Labor Force Declines May Assist with EI Sustainability

In advance of anticipated recessionary times, disaster management requires that governments review the sustainability of important social programs like the Employment Insurance (EI). But will labor markets contract because of economic volatility or demographics? The reasons could make a difference in rate structure.

Statistics Canada, released a study on August 17 which estimates that the labour force is projected to grow to between 20.5 million and 22.5 million by 2031. At the end of 2010, it was 18 million.

In the interim, however, a significant slowdown in the rate of growth in the labour force is predicted, however, primarily because of the retirement of baby boomers. Between now and 2016, it is expected to slow to less than 1%, and it will stop its decline after 2026, when baby boomers will have left the marketplace. By 2031, about one in three people in the labour force could be foreign born, which points to the role of Canada's immigration policies in replacing the boomer workforece.

How these trends impact the setting of EI rates and benefits is the subject of a series of national consultations, announced by the federal government on August 18. Certainly one of the objectives is not to impede a fragile economic recovery by increasing rates at this time. Yet a plan needs to be put into place to deal with the EI operating deficit, which is not expected to a cumulative positive balance until 2015.

The government is requesting your thoughts on these three questions by November 30:

∑ What is a reasonable amount of time in which the EI program should be expected to break-even? (i.e., 2 years, 5 years, 10 years, etc.)

∑ What is an acceptable maximum annual change in EI premiums?

∑ What should be the rate-setting process?