what they have no clue about.

  14. Mrs.Dee

    This is how I see it….we pay into it so we should when laid off should get it (with no hassel) if we cant find a temp job till we get back to work…I am a school bus driver and I LOVE my job. There are jobs out there min. wage or more and its the employer that says yes or no to hiring you. So it is tough for EVERYONE to get a job so they need to have a fall back plan (E.I.) Now for relocating my family or leaving my family for 2 months IS NOT an option for me and for most people. Now for SOCIAL SERVICES that is where people are lazy…They get FREE money and are able to work but choice not to as they think “Y should I get up every morning and go to work when the government will just give me money FOR NOTHING”. At least the people the collect E.I. paid into it. So everyone that works min. wage or more pay for these lazy asses to sit at home and do nothing while we work hard for our money to support our loved ones and when we lose our job we go on E.I. as we should cause we paid into it so really it is our money to use. Come on people if you make 20.00 to 35.00+ an hour and then you lost your job WOULD YOU TAKE A PART TIME JOB OR A JOB THAT PAYS MIN. WAGE?????? I am gonna say NO you wouldnt cause you dont want to degrade yourselves. Well tell you this you are not degrading yourselves you are making money to provide for yourself and your family.

  15. Matt

    I’ve been waiting for my EI claim to be processed for over a month now and I’m incredibly frustrated. I can’t pay rent, buy food, I can’t put time on my phone so employers can contact me. This is the worst system ever designed. The service canada website is completely disorganized and ineffective, I also get ‘an error has occurred, try reloading your browser etc, and you have to login 3-4 times. Every time I try calling SC I can’t get a hold of anyone, I’ve only spoken to someone once in the entire month i’ve been waiting for it. This is the kind of service that I get on my first claim after paying into this program for my entire life? Nobody wants to be on EI, why do they have to dangle the carrot in front of you and keep you on ice for so long, this is the sort of patronizing that leads to crimes. I haven’t eaten anything significant in weeks and I’m on the verge of breakdown. This is a really poor system. I can’t believe Canadians consider this system to be any sort of a safety net or a generally good system, it’s awful. How do they expect people to acquire a job if they are with out a phone, vehicle, money for rent and food. People look down on EI/welfare recipients, but they don’t understand, would you rather I steal from you or a store? Weigh those options, people become desperate after a while.

    So in order to get a job in Canada you’re expected to have a vehicle, a phone, a home/apt, clean appearance, intelligent and educated, all this is expected regardless of your financial situation. The system is clearly run by the rich who do no sympathize with those who are less fortunate. I don’t want your pity, I just want to get back on my feet.

    • Marianne

      Call your MP. They can open an inquiry that will speed things up. No doubt it is a poorly run system.. I know the error messages and crazy wait times well from my experience on mat leave. My claim was processed the same day that I went to see my mp.

  16. Matt

    And those who look down on EI/welfare recipients are cruel and heartless. I’m sure there’s people who abuse the system, but we can’t give up on compassion just because of a few bad apples, let’s work this out, not scrutinize and humiliate people who actually need it. It’s funny how people look down on ei/welfare recipients but once their lives hit the fan they aren’t so aggressive or uncompassionate about their point of views. It seems as though the upper class has handed down this attitude of hating on the poor for their misfortunes. It’s really unCanadian to hate on your fellow citizen who is in need of help. I know people are trying to discourage the use of the system, but let’s not lose our rationality and compassion. It could be you that needs it one day, put that in perspective before criticizing others.

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