History of Unemployment Insurance - Introduction
Unemployment Insurance (UI) has supported Canada’s labour market; it has changed Canada’s labour market.
UI has never been a static program. As the federal government’s best-known tool for assisting Canadian workers to deal with job change, it has gravitated between two poles:
- a limited program based on insurance principles;
- and a wide-ranging program designed to meet a variety of needs of people with at least some attachment to the labour force.
The extent to which the program has reflected one model or the other has been affected by factors such as social and economic priorities, the state of government finances and alternative methods for dealing with issues not strictly related to insurance. UI has changed in response to the growing place of women in the labour market, human rights considerations and the need for workers to move not just from job to job, but from occupation to occupation, industry to industry and community to community.
UI has often attracted controversy because it presents basic questions about the respective roles of the government, the private sector and individuals in managing or dealing with economic and labour force realities. Still, for all its controversies, UI has been successful in its fundamental goal — to provide income support for people who are temporarily without work.
UI is the creature of an urban economy based on industries and services. When the nation was mainly rural, it was expected that families and local governments could provide the support needed by workers affected by economic downturns. The pressure for some kind of unemployment insurance began with the economic dislocation that followed the First World War. That demand accelerated with the Great Depression when need overwhelmed the patchwork of local and provincial relief programs. By 1940, the constitutional roadblocks that had barred federal action were gone, and Canada was ready to join other western countries in the adoption of a national unemployment insurance program.
UI came into being during the high-employment era of World War II and helped the federal government manage the transition to a postwar economy. It began with a tight focus on the income support needs of regular, full-time, year-round workers who might find themselves without work temporarily. Over the next 30 years, it expanded to cover almost all employed workers. It became the federal government’s primary vehicle to address a wide range of income support and social policy issues. While retaining its primary income-support focus, it adapted as the labour market began to require more active forms of support such as training.
Since the early 1970s, Unemployment Insurance has changed in response to two major trends. The first has been the growth of human rights and equity issues as important public policy considerations. A stream of court cases has helped change older policies, and has directed the creation of new or amended ones. More important, UI has been affected by the fiscal concerns of the federal government. The dominant goal across government has been to restrain both government expenditures and the impact of taxes. As UI represented a large, variable federal expense, the program was changed to minimize and eventually eliminate direct federal support. At the same time, UI premiums have been a significant and visible payroll tax, with effects on job creation. The result has been a steady effort to find savings in the program, even as costs have been pushed up by higher unemployment.
The primary role of the current UI program remains that of income replacement through social insurance. However, the program is now also expected to contribute to the achievement of goals such as the promotion of equity through income redistribution, to labour market adjustment and to macroeconomic stabilization. It is expected to do so in a way that minimizes the financial impact of premiums on the economy and distortions in the labour market. It has never been a simple feat to balance those priorities. This history attempts to capture that effort.
