NCPA - National Center for Policy Analysis

Canada's Generous Unemployment Benefits Hurt Economy

April 5, 2004

Canadian and U.S. unemployment rates were similar before 1982. But after that date, Canada's rate rose significantly, averaging 3.2 percentage points above the U.S. rate. One of the prime reasons, says Herb Grubel (Fraser Institute), is Canada's generous employment insurance program.

This generosity, says Grubel, has cost Canadians plenty and has ultimately hurt the Canadian economy:

  • In 2003, Canada's unemployment rate of 7.5 percent cost the country $13 billion in unemployment benefits, while Canadian workers earned $622 billion in wages.
  • If Canada's unemployment rate had been 3.2 percentage points lower, says Grubel, unemployment benefits would have decreased by $5.5 billion, while wages earned would have increased by $22 billion.

These calculations show that by cutting benefits, the Canadian government could increase revenues, which would allow for lower tax rates or increases in spending for health, education and defense, for every year since 1982.

Most experts believe the Canadian system could be made more efficient at relatively low cost to the unemployed by:

  • Reforming the determination of premiums and ending regional differences in the length of entitlement to benefits,
  • Removing eligibility of the owners of small businesses like those engaged in fishing or other seasonal industries.
  • Giving responsibility for the system to the provinces, and reducing the general level of benefits.

Source: Herbert G. Grubel, "The Cost of Canada's Employment Insurance System," Fraser Forum, February 2004, Fraser Institute.

 

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