Canada\'s Unemployment Rate

For decades prior to the 1981-82 recession, the national unemployment
rates of Canada and the United States had been nearly identical. Since then, a
persistent "unemployment rate gap" has emerged. Throughout most of the 1980s,
Canada\'s unemployment rate has consistently been about 2 percentage points
higher than in the United States. The gap developed in spite of very similar
economic performances across the two countries: the growth rate of real per
capita incomes has been virtually identical since 1976. However, now, well into
the 90s, the gap has widened much more significantly. In the last five years,
the United States average has actually fallen from 6.7% to 6.5%, with a current
rate of 5.2%, while the Canadian rate has and still remains at 9.4%, with a
current rate of 9.7%. This substantial difference in Canada\'s unemployment rate
can be attributed mostly to the safety net which the government provides,
including generous payments of unemployment insurance and other social services;
but also to the high payroll taxes; and the under performing Canadian economy.
There is no single reason for the persistent gap in the unemployment rates of
Canada and the U.S., but rather a combination of the above factors.

"No society can be flourishing and happy, of which the far greater part
of the members are poor and miserable." (Adam Smith) This is the theory behind
the creation of social services such as unemployment insurance and welfare
payments in many countries. The Canadian government provides a substantial
"social safety net" for its population. At first, this seems like a fair and
proper thing to do, as it is in the best interests of society as a whole.
However, when this generosity is taken advantage of by undeserving recipients,
problems and controversy arise. The problem of abuse of Canadian social services
has become prominent in 1996. The general consensus of organizations such as the
Fraser Institute and the OECD, is that Canada\'s generous social safety net is a
disincentive to work, which leads to dependence on the government, thus
resulting in increased unemployment. By comparing the social benefits provided
for Canadians and Americans, the cause of this gap in the unemployment rate
becomes apparent.

In general, the social benefits provided for Canadians are incredibly
generous, and unregulated in comparison to those of the U.S., resulting in a
dependency on them and creating a disincentive to work. Unemployment insurance
is a means of protecting workers who are out of work and looking for employment.
The unemployed workers receive cash payments, usually each week for a limited
period of time. Unemployment insurance is financed by the combination of
employer and employee contributions, of which the employer contribution (a form
of payroll tax) is slightly higher. Canada currently spends 70% as much on U.I.
as the United States, in spite of the fact that the total U.S. labour force is
about 11 times the size of Canada\'s. There are two principal differences
between the two U.I. systems. The first is that unemployment insurance is
operated at a state level in the United States. This means that the states
administer the insurance system and determine the benefits, while maintaining
certain standards according to federal law. The second is that in most cases the
insurance premium employers must pay is related to the extent to which their
employees use the system. In other words, there is an explicit insurance, or
experience rating feature built into the U.S. system. In Canada the opposite
occurs, with no penalty for employers who overuse the system. Unemployment
insurance is regulated by the federal government, it applies in all provinces
and territories, and covers about 97% of all Canadian workers. Due to the
differences between the two systems, one can understand how Canadians have a
more generous system and an easier time in claiming benefits.

The differences in the requirements for obtaining unemployment insurance,
also result in a more generous distribution of benefits in Canada. Over the
years, there have been many changes in these requirements in the U.S., making it
less accessible and desirable for the people. It is only recently that similar
changes have been undertaken in the Canadian system. In comparing the laws and
regulations of the two systems, it becomes apparent why Canadians have a greater
dependence on unemployment insurance. The system of U.I. distribution in the
U.S. requires workers of all states to be available, and able, to work to be
eligible for the benefits. Most states also require the recipients to actively
seek work. Although the rules are the same in Canada, the government is not as
efficient in its execution of them. The usual maximum period that unemployed