International Law

On Unemployment Insurance in America

Did you know that unemployment insurance premiums paid by individual employers in the U.S. are "based on the amount of the benefits their workers collect?"

The net result?

Washington Post writer Peter Whoriskey discusses a disturbing phenomenon:

More than a quarter of people applying for such claims have their rights to the benefit challenged as employers increasingly act to block payouts to former workers.

....Under state and federal laws, employees who are fired for misbehavior or quit voluntarily are ineligible for unemployment compensation. When jobless claims are blocked, employers save money because their unemployment insurance rates are based on the amount of the benefits their workers collect.

As unemployment rolls swell in the recession, many workers seem surprised to find their benefits challenged, their former bosses providing testimony against them. On one recent morning in what amounts to one of Maryland's unemployment courts, employees and employers squared off at conference tables to rehash reports of bad customer service, anger management and absenteeism.

The American unemployment insurance system thereby financially incentivizes bogus allegations by employers of employee misconduct and incompetence.

Now that's some safety net.

By contrast, Canada's employment insurance premiums, paid by both employers and employees, are solely based on each individual's insurable income earned. The rate formula is explained in the excerpt below from the Canada Employment Insurance Commission (CEIC):

GATINEAU, QUEBEC, November 14, 2008 - Acting under legislative authority introduced in 2005 that gives the Canada Employment Insurance (EI) Commission the authority to set the EI premium rate, the EI Commission today announced the 2009 premium rate.

As of January 1, 2009, the employee rate per $100 of insurable earnings will be $1.73, maintaining its current level. The corresponding employer rate is 1.4 times the employee rate.

The EI Commission sets the premium rate taking into account the principle that it should generate just enough revenue to cover payments expected to be made during the coming year. As prescribed in legislation, the rate is set based on economic forecasts provided by the Minister of Finance on or before September 30 of each year, the Chief Actuary's report and public input. As such, the proposed 2009 rate does not reflect recent changes arising from the deteriorating and rapidly evolving global economic situation and events after September 30, 2008. While the Government has the authority to substitute a new rate for that set by the Commission and is in a position to take into account more recent forecasts, the Commission notes that public input received from organizations representing employers and employees was unanimously of the view that the current rate should not be increased under current economic conditions.

Canadian employees who resign or are terminated for legitimate cause may be denied employment insurance benefits. Their employers' premiums, however, are in no way affected by E.I.'s eligibility determinations.

- Garry J. Wise, Toronto

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Full post as published by Wise Law Blog on March 11, 2009 (boomark / email).