rabble blogs are the personal pages of some of Canada's most insightful progressive activists and commentators. All opinions belong to the writer; however, writers are expected to adhere to our guidelines. We welcome new bloggers -- contact us for details.

EI: Self-insurance or three-card Monte?

Photo: Dave McLean/flickr

Monte Solberg, the former Conservative cabinet minister responsible for Employment Insurance, proposed to eliminate the program in a recent Sun Media column:

An alternative would be to self-insure. Employee and employer premiums would accumulate in an account in each worker's name. Including interest, anyone who managed to stay employed through their lifetime earning even a modest income would stand to collect several hundred thousand dollars at retirement.

The concept of insurance is that pooling premiums from many people provides enough money to compensate only those who suffer losses. It makes no sense to assume that saving up each individual's premiums could compensate if he or she actually suffers a loss.

I debunked Solberg's proposal when I was asked about it on The Lang & O'Leary Exchange the week before last. But it's worth going through the numbers in more detail than was possible on television.

This year, the maximum employee premium is $891 and the maximum employer premium is $1,248, for a total of $2,139 per employee. About 60 per cent of Employment Insurance funds are spent on regular benefits as opposed to parental leaves, training, etc. So, an employee contributing the maximum would deposit $1,283 this year under Solberg's scheme.

This year's maximum Employment Insurance benefit is $501 per week. For each year worked, an employee would accumulate enough money to self-insure against two and a half weeks of unemployment.

The average duration of unemployment for a jobless or laid-off Canadian is 20 consecutive weeks. Under Solberg's scheme, someone would need eight years of continuous employment to self-insure against one average period of unemployment.

In fairness to Solberg, he does suggest, "Maternity and compassionate benefits could be spun off into separate government programs." But these programs would still need to be funded. The only way to make self-insurance work would be to hike premiums, or raise other taxes to pay for the programs other than regular benefits.

Beyond self-insurance against unemployment, Solberg claims, "Including interest, anyone who managed to stay employed through their lifetime earning even a modest income would stand to collect several hundred thousand dollars at retirement."

Let's imagine someone who contributes the maximum every year for 40 years. If his or her earnings and contributions increase by 3 per cent every year, the annual deposit would rise from $1,283 this year to $4,064 four decades from now.

If the money accrued 3 per cent annual interest, the employee would have $162,559 at retirement. That's nothing to sneeze at, but it's not "several hundred thousand dollars."

For argument's sake, let's assume that Solberg has a plan to pay for parental leaves, training, etc. as separate programs. In that case, someone contributing the maximum would get $2,139 in their account this year. Using the same assumptions, their retirement nest-egg would be $270,932.

That's more than a couple hundred thousand dollars, but I am still not sure it qualifies as "several hundred thousand dollars." In any case, if we are projecting pay increases and compound interest four decades into the future, we should also consider inflation.

The Bank of Canada targets 2 per cent annual inflation. At that rate, $2.16 will have the same purchasing power in 40 years as a dollar today. So, that self-insurance fund would be worth $125,156 in today's dollars.

Extensive political struggle and a constitutional amendment were required to implement Employment Insurance. Canadians should not be conned into giving it up based on false promises of "several hundred thousand dollars" for those fortunate enough to always make at least the maximum insurable earnings and never be unemployed.

Photo: Dave McLean/flickr

Thank you for reading this story…

More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable.

rabble.ca has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.

So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.

And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.

Comments

We welcome your comments! rabble.ca embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on rabble.ca and your privacy here. Please keep in mind:

Do

  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.

Don't

  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.