4. Experience Rating
All employers and employees presently pay into the EI system, but benefits are accessed far more frequently by laid-off workers from certain industries and businesses. Some industries and businesses use the EI system as a support for keeping a “lean” workforce (e.g. regularly laying off workers during periods of low demand).
This situation results in subsidies in which industries and businesses that do not rely on the EI system support those that do.
The same issues arise in relation to individual workers. Some individual workers access the EI system far more than others. Workers that frequently access EI could be seen as receiving subsidies from workers that pay premiums consistently without claiming benefits.
A system of “experience rating” (if applied to employers) would require that employers who lay-off workers more frequently pay more into EI. A system like this is currently in place for workers’ compensation in Canada and unemployment insurance in the US. In the case of workers’ compensation, workplaces where more accidents occur must contribute more to the program. The question is whether such a system would be appropriate for EI.
Firm A and firm B are competitors. Each do a similar amount of business. Each has the same number of employees earning similar salaries, so firms A and B pay roughly the same amount into EI. During tough times, firm A has a habit of holding onto its workers until things get better. Firm B, by contrast, generally lays off workers temporarily during difficult periods. Both firms pay the same amount into EI, but firm B is using the EI system to a far greater extent, freeing up resources that could be used to gain advantages over firm A while also creating unemployment.
Experience rating would see firm B’s contributions to EI increased as a result of its greater use of EI, lessening any advantages it can gain over firm A. Experience rating for employers simply requires that firms contribute more to EI if they cause more workers to access EI.