Employment insurance produces more drawbacks than benefits for Atlantic Canadians
As the Trudeau government plans to transition individuals on the Canada Emergency Response Benefit (CERB) back to employment insurance (EI) payments, it’s a good time to review the EI program. In Atlantic Canada, where reliance on the program is high, it’s also worth asking whether EI actually does more harm than good.
Although EI is a federally administered program, eligibility and the duration of benefits differ based on the region. Canadians in high unemployment regions receive benefits for longer and have easier access to EI than Canadians living in lower unemployment regions. As a result, Canadians in some parts of the country must work more hours to qualify for the same benefits as Canadians in other parts of the country.
Setting aside the question of fairness, regionally-based requirements have other negative consequences. In particular, they create negative economic incentives by prolonging unemployment and reinforcing dependence on EI in regions such as Atlantic Canada. Seasonal work has become engrained in many areas of Atlantic Canada, partly because of the EI system. Workers are encouraged to remain unemployed for an extended period of time because the benefits available are generous. A vicious cycle emerges from this policy mix, wherein EI is generous in the region because of high unemployment, but generous benefits also help keep unemployment high.
Moreover, EI is helps create long-term pockets of regional unemployment. Research shows that rural areas in Atlantic Canada have long had more frequent beneficiaries of EI than anywhere else in the country. Some workers are incentivized to work the minimum number of weeks required to qualify for EI, then remain unemployed for an extended period of time while relying on benefits year after year. As a result, EI acts as a permanent income support system and fosters dependence, rather than achieving its goal of providing temporary support due to involuntary loss of employment.
This cycle of short-term employment does not help attract skilled workers, job creators or investment to the region. In fact, EI can subsidize unproductive industries by encouraging part-time work and causing labour market distortions. This acts as a barrier to change and innovation for business, and can harm individual workers by stagnating wage growth, skills and educational development.
Although providing more generous EI payments to Canadians living in high unemployment regions may seem compassionate, disincentives to work (again, that are inherent to EI in its current form) have helped maintained high unemployment rates in Atlantic Canada.
Since 2001 (when the current dataset begins), the annual unemployment rate in the Atlantic provinces has been higher than the national average every year. During this period, average annual unemployment rates were 9.3 per cent in New Brunswick, 8.6 per cent in Nova Scotia, 10.8 per cent in Prince Edward Island and 14.0 per cent in Newfoundland and Labrador, while the national rate was comparatively low at 6.9 per cent.
Further, between 2007 and 2018, all four Atlantic provinces were net recipients of the EI program, with Newfoundlanders and Labradorians receiving the most, at $7.1 billion in payments in excess of contributions. In contrast, each of the six remaining provinces were net contributors to the program. And this is only the recent data. The fact is, Atlantic provinces have been net recipients since the early 1970s.
The perverse incentives inherent in this system are not the fault of Atlantic Canadians. All Canadians respond to incentives and an EI system that provides more generous benefits to some regions will create a disproportionate reliance on it and hinder long-term employment and prosperity in that region, regardless of where it’s located on the map.
On balance, employment insurance has produced more drawbacks than benefits for Atlantic Canadians and it’s time for the federal government to overhaul the program.