19th Annual Premiers’ Conference, Immediate Job Creation Using Unemployment Insurance Funds (9-12 August 1978)

Document Information

Date: 1978-08-09
By: Secretariat of the Conference
Citation: 19th Annual Premiers’ Conference, Immediate Job Creation Using Unemployment Insurance Funds, Doc 850-10/008 (Regina/Waskesiu: 9-12 August 1978).
Other formats: Click here to view the original document (PDF).

DOCUMENT: 850-10/008

June, 1978
August 9-12, 1978

The mounting burden on general revenues of federal contributions to
the Unemployment Insurance Fund highlights the need to deploy resources in
programs designed to create jobs of lasting social and economic benefit. A
more creative use of these resources must focus on the increasing difficulty
faced by particular groups in the labour force in developing the skills and
experience necessary to find and retain jobs. Moreover, there is a need to
ensure that, to the extent possible, job creation and skill training focus on the
private sector and its ability to provide real and meaningful employment
. In Ontario, $1.7 billion was disbursed in UI payments last year to an
annual average of 314 thousand claimants, 239 thousand of whom
were available for work.
. Among those unavailable for work, retirement, pregnancy and illness
were the major causes. On average less than 2 per cent of Ontario UI
claimants were on retraining programs.
. For Canada as a whole, $3.9 billion was paid out to an average of 749
thousand claimants, 620 thousand being available for employment.

One of the principle advantages of UI benefits is to provide time for an
unemployed individual to look for a job. For many, however, this strategy has
only a limited pay-off.
. Among youths, where unemployment levels are particularly high, the
primary need is for a chance to “learn-by-doing”, not time to search
for employment which generally requires skills already acquired. In
I977, Ontario claimants available for work in the 15-24 age group
averaged 81 thousand.
. In high unemployment regions, UI-financed job search is unlikely to
bring many employment opportunities to light. Last year, an average
63 thousand UI recipients available for work resided in Ontario’s high
unemployment areas – where the unemployment rate exceeded even
the high provincial average of 7.0 per cent by 25 per cent or more.

Total Recipients 314
– Available for employment 239
. In the 15-24 age group 81
. In high unemployment areas 63

Source: Ministry of Treasury, Economics and Intergovernmental Affairs.
Recognition of the limited benefit which UI payouts provide to many
recipients suggests that a more appropriate balance should be struck in the
allocation of committed federal government funds between UI support and
direct job creation programs.
. The ballooning federal government contribution to the UI account
reached $1.8 billion in I977, while direct job creation expenditures
during the year totalled less than $350 million. In fiscal 1978-1979,
federal planned outlays on job creation programs, including the
Employment Tax Credit program, are $602 million.
. At the same time, an important imbalance exists in current
manpower training programs, where less than 12 per cent of total
expenditures were allocated to industrial “on-the-job” training in
1977, the remainder financing institutional courses of instruction.
UI funds which have been paid out to facilitate job search could
alternatively have been used to subsidize wage rates and finance effective
training. A well-designed program could improve the near-term employability
of participants while benefitting their communities. Faster absorption of the
pool of unemployed labour offers the potential of reducing over time the
federal government’s contribution to the UI account.
. A temporary wage subsidy could offset the inexperience of young
people, opening up opportunities to acquire the skills, contacts and
references necessary to hold unsubsidized jobs in the future.

. Where a natural disaster or temporary economic crisis disrupts viable
employment patterns, a strategic disbursement of UI monies could
maintain a work force intact and hasten its re-employment.
. Earnings additional to UI benefits, when spent, would multiply to
boost demand throughout the economy.
. The UI funding of worthwhile public sector projects would create
lasting social and economic benefits for the community.

While recognizing the important contribution already being made by
current UI funding of occupational training and work-sharing projects, increased
use of UI monies to promote private sector employment would be of lasting
benefit. The basic strategy must be to reduce the cost to employers of hiring
unemployed labour through U1-financed wage subsidies.
. Care must be taken to ensure that current employees are not laid-off
and then replaced by UI-subsidized labour, and to prevent roll-over of
a UI-subsidized work force.
. The potential for unsubsidized employment at the conclusion of an
individual’s participation in the program and his exhaustion of UI
entitlements is essential.
i) The Need for a Threshold Cut-off
To ensure that UI-subsidized jobs are additional — above the normal
expansion which would anyway occur — the firm’s subsidy should be related to
employment gains above some minimum expansion over the base-period level.
This would prevent intentional layoffs or the filling of normally-expected job
openings by subsidized labour; in either case, the net effect is to force those
who would otherwise have been employed onto UI rolls.

. A firm qualifying for this aspect of the program might receive the
wage subsidy only if employment gains were greater than a threshold
. The wage subsidy per individual could be set at, say, $1.50 per hour.
In addition, the amount of subsidy could vary by region, type of UI
beneficiary or industry.
ii) Enhancing Long-Term Employment Prospects
The duration of the subsidy a firm received should not simply depend on
the UI entitlements accumulated by individual employees. In many cases the
firm could find the subsidization ending long before the employee’s productivity
had increased high enough to earn an unsubsidized wage. Moreover, the
paperwork associated with a variety of subsidy durations and distortion of hiring
practices would make the program unnecessarily complex. For each UI
beneficiary hired above the threshold level, the firm should receive a subsidy
for a fixed period, say six months, irrespective of the weeks of UI entitlement
earned by the individual employee. The subsidy should be progressively reduced
to zero during a second six month period.
This feature would simplify the operation of the program by eliminating
variability in the duration of the subsidy. Funds available through a UI subsidy
program could be combined with Canada Works or Employment Tax Credit
resources to launch a cohesive and substantial attack on unemployment. An
integrated program would reduce risk and red tape for businessmen and enhance
UI beneficiaries’ long-term employment prospects.
iii) Exemptions from the Threshold Cut-off
Restricting the employment of UI-subsidized labour to growing firms
has the advantage of reinforcing success and by design “backs the winners”.

The program as a whole, however, must be flexible if it is also to work in
communities where few, if any, firms are growing. Moreover, the program
should also retain sufficient flexibility to aid communities hit by natural
. In specified depressed communities, at ministerial discretion, the
criterion for firm eligibility might be simply a declaration that the
job would not be created without subsidization. The program’s
administration would in such cases be modelled on OYEP lines.
. Firms struck by clearly identifiable severe economic hardship should
also be eligible to hire UI-subsidized labour on the basis of a
declaration that the employment would not otherwise exist. While
unable to demonstrate employment gains above the threshold rate, a disaster-stuck firm may with aid be able to eliminate a bottleneck
and thereby maintain its work-force substantially intact.
In general, it would not be worthwhile to precipitate economic
difficulties to qualify for wage subsidization. However, the potential for abuse
through intentional layoffs and subsequent hiring of subsidized labour by
“depressed community” firms benefitting from the threshold exemption is real
and must be dealt with administratively. In addition to careful scrutiny of
applications, it will be necessary to establish a system of both pre- and post-
iv) Dealing with Special Concerns
The threshold cut-off program can be made more flexible, at the cost
of greater administrative complexity, by including optional procedures to deal
with special concerns.
. Assisting industries, regions or client groups: Home insulation,
tourism, the Northeast, youth or long-term UI recipients could all be
considered candidates for a subsidy enriched beyond the normal $1.50
per hour.

.New employer participation: While incentives to fold current firms
in order to qualify for wage subsidization must clearly be avoided,
self-initiated employment by one or several UI recipients and
employment by new business firms should be encouraged. Not
previously self-employed persons should be able to use their $1.50 per
hour subsidy to aid their entrepreneurial ventures. Individuals should
be allowed to hire UI-subsidized workers, for example, homeowners
hiring a handyman. Subject to audit, new firms should be eligible to
receive wage subsidies upon declaration that the jobs would not
otherwise exist.
. No need for “capping”: The UI budget imposes an appropriate ceiling
on total program outlays and a wide disbursement of subsidies
amongst firms does not contribute to the realization of the program’s
principal objectives. Therefore, whereas OYEP limits the sub-
sidization to 6 employees per establishment, a threshold cut-off
program with its better built-in protection against abuse should not
constrain any one firm’s participation.
Skilled tradesmen are an integral part of an industrial economy.
According to the 1971 census, about 12 per cent of the production work force in
Ontario manufacturing were skilled workers.
Traditionally, Canada has relied quite heavily on immigration to supply
skilled tradesmen. With the flow of immigrants tapering off, we will have to
expand existing training programs to ensure that acute shortages in certain
occupations and skills are prevented.
. A recent survey of skilled blue collar industrial workers in 75 plants
in Western Ontario indicated that about 73 per cent of the skilled
workers were immigrants.
. Of the total skilled category, 87 per cent fell into the 40-65 age
group and only 2.6 per cent were under 34 years old.
While the federal manpower training budget is large, there is a
disproportionate emphasis on institutional training, especially in comparison to

other countries. Only 10.9 per cent of the total manpower training budget of
$545 million in 1976-77 was spent on industrial training. Yet for a large number
of occupations and the majority of individuals, especially young people, “on-the-
job” training appears to be preferable. It offers direct work experience as well
as practical and marketable skills.
Therefore, domestic firms should be encouraged to establish and expand
apprenticeship and on-the-job training in the skilled trade occupations. These
incentives could be in the form of wage subsidies, financed by UI monies.
. In addition, UI claimants could be encouraged to take institutional
training by topping up or extending their current UI benefits. While
this proposal would increase total government outlays, it would
enhance the chances of unsubsidized employment in the future if care
were taken to direct trainees into trades with well-identified
shortages. The identification of skill shortages could be done in
conjunction with the Ontario Manpower Co-ordinating Committee.
. Currently less than 2 per cent of UI claimants in Ontario are involved
in “retraining” programs, mainly in an institutional setting.

Under current UI legislation, part-time employment earnings in excess
of 25 per cent of the weekly rate reduce the individual’s benefit by an
equivalent amount. This discourages unduly an unemployed individual from
taking on part-time work in the absence of finding full-time employment.
Incentives to keep skills alive could be provided by perhaps starting the
deduction for part-time earnings at a lower rate, say 20 per cent, but smoothing
it out incrementally over a larger amount to a prescribed maximum. The
principle involved would be similar to the negative income tax scheme.

– 3 ..
From the point of view of the community, large expenditures on
unemployment insurance might be better spent on worthwhile projects that
make a positive contribution to our social or economic well-being. These
projects should focus on once-and-for-all commitments, and on activities which
offer longer term economic benefit to the community.
. Ontario’s tourist and hospitality industry might well benefit from the
establishment of UI-funded information centres, for example in bus
and train stations, as well as in airports.
. Reforestation projects, made viable by wage subsidies, would be
labour intensive, require minimal capital investment and augment
Provincial resources. ‘
. A UI-funded community improvement program could assist munici-
palities to carry out a wide variety of maintenance activities, for
example removing dead elms, accelerating safety compliance
programs, or improving historical sites.
. With UI-subsidized labour, the costs of acquiring social capital would
be lowered, making it attractive to speed up the rate of public
investment. Highway maintenance and construction, for example,
could be cheaply expanded through such a program, at a time of low
private sector demand on our construction industry resources.
Crown corporations could also be encouraged to augment our social
infrastructure and improve their level of service.
. The up-grading of railroad beds and the construction of railroad
crossings are examples of the enlargement of social capital. In
addition, opportunities to increase personalized on-train services
would be opened up by a program of wage subsidization.
Specifically, a number of programs which would involve the provincial
government in sponsoring employment projects have been explored and could be
developed further.

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