Canadian Commentary: Economics

Employing Employment Insurance

August 1997

As the surplus in the Employment Insurance fund gets ever higher, business groups and commentators are calling on the government to reduce EI premiums. They claim that Canada's payroll taxes are too high, and discourage employment. In fact, Canada's payroll taxes are relatively low. They are comparable to those of the U.S. and other nations with lower unemployment rates (which suggests that the responsibility for Canada's high unemployment lies elsewhere).

On the other hand, given the huge surplus in the EI fund, and the fact that the deficit is rapidly being eliminated, it would seem like a good idea to reduce EI premiums in the next few years. But the premiums should be reduced in a way that rewards companies who reduce the burden on the EI system by training their employees on the job. These employees, with better training, have an easier time finding new work, and require less additional training through government programs. Because they spend less time on EI, and because they do not require as much expensive training, they are less of a burden on the EI system. It is only fair that companies who provide training for their employees pay lower EI premiums than companies who do not provide such training.

This could be accomplished fairly simply. The government could offer a rebate on EI premiums to companies who train their workers, equivalent to a third of the money spent on training (up to a maximum of 1% of payroll). So, a company that spent 3% of its total payroll on training would receive 1% of its total payroll back from the EI fund (that is, a bit less than a third of what companies presently must contribute to the EI fund).

Since training is mainly a provincial responsibility, it would be up to the provinces to identify what forms of training would qualify for the rebate. Corruption (such as companies spending the money on employee vacations to Florida) would not be a problem as long as the government made sure that the companies actually spent the money. Companies that wasted this money would soon have less well-trained employees than companies who spent it wisely, and their competitive position would decline.

This would have the additional benefit of encouraging Canadian companies to become more involved in training their employees. At the moment, Canadian companies spend less on training than companies in almost any other nation. As a well-trained workforce becomes ever more important for sustaining our standard of living, this will become a serious problem. Introducing a training rebate to EI, rather than simply a premium reduction, would begin to address this problem. Ideally, at some point in the future all Canadian companies would qualify for the rebate, because they all provided training for their employees.

August 30, 1997

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