EI Changes

Ottawa. Unemployment Insurance (or employment insurance as its ironically called in Canada) is getting its first make over in a while. The Conservative Government has come out with an outline for its proposed EI changes. The government intends to tighten eligibility requirements. The exact structure will be presented in a bill once the governments omnibus budgetary bill has been passed.

The outline roughly sketched out calls for the creation of three categories of unemployment benefit seekers. The first one for long-term workers who enjoy EI benefits the least, another for infrequent EI benefit recipients and the last for chronic EI recipients or EIers. These three groups would see their EI benefits taken away were they to refuse jobs of equivalent pay or equivalent trade, with the long-term workers given the most leeway to choose their next job and repeat offenders the least. EIers will be expected to accept jobs earning as little as 70% of their previous employment remuneration. The government estimates that these changes to EI should only curb eligibility for 1% of current recipients.

There are two kinds if structural unemployments. First there is the natural one, people between jobs, students at various times, people waiting for that perfect job offer before jumping back into work, etc… Than there is the policy induced structural unemployment. Labour market restrictions, credential compatibility issues, high minimum wages, high unemployment entitlements, etc… When the policy induced structural unemployment is reduced it is most often a reason to cheer. Unfortunately government policy corrections not involving the elimination of the underlying policy often add a layer of market distortion.

So here’s hoping the reservation wage won’t actually go up. Because this could certainly be spun into a Nash equilibrium, whereby workers (especially newly active labourers) refuse to take on jobs as they’ll be looking at that 30% discount they’ll have to swallow if laid off. While the effect will surely be smaller than that of reducing entitlement rent seekers, their remains a risk that for certain categories of workers structural unemployment could increase.