The Net Fiscal Incidence of the Employment Insurance Act On Full- versus Part-Time Workers - November 2000

The Net Fiscal Incidence of the Employment Insurance Act On Full- versus Part-Time Workers

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• Purpose
• Background
• Methodology and Data Sources
• Key Findings
• Conclusions
• Biographical note

This brief summarizes the evaluation study that examines the impact of the employment insurance (EI) system on part-time workers versus full-time workers. The goals of the study were:

• to see whether full-time and part-time workers collected more in EI benefits than they paid into the system; and
• to investigate the income distribution effects across various socio-economic groups.

Before the passage of the Employment Insurance Act (EI), individuals who worked less than 15 hours in a week for a single employer did not pay unemployment insurance premiums, and that week was not counted in assessing benefit eligibility. Under the EI Act, all hours worked are counted toward EI eligibility but all workers pay EI premiums. Individuals must still work a minimum number of hours to collect benefits. Part-time workers (defined as those who work less than 15 usual weekly hours in their main jobs) might or might not gain financially with the change to EI. To qualify for EI benefits, they need between 420 and 700 hours of work in the last 52 weeks prior to their last job separation. The exact number of hours depends on the unemployment rate in their region of residence.

The author employed a micro-accounting approach to estimate the EI premiums paid and benefits received by individual part-time and full-time workers. The aggregate impact was calculated by summing up individual's costs and benefits. Estimates for different age groups, student status, sex, and provinces were also provided. These numbers were calculated for the calendar year 1997, the first full year that EI was in place. The author stressed the significance of utilizing the data set for the full year in 1997, as many part-time jobs could be part-year or seasonal and have high turnover rates.

Data from the Labour Force Survey (LFS) were used to calculate annual EI premiums paid by a randomly selected group of full-time and part-time workers in 1997. To calculate the average EI benefits received by a representative sample of workers with job separations in 1997, data from the Canadian Out of Employment Panel (COEP) Survey were used.

EI premiums

Extending the EI coverage to part-time workers resulted in a small (0.8 percent) increase in premium contributions to the EI Account. This small increase is a reflection of the fact that a small fraction (about 6 percent) of all workers worked part time, and this group exhibited a low level of earnings; however, for certain subgroups, EI premiums rose substantially. The rates of increases were largest among teenagers, seniors, and students, rising by 16.1 percent, 5.4 percent, and 8.2 percent, respectively.

An average part-time worker contributed $230 in EI premiums in 1997. This included the employer's premiums of $142 plus the employee EI premiums of $99 minus the low-income EI premium refund of $11 (assuming all eligible part-time workers claimed it). This refund exempted workers with annual earnings of under $2,000 from the employee portion of the EI premiums. The average full-time worker paid $1,754 into the EI Account, which included both the employer and employee contributions (The low-income EI premium rebate was not relevant for full-time workers).

EI benefits

The inclusion of part-time workers in the EI system was calculated to have raised dollar EI outlays per separation by 2.3 percent and EI benefit weeks paid per separating worker by 3.2 percent. The average separator from a part-time job received $933 in EI benefits in 1997, compared with $2,532 for the average separator from a full-time job. The average separator from a full-time job received 9.7 weeks in EI benefits compared with 5.0 weeks for the average separator from a part-time job. The greater differential in dollar benefits as compared to benefit weeks received reflected the lower hourly wages earned by part-time workers.

The rate of increase in EI benefits after the policy change was largest among job separators over the age of 65. Their benefit weeks increased by 4.7 percent and their benefit dollars rose by 2.1 percent. None of the 31 separating part-time teenage workers in the sample claimed EI. This was probably because teenagers quitting the labour force to go to school were unlikely to receive any EI benefits.

Comparing part-time job separators by gender, women claimed fewer EI weeks (4.8 versus 5.4 weeks) and received fewer EI benefit dollars ($850 versus $1,130) than did men. However, since female job separators were more than twice as likely to have worked part-time than were men, extending benefits to part-time workers raised women's benefit weeks (2.7 percent vs. 1.3 percent) and dollars (2.1 percent vs. 0.9 percent) more than it did men's. The huge provincial differences in EI benefits received were largely the same for full-time and part-time workers. The benefit durations and amounts received were highest in the Atlantic region, especially in Newfoundland. To a large extent, this was due to the longer unemployment durations there.

Net fiscal incidence

On the whole, in 1997 each worker paid about $600 more into the EI system than they received in benefits. This result was not surprising, as 1997 was a year of relatively low unemployment by recent standards. Full-time workers, constituting 94 percent of all workers, paid on average $632 more in premiums than they collected in benefits. Conversely, the average part-time worker received $39 more in EI benefits than he/she paid in premiums in 1997. This difference of $39 included the $11 premium refund for low-income workers. Thus even if they did not claim the refund, part-time workers still enjoyed a small net gain of $28 per person.

There were substantial differences, however, between part-time subgroups. While prime-aged part-timers gained on average $250 per year, workers under the age of 25 and above the age of 64 paid about $125 and $236 more in premiums than they received in benefits, respectively. Male part-timers had substantially higher net gains than did female part-timers, at $89 and $11, respectively. Across the provinces, the policy change produced the largest net fiscal gains for the Atlantic provinces, especially Newfoundland.

• In general, each worker contributed about $600 more into the EI system than they could expect to receive in EI benefits as a result of job separations occurring in 1997.
• On net, the average part-time worker received about $40 more in benefits than they paid in EI premiums during 1997.
• There were substantial variations among subgroups of part-time workers. Only prime-aged part-time workers experienced a net gain from EI coverage. The reverse was true for youth and senior part-timers. The main part-timers who gained were men, not women. Across provinces, the Atlantic region in general, and especially Newfoundland, enjoyed the largest fiscal gains.
• The low-income EI premium refund had only a modest impact on part-timers.

Peter Kuhn is currently Professor of Economics at McMaster University. He has published empirical and theoretical papers on several aspects of labour economics, including trade unionism, discrimination, immigration, displaced workers, unemployment, and employment contracts. He has served on the editorial board of the Canadian Journal of Economics. He is currently program director of the Canadian Employment Research Forum and a principal investigator at the Canadian International Labour Network.