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Why the Liberals' EI plan doesn't add up

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Photo: Chris Blakeley/flickr

Joe Oliver's recently announced a Small Business Tax Cut -- sorry -- Job Credit. Economists across the ideological spectrum denounced it as poorly designed.

This opened up an interesting opportunity for a national debate about what we want EI to be -- coverage right now is at all-time lows, and the accumulated deficit from the last recession will soon be repaid in full.

The Liberal Party entered the EI debate by suggesting a one-year EI premium holiday for employers who hire new workers. It's disappointing that they completely ignored the possibility of expanding access. What's even worse is that their plan rests on some pretty terrible math.

How much do they think a one-year EI premium holiday for new hires will cost? Why, they can create 176,000 jobs for the low price of $225 million/year.

Sure, you say, the maximum EI contribution for employers is around $1,250/year, and 176,000 x $1,250 = $225 million. No problem.

But, wait! How do you define new job? And how many "new jobs" are created in the Canadian economy in any given year? You might think that it's in the 176,000 range if you listen to any of the coverage of the Labour Force Survey release at the beginning of every month. But you'd be wrong.

The Labour Force Survey counts "net new jobs," which is the number of new hires minus the number of job leavers in a given month. Between August 2013 and August 2014, there was an average of 6,000 net new jobs every month.

But the total number of new hires is much larger than the number of net new jobs. People leave one job for another, and move into and out of the labour force regularly.

Although Statistics Canada doesn't measure new hires directly, it does ask "how long have you been in your current job?" We can say that people who answer "one month or less" is a pretty good proxy for new hires. By this metric, there were approximately 3.7 million new hires in 2013. That's 310,000 per month.

The Liberals will have blown through their annual budget for the EI premium rebate about two weeks after it has been introduced.

This plan confirms two things. The Liberal Party of Canada is totally OK with an EI coverage rate of 36 per cent, and they aren't really sure how the labour market works in Canada.

Photo: Chris Blakeley/flickr

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