History of Unemployment Insurance - Developments from 1941 to 1955
The UI Act of 1940 was in force until 1955, a 15-year period during which the program was established and grew rapidly. Because of strong economic conditions throughout the period, the amount of money in the UI Fund increased quickly. That helped enable the governments of prime ministers King and St. Laurent to expand coverage and respond to changes in the labour force and the economy.
19411
Benefits paid: $28 thousand
Cumulative UI Fund balance: +$44 million
Collection of premiums began in July. Most employers bought supplies of UI stamps from post offices, and insured workers received books to hold those stamps which they would use to support their UI applications. People discharged from the armed forces became the first addition of a group of workers to the program.
1Note: Financial data until 1971 are actually for fiscal year ending March 31 of the subsequent year. Thus 1941 data apply to 1941-1942 fiscal year, 1942 data are for the 1942-1943 fiscal year, etc.
19421
Benefits paid: $716 thousand
Cumulative UI Fund balance: +$114 million
Starting in January, the first eligible workers received benefits. The Commission, by order-in-council, was made a branch of the Department of Labour so that it could administer the National Selective Service Regulations until the war’s end. The average benefit was six dollars a week. An agreement with the United States permitted co-operation between the UIC and state unemployment agencies to ensure coverage without duplication of workers who worked in both countries.
1Note: Financial data until 1971 are actually for fiscal year enging March 31 of the subsequent year. Thus 1941 data apply to 1941-1942 fiscal year, 1942 data are for the 1942-1943 fiscal year, etc.
1943
Benefits paid: $1.7 million
Cumulative UI Fund balance: +$190 million
The Commission noted that demands on the UI Fund were low due to the war but demands on the Employment Service were high because of growing labour shortages in seasonal industries. The Commission also began to amend coverage rules based on administrative experience with the program and the high wages associated with some occupations during the war. Life insurance agents and truck drivers owning their own trucks were excepted from insurable employment. It was clarified that miners were included unless they worked on a fixed-salary basis exceeding $2,000 a year. People making over $2,000 a year in wartime work were not insurable.
Legislation
Strong wage growth due to the war and program experience led to the first set of amendments to the UI Act. The first related to the earnings ceiling for coverage purposes. The Hon. H. Mitchell, Minister of Labour, told the House of Commons that the UI Advisory Committee had recommended an increase of the contributory earnings ceiling for certain employees from $2,000 a year to $2,400 a year. With increases in weekly and annual earnings, he noted that over half of the covered employees were now in the top earnings class. In the first year of operation, only five per cent had been in this class. Moreover, the earnings of many higher paid employees were fluctuating between $35 and $45 per week because of lost time, overtime and piece rates. This meant they were in and out of insurable employment from one week to the next. So that they would be insured continuously, the new ceiling applied to workers paid on a semi-monthly, monthly or commission basis. An important effect of this change was to cover automatically all wage earners not otherwise excepted. They were no longer distinguished from managerial and professional salaried employees either on the basis of earnings or according to method of payment.
In addition, coverage was extended to municipally operated public utilities and non-permanent employees of the federal government. Voluntary coverage of employees in hospitals and charitable institutions was permitted with the consent of the Commission.
A final amendment was that the eligibility requirement for claimants establishing a benefit year after a previous benefit year was made less stringent. Originally, such claimants required at least 60 contribution days since their last day of benefit in the previous benefit year. The amended legislation changed that to 60 contribution days since the start of the previous benefit year.
1944
Benefits paid: $5.0 million
Cumulative UI Fund balance: +$268 million
Once again, the potential for UI coverage was extended to more workers. An order-in-council removed the blanket exclusion of occupations in lumbering, logging, certain agricultural and horticultural employments, hospitals, charitable institutions, some professional nurses, the public service of Canada and some municipal employees. In a related action, the UI Advisory Committee was asked to report on classes excluded from insurable employment. Also in that year, the Commission reported it was undertaking a survey of seasonal workers. The Act empowered the Commission to make special regulations for classes of persons whose normal employment was for portions of the year, but this only applied to seasonal occupations. However, none had ever been introduced so far.
1945
Benefits paid: $32 million
Cumulative UI Fund balance: +$317 million
In this year, the Commission stated that the main function of the Act was to provide an employment service with the objective of finding suitable work for employable persons seeking jobs. If insured persons were unable to get new jobs, the Commission saw the insurance provisions of the Act giving the required aid for all people employed under a contract of service. The Commission’s role was apparent from its view of the Act which it described as a scheme of co-operative enterprise between employers and employees under government supervision.
Also noteworthy were the impressive wage gains of workers during the war. The top earnings class now accounted for 68.8 per cent of contributors. This resulted in a shift in the proportion of aggregate contributions paid by employees compared to employers (54:46).
Benefits for Veterans
The overriding social program issue of the year was the resettlement of World War II veterans. Late in 1945, the Veterans’ Rehabilitation Act was passed to help the rehabilitation of troops after the war as they adjusted to postwar Canada. A veteran with 15 weeks of insurable employment was considered to have been in insurable employment during service in the armed forces. Payment of employee and employer shares of contributions for such employment came from monies appropriated by Parliament and credited to the UI Fund. Protection against adverse effects on the Fund was given in a provision of the Act. It directed the UI Advisory Committee to report to the Governor in Council any adverse effects so remedial action could be taken. There is no evidence that there were any significant adverse effects on the Fund.
Further Extensions of Coverage
The UI Advisory Committee reviewed exceptions to UI coverage, consulting with employers and workers. For example, it looked at the anomaly of excepting employees of charitable institutions, people who would be insured if they worked for most other employers. The Committee reported that it saw no difficulty in extending coverage to include employment in hospitals and charitable institutions, in the public service of Canada or in municipal government jobs. As to employment as a professional nurse and certain types of employment related to agriculture and horticulture, the Committee reported that it would join with the Commission in recommending coverage of those employments.
The Committee recommended extension of coverage to employment in lumbering and logging, at least in regions where employment in the industry was most stable, without change in contributions. It was estimated that extension of coverage to the entire industry would adversely affect the UI Fund.
As a result of this study, coverage was extended to employees in charitable organizations, to employees in air transportation and to professional nurses other than private-duty nurses.
19462
Average national unemployment rate: 3.4 per cent
Benefits paid: $43 million
Cumulative UI Fund balance: +$373 million
The Commission reported representations by workers and labour organizations for an increase in benefits because of increases in the cost of living. Questionnaires and surveys were also being undertaken to respond to concerns about issues relating to women. Following the review of 1945, coverage was extended to lumbering and logging in British Columbia.
Other coverage issues related to the earnings ceiling. The Commission had found that wage earners who were insurable regardless of their earnings were often in as stable employment as monthly or semimonthly salaried employees who were not insurable at all if their earnings exceeded $2,400 a year. In view of this, a new regulation was passed exempting people paid by the week whose annual earnings exceeded $3,120. People whose earnings took them out of coverage, however, could elect to stay covered if they had 200 contribution weeks in the last five years.
A final amendment to the regulations in 1946 involved the exclusion of persons owning 50 per cent or more of the voting stock or directors holding shares in a company from coverage, since they were viewed as having a controlling interest in their employment.
Legislation
On October 1, the UI Act was amended. Employment in transportation by water became insurable. The money a claimant could now earn without affecting benefits was increased from $1.00 to $1.50 a day. These allowable earnings could only be in an occupation carried on in addition to, and outside of, the hours of a claimant’s usual occupation. The amendments also said that the Commission would be responsible to the Minister of Labour for the administration of the National Employment Service. No such requirement had previously been included in the legislation.
Under these amendments the provisions for veterans, including merchant seamen, in the Veterans’ Rehabilitation Act were made part of the UI Act. In addition, the Commission was empowered to insure any class of workers not employed under a contract of service if their exclusion would result in injustices because of the similarity of their employment to that of insured workers.
During debate, the Hon. H. Mitchell, Minister of Labour, noted that the effect of any social legislation was dependent on the number of people covered. He said it had been the government’s policy to widen the scope of the Act as rapidly as possible and recognized that the changes to date, together with those projected, indicated the progress in this regard. At the same time, he said, he recognized the need to keep the Fund actuarially sound.
Extension of Coverage to Seasonal Workers
This attitude of expanded program coverage seemed to lay the groundwork for the other major initiative of that year. Section 42 of the Act permitted coverage of seasonal work, subject to regulations. However, none had ever been introduced. With expansion of coverage to employees of transportation by water, and pressure to look at other seasonal occupations, there was a need to move on regulating this coverage.
The Act stated that additional terms and conditions for contributions and benefits could be imposed on classes of workers whose normal employment was for a part of the year. However, this could only occur in seasonal jobs if they “would result in anomalies having regard for the benefits of other classes of insured persons.” The Commission took this to mean that seasonal workers, accustomed to making their annual wages during part of the year, had no insurable interest in the off-season. It reasoned that the rights of other insured workers should be protected by imposing additional conditions, including restrictions on the period for which benefits could be paid.
The regulation was framed on an industry basis. The Commission had to decide which industries were seasonal and define the on- and off-seasons. Subject to exceptions in specified circumstances, claimants were classified as seasonal workers if, in the period before their claims, they were employed in a seasonal industry for a specified period. In these cases, they would not be entitled to benefits in the off-season. Any unemployment in a seasonal industry that occurred in the on-season was as fully protected as any other job.
Relief from non-entitlement in the off-season was possible if claimants proved they were not just seasonal workers. To do so, claimants had to prove they had:
- at least 12 days of work in a non-seasonal industry in the 48 days before the beginning of the benefit year; or
- sufficient yearly attachment to insurable employment (an aggregate of 420 days or 70 weeks over the two-year period before the claim); or
- at least 40 days (about 25 per cent) of their insurable employment in each of the two previous off-seasons.
The test for designating a seasonal industry involved determining whether work over a period of years in the off-season regularly declined each year to less than 50 per cent of the peak and stayed below that level for at least 20 weeks. The off-season was usually defined as the average period in which the industry reduced its activity to below 50 per cent.
These rules were admittedly arbitrary. They apparently were never given a real test because the industries to which seasonal regulations were eventually applied were clearly inoperable for specific periods. The first application of seasonal regulations (for inland transportation by water), involved an off-season of January 1 to March 31.
2This was the first year unemployment data was tracked.
1947
Average national unemployment rate: 2.2 per cent
Benefits paid: $35 million
Cumulative UI Fund balance: +$448 million
Pressure was building to liberalize UI further by increasing benefits, reducing the waiting period and even dispensing with contributions altogether because the surplus in the Fund had grown to a large amount.
1948
Average national unemployment rate: 2.3 per cent
Benefits paid: $50 million
Cumulative UI Fund balance: +$530 million
This was the first year in which the Commission stated that UI was a first line of defence against the hardships of unemployment. The Commission suggested it might apply seasonal regulations to the packing and processing activities of the fruit and vegetable industry. After further study and extrapolation to similar jobs in fish packing the Commission decided against extension, because of the administrative difficulty of applying seasonal regulations to these jobs.
Regulation changes that year raised the contributory earnings ceiling for salaried workers and commissioned employees from $2,400 per year to $3,120. Employment in stevedoring was given coverage. Seasonal regulations were revised to modify terms and conditions and extend coverage to stevedoring at inland ports.
Legislation
Benefits that had been appropriate in 1940, had become badly out of line with prevailing wages in the inflated postwar economy. Amendments to the UI Act effective October 4, 1948 raised the maximum weekly benefit for a claimant with a dependant from $14.40 to $18.30. Benefits for those without dependants increased from $12.24 to $14.40. The benefit rate was to be determined on the average of the most recent 180 days of contribution, rather than all contributions in the two-year qualifying period. This was seen as a way to speed up claims processing because only one book of stamps would be needed to calculate the rate instead of two. Changes in contributions were also made, since about 75 per cent of insured persons were now in the highest contribution class. A new higher earnings class was created for the contributions table and the contribution rates were changed to restore equality between aggregate employer and employee contributions. The Act was also amended to stop benefits to veterans for service after September 30, 1947.
1949
Average national unemployment rate: 2.8 per cent
Benefits paid: $86 million
Cumulative UI Fund balance: +$583 million
Real estate agents paid solely by commission were excepted from coverage. In April, the Act was amended to extend coverage to employees in the armed forces of the new province of Newfoundland. By this time, half of all Canadian workers were covered by UI. The seasonal regulation was also amended to relax requirements for entitlement in the off-season.
1950
Average national unemployment rate: 3.6 per cent
Benefits paid: $90 million
Cumulative UI Fund balance: +$665 million
Unemployment increased sharply at the end of 1949 due to factors such as international trade uncertainties, currency fluctuations, industrial disputes, supply curtailments and bad weather conditions. These combined to give the UI program its first real test in higher unemployment conditions with the result that many claimants exhausted their benefits or failed to qualify.
Supplementary Benefits Legislation
In response to the increased unemployment and a healthy surplus in the UI Fund, the government amended the UI Act early in 1950. The most significant change was the creation of a new kind of benefit. Supplementary benefits, as they were called, were to be payable to people unable to qualify for regular benefits and included those:
- whose benefit rights had been exhausted since the preceding March 31; or
- who had at least 90 daily contributions since the preceding March 31.
Supplementary benefits at approximately 80 per cent of the regular benefit rate were payable from January 1 to March 31 (between March 1 and April 15 in 1950). To provide for the cost of supplementary benefits, contribution rates were raised by one cent a day for employers and employees, with the government share continuing at 20 per cent of the aggregate. There was also a temporary guarantee that if the additional contribution proved insufficient to pay for supplementary benefits the government would make up any deficit.
The introduction of supplementary benefits marked an important change indicating a clear departure from the traditional insurance principles that had been the original foundation of the program. These benefits tended to override the seasonal regulations and the ratio rule. For example, people eligible for supplementary benefits were exempt from seasonal regulations while they were in force. This severely limited the scope of the seasonal regulations. The fact that supplementary benefits were also paid to those who exhausted entitlement and to newly covered employees, regardless of their contributions, was a significant enrichment of the program.
Other Legislation
Other amendments to the UI Act took effect in July 1950. The contributory earnings ceiling was raised from $3,120 to $4,800 a year. The maximum benefit for people without a dependant was increased from $14.40 to $16.20 a week. People with a dependant received a maximum of $21.00 a week, up from $18.30 a week. The schedule of contributions was revised, reducing the number of contribution classes. Employer and employee shares of contributions were made equal. Allowable earnings were increased from $1.50 to $2.00 a day. Coverage of lumbering and logging occupations was extended from British Columbia to all of Canada. As a result, the seasonal regulations were amended. In addition, the special eligibility requirement for a second or subsequent benefit year was modified. Before the amendment, it was 60 or more daily contributions since the start of the previous benefit year. With the amendment, it became:
- at least 60 daily contributions in the period of one year before the claim or in the period since the previous benefit year began, whichever was shorter; or
- at least 45 contributions in the period of six months before the claim or in the period since the previous benefit year began, whichever was shorter.
Married Women
The unemployment situation of married women had been a recurring issue in the postwar years. Many women left the labour force upon marrying. While for some this was a choice, for others it was involuntary since many employers forced married women to quit. On several occasions, the UI Advisory Committee had commented on the amount of benefits paid to married women who apparently were not available for work. In November the Commission put into effect a regulation imposing additional conditions on married female claimants.
The intent of the regulation was to restrict benefit payment to only those who could show that they were actively interested in obtaining employment. Applying only to women who terminated their employment, the regulation required women claiming benefit within two years of becoming married to show by their employment record that they had not left the labour market willingly as a consequence of marriage.
There were certain exemptions from the regulation. For instance, a married woman was exempted if she became a widow or had to work because of her husband’s illness to support herself and her family. Exemptions also applied to the woman who became a breadwinner because of desertion or permanent separation from her husband. Married women discharged from employment because of shortage of work or because the employer would not keep married women in jobs were also exempted.
1951
Average national unemployment rate: 2.4 per cent
Benefits paid: $90 million
Cumulative UI Fund balance: +$773 million
The Commission reported that the married women’s regulation had sharply reduced the number of claimants from that group. From November 1950 to March 31, 1951, 8,884 women were initially disqualified. Of these, five per cent found work, 18 per cent kept their employment applications active and 77 per cent let their employment applications lapse. At the same time, minor changes were made to remove discrepancies from the regulation.
Security salesmen paid by commission were excepted from coverage and the seasonal regulation was again amended. In describing the tenth anniversary of the program, the Commission stated the program had been a stabilizing influence on the economy in spite of national and international uncertainties. It had paid out $90 million in benefits including $7 million in supplementary benefits.
1952
Average national unemployment rate: 2.9 per cent
Benefits paid: $135 million
Cumulative UI Fund balance: +$852 million
The government amended the Act to increase access to benefits further. The maximum for a claimant with a dependant increased from $21 a week to $24. The waiting period, which had been reduced from nine to eight days in 1950, was further reduced to five. Provision was also made for postponing the waiting period in some circumstances on a second or subsequent claim. A more significant change was the extension of the supplementary benefit period by two weeks. The period was extended to April 15 beginning in 1953. The benefit rates were increased without changes in the contribution rates and the waiting period was reduced “in view of the sound condition of the Unemployment Insurance Fund.” In addition, the married women's regulation was again changed to make it easier to qualify for benefits. With growing numbers of industries converting from a six-day to a five-day work week, regulatory changes were also made to ensure that claimants whose full work week was five days would be treated the same as those on a six-day week.
1953
Average national unemployment rate: 3.0 per cent
Benefits paid: $187 million
Cumulative UI Fund balance: +$881 million
The Commission made a minor change in coverage to remove the earnings ceiling for printing tradesmen paid by the week and below the rank of foreman. The Commission noted that 79 per cent of wage earners and salaried employees were now covered by UI.
Benefits for Sick Claimants
An important amendment to the Unemployment Insurance Act in August 1953 allowed continuing benefit payments for claimants becoming ill after having left a job. Although some felt the amendment was legitimizing what was already happening, this marked the first time the requirement that claimants be capable of work was formally set aside. The change was rationalized on grounds that people getting benefits need them even more if they become ill while on claim. The Commission noted that other countries had programs to cover unemployment by reason of sickness because of its involuntary nature. Before proposing such a broad extension of UI, however, it felt that experience should be gained with this provision.
1954
Average national unemployment rate: 4.6 per cent
Benefits paid: $258 million
Cumulative UI Fund balance: +$841 million
The UI Act was amended to extend benefits to former members of Canada’s armed forces who had served in the Korean War. Coverage was extended by regulation to certain jobs in horticulture. In addition, the Commission noted that all money paid on termination of employment, such as holiday pay, would be disregarded as earnings unless they were paid in consideration of returning to employment, in lieu of notice, as retirement leave or as a guaranteed wage.
1955
Average national unemployment rate: 4.4 per cent
Benefits paid: $215 million
Cumulative UI Fund balance: +$854 million
Amendments to the UI Act increased the rate of supplementary benefits to that of regular benefits and extended the period for which they were payable by two weeks for 1955 (from March 31 to April 15). Since this had been done for 1953 and 1954, it was put forward in debate on the bill as a way of continuing to alleviate the hardships associated with finding work in Canada in the winter.
The Commission reported that 1954-1955 was a year of readjustment to the pressures of the Korean War. The accumulated surplus in the Fund decreased for the first time in the history of the program. The Commission stressed that this was no reason for pessimism since the Fund was meant to provide a balance between the good and bad years. The Commission also noted that additional coverage had been achieved through the elective provisions for employees in some hospitals, charitable institutions and provincial governments.
