Incentives matter. That was the first thing I learned as an economist. The incentives we as a society want to create around work are at the heart of the debate over the employment insurance (EI) reforms announced recently by the federal government.
Working Canadians, employers and employees want a system that is fair to the unemployed with minimal abuse. This can be a hard balance to strike.
Making the EI system more generous makes finding a job less attractive. Making EI less generous can make life more challenging for those looking for a job.
The current system is far from perfect. Fifty-eight different EI regions each have their own qualification and benefit standards.
While most of its users are legitimate, the system is vague enough to invite abuse. A Canadian Federation of Independent Business survey found that 22% of employers have difficulty hiring because potential workers would rather stay on EI; 16% report getting layoff requests by employees to let them collect benefits.
The government changes that have sparked controversy do not move to harmonize and reduce the number of EI regions.
They focus on clarifying the vaguely defined legislated terms “suitable work” and “a reasonable job search.”
For example, those collecting benefits will need to spend time on job searches every day. Recipients will be classified into three groups, depending on how frequently they access the system.
Rules for how broad your search must be will vary slightly, depending on which category you’re in. The strictest standards will apply to EI frequent users.
Even EI frequent users will not be required to look at jobs that pay less than 70% of what they earned previously and will not be expected to move to accept a job. The government also plans to push more information about available jobs to those collecting EI benefits.
Accepting a job that pays 70% of what you made previously or is in a different line of work is not ideal but can hardly be considered unfair. This is particularly true when Canadians doing those very jobs are paying to support EI beneficiaries.
Ken Georgetti, the president of the Canadian Labour Congress, has called the changes “ridiculous economic policy” and accused the government of “scapegoating” unemployed Canadians.
In contrast, most small-business owners welcome the changes. With almost half of Canada’s business owners concerned about labour shortages, it makes economic sense to strengthen incentives in the EI system that encourage active job seeking.
Incentives matter. •
Laura Jones ([email protected]) is the senior vice-president of research, economics and Western Canada with the Canadian Federation of Independent Business.
