Canada's Employment Insurance program pays weekly benefits to the unemployed that vary in generosity across regions. While the variable entrance requirements help deliver more benefits to seasonal workers, the mechanism spreads the generosity of benefits to all workers in a region, raising the costs of the program and hindering labour market adjustment.social policy, Canadian EI program, employment insurance reform

Colin Busby

English

Research Papers in Economics

e-brief
Fixing a Persistent Problem: Canada’s Regional
Pockets of Unemployment
By Colin Busby
National average unemployment figures, while low, continue to mask important regional differences.
1Pockets of
unemployment persist, particularly in the Eastern provinces, showing that the benefits of a strong national labour
market are not equally shared across regions.
Over time, technological change, shifting needs for certain skill sets, and changing global demand for Canadian
exports highlight the need for flexibility in our labour markets. Workers may need to regularly upgrade their skills 
and relocate to where jobs are available. Failure to respond to continuous change will leave Canada in a growing
geographic divide, with acute labour shortages in some regions and excess supply persisting in others.
2
Ontario represents the fulcrum of this imbalance. To the west, employment rates are high, and in some areas 
the demand for labour is greatly outstripping supply – unemployment bottoms out at 1.9 percent in southwestern
Manitoba. Towards the Atlantic, unemployment reaches a national high of 15.7 percent in northern Newfoundland. 
The imbalance in regional labour markets underscores a misallocation of workers that reduces overall economic
output. Plus, in regions with high unemployment, if individuals’ repeated efforts to find work go unfulfilled, it can have
adverse affects on personal health. To minimize this imbalance and improve Canada’s overall adaptability to economic
I
N
D
E
P
E
N
D
E
N
T

R
E
A
S
O
N
E
D

R
E
L
E
V
A
N
T
October 23, 2008
 Canada's Employment Insurance program pays weekly benefits to the
unemployed that vary in generosity across regions. The number of hours 
of work needed to qualify for benefits and the duration of benefits depend 
on the regional unemployment rate.
 While the variable entrance requirements help deliver more benefits to seasonal
workers, the mechanism spreads the generosity of benefits to all workers in a
region, raising the costs of the program and hindering labour market adjustment.
Periodic map redraws of EI regions contribute to this problem.    
 Among other reforms, the EI program should be changed to: provide lump-sum
moving bonuses financed through costs savings from changes to the EI program;
target aid to specific high-need workers; or allow for the short-term portability of
regional EI benefits.    
I would like to thank Finn Poschmann, Ben Dachis, Claire de Oliveira and Alexanadre Laurin for helpful comments on 
earlier drafts.
1 This e-brief updates the previous work of Guillemette (2006, 2007), highlighting widely observed regional differences in
unemployment rates across Canada (Orr 2006, Akyeampong 2007). 
2 Wannell (2008) discusses the difficulty of finding workers in specific regions with labour shortages, notably Alberta, 
for the enumeration of Census 2006.change, policy changes are needed to reduce economic barriers to mobility; specifically, those posed by the federal Employment
Insurance (EI) program. In what follows, I highlight the extent of the labour market imbalance as well as the role of the EI
program in mobility incentives. 
Unemployment Rate Dispersion 
So far in 2008, Canada’s labour market has had its share of ups and downs by industry and region. The national unemployment 
rate, however, remains near a modern low, at 6.1 percent. To examine the level of adjustment to changing economic conditions, 
we measure differences among regional unemployment rates in relation to the national rate – the dispersion of unemployment.
Theoretically speaking, if labour is in short supply in some regions and over supply in others, the unemployed should move to 
regions where labour-market opportunities are better and dispersion measures should fall along with unemployment. 
In contrast, dispersion has increased as the national unemployment measure has fallen (Figure 1).
3Further, a recent
sustained period of low national unemployment has seen little to no reduction in dispersion. 
The Sources of Persistent Regional Variations
In a scenario with limited costs and barriers to migration, economies with high levels of regional unemployment should
theoretically see these levels drop over time as workers move to where the jobs are in other regions. For Canada, however,
regional unemployment persistently resembles historical rates (Figure 2). This suggests that the costs of moving outweigh the
benefits, and barriers to mobility are significant enough to permit high levels of unemployment to take root.
An individual’s decision to move is complex. Family concerns must be weighed with personal ones, and the overall social costs
and benefits all play a part in the decision-making process. A variety of non-economic and economic factors, such as the size of the
province, language, general and individual labour market conditions, influence individual decisions to move (Finnie 2000).
4
In Canada, the economic hurdles to mobility are significant. In this, government policy – specifically the EI program – plays
an important role. Both the entrance requirements to, and benefit entitlements from, the federal EI program are linked to regional
unemployment rates. As unemployment rises within an EI region, provisions mean that an unemployed individual’s ability to
obtain higher benefits for a longer duration increases. Consequently, since any potential insured benefits are sacrificed with
relocation, unemployed persons face a disincentive to look elsewhere for employment (Audas and MacDonald 2003). 
Undesirable Effects of Unemployment
Pockets of high unemployment also have social costs. They can create enormous stress on the unemployed and foster divisions
within communities. As local job prospects wane, the possibility of becoming unemployed for spells longer than a few months
increases. The time spent searching for employment without success is considered a critical indicator of health and well-being –
the results on this front are troubling (Figure 3). While lower than 2001 results, on average, the 2006 Census finds that long-term
unemployment rates remain significant and concentrated in eastern regions.
Labour mobility is particularly important during periods of economic change. An unresponsive labour force, for instance,
dampens the competitive pressures on businesses, further slowing the process of adjustment. By contrast, a highly mobile
workforce helps to smooth the reallocation process of business inputs and reduce regional differences in income and unemploy-
ment. Hence, the negative effects of an immobile labour force on the economy, as well as those on personal health, are significant. 
INDEPENDENT REASONED RELEVANT
| 2 e-brief
3 The dispersion measure uses the same methodology in Guillemette (2006), where the coefficient of variation of unemployment rates,
defined as the standard deviation or regional unemployment rates divided by the regional average, serves as the benchmark measure.
Monthly average unemployment rates are seasonally adjusted using the US Census Bureau’s X-12 ARIMA procedure. 
4 Non-economic factors may also influence an individual’s labour market outcome. See Vaillancourt et al. (2007) for an examination of
different labour market outcomes associated with language skills in Quebec. INDEPENDENT REASONED RELEVANT
e-brief /3
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
M
a
r
-
8
7
M
a
r
-
8
8
M
a
r
-
8
9
M
a
r
-
9
0
M
a
r
-
9
1
M
a
r
-
9
2
M
a
r
-
9
3
M
a
r
-
9
4
M
a
r
-
9
5
M
a
r
-
9
6
M
a
r
-
9
7
M
a
r
-
9
8
M
a
r
-
9
9
M
a
r
-
0
0
M
a
r
-
0
1
M
a
r
-
0
2
M
a
r
-
0
3
M
a
r
-
0
4
M
a
r
-
0
5
M
a
r
-
0
6
M
a
r
-
0
7
M
a
r
-
0
8 0
2
4
6
8
10
12
14
P
e
r
c
e
n
t
 
U
n
e
m
p
l
o
y
m
e
n
t
Dispersion EI region (left scale) Dispersion LFS region (left scale) Unemployment Rate (right scale)
P
e
r
c
e
n
t
 
D
i
s
p
e
r
s
i
o
n
Figure 1. High Dispersion Despite Low Unemployment
Note:     The dispersion (EI) measure uses administrative unemployment rate data by Employment Insurance region, and the dispersion (LFS) measure uses
unemployment rate data from by Labour Force Survey region. The vertical bars on the graph represent the time when map redraws came into effect.
Sources: Human Resources and Social Development Canada; CANSIM Table no. 282-0054; and author's calculations.
0
5
10
15
20
25
0 5 10 15 20 25
Unemployment Rate in 1997/98
U
n
e
m
p
l
o
y
m
e
n
t
 
R
a
t
e
 
i
n
 
2
0
0
7
/
0
8
Figure 2. Persistence in Regional Unemployment
Note:      Graphic represents the annual average for the period of October to September in the economic regions in the Labour Force Survey. The
regression slope coefficient (0.71) is significant at the 1 percent level.
Sources:  CANSIM Table no. 282-0054. 5 See subsection 18(2) of the Employment Insurance Regulations, which requires EI regional boundaries be reviewed every five years to
ensure that they reflect current labour market conditions and geographic representation of communities across Canada.
6 There are 48 EI regions from 1987 to 1990, 62 regions from 1990 to 1996, 54 regions from 1996 to 2000, and 58 regions from 2000
until today. Maps of the geographic classifications for EI economic regions and those of the 73 Labour Force Survey regions are found at
http://www.chass.utoronto.ca/datalib/other/referenc.htm.
7 The EI program has made notable exceptions in the case of regions where a subgroup of seasonal workers has been adversely affected by
map redraws. For example, seasonal workers in Bas-St-Laurent-Cote Nord and Madawaska-Charlotte regions were, under new 2000
regional unemployment rates, unable to qualify for benefits that would last until work recommenced. In response, the government has
developed a special provision (a “boundary phase-in measure” (Gray 2006, 4)) for residents in these regions, allowing them to continue
to use the 1996 EI geographic borders. At the time of writing this transitional measure remains.
Reducing the Disincentives for Mobility – EI Program Reform
The federal practice of redrawing EI regions every five years has important consequences for mobility. The regional map is revised
according to changing labour market conditions with the aim of keeping them comparable across an administrative region.
5Over
time, unemployment regions are redrawn so that high areas of unemployment are combined. By extension, other regions are left
with lower unemployment rates after each redraw. 
Comparing the measure of dispersion by EI regions with the measure by Labour Force Survey (LFS) regions in Figure 1 gives
insight into how EI map redraws can contribute to high regional unemployment. The current EI region map was set in July 2000,
preceded by map redraws in July 1996, November 1990, etc.
6
Redrawing the EI map to bring together like regions will increase program entitlements for people who subsequently fall
within the boundary of a high unemployment region.
7Consequently, residents of high unemployment regions will face larger
sacrifices with relocation. Map redraws heighten the program’s regional differentiation, encourage reliance for seasonal workers,
INDEPENDENT REASONED RELEVANT
| 4 e-brief
P
e
r
c
e
n
t
 
0
2
4
6
8
10
12
14
16
Canada Nfld PEI NS NB QC ON MB SK AB BC
1996 2001 2006
Figure 3. Long-term Unemployment* Rates in the East Remain High
*Defined as number of persons aged 15 and older who spent the previous year (i.e. 1995, 2000, and 2005) up to the taking of the Census without employment.
*Sources: Census 1996, 2001, and 2006. INDEPENDENT REASONED RELEVANT
and contribute to persistent regional differences in entitlement (and employment) rather than a gradual decline over time. 
Notably, the July 2000 redraw causes the EI dispersion measure to rise and remain above the LFS measure. 
Policy should instead aim to reduce the disincentives to relocate. Reform is needed to:
￿ provide lump-sum moving bonuses financed through costs savings from changes to the EI program;
￿ shorten the benefit entitlement periods and lengthen qualification schedules for young repeat users;
￿ target aid to specific high-need workers to avoid spreading the generosity of the program to all workers in the region; 
￿ extend pilot-projects that loosen access criteria and extend benefits in high-unemployment regions to low-unemployment
regions for proper evaluation of labour market effects and incentives to work (Gray 2006); and
￿ end the periodic redrawing of EI region maps.
In addition, since EI benefits are not portable to other provinces, another potential reform could allow for the portability of
regionally linked benefits in the short-term, followed by a phasing-out period. 
Conclusion
Though the national unemployment rate is low, regional dispersion remains high. For both economic and health reasons, high levels
of regionally concentrated unemployment are undesirable. Regionally linked EI benefits influence relocation decisions, contributing
to unbalanced labour markets and slowing the pace of regional convergence in wages, prices, and productivity across Canada. 
While for some people receiving EI benefits gives them resources they need for job search and relocation, for others the
relative generosity of the program creates a disincentive to relocate. Large and persistent unemployment, mostly in eastern regions,
highlights the continuing need for EI program reform. And, linking entrance and benefits requirements to regions which are
constantly being redrawn allows disincentives against mobility to persist. The challenge is to ensure that the financial burden of
moving is low and disincentives are reduced. Given large numbers of job vacancies in the West, there is no better time for reform.
e-brief /5References:
Akyeampong, Ernest B. 2007. “Canada’s Unemployment Mosaic, 2000 to 2006.” Perspectives on Labour and Income. Vol. 8, No. 1. January.
Finnie, Ross. 2000. “Who moves? A panel logit model analysis of inter-provincial migration in Canada.” Statistics Canada Analytical
Studies Branch Research Paper 142. Statistics Canada. August.
Gray, David. 2004. “Employment Insurance: What Reform Delivered.” C.D. Howe Institute Backgrounder 82. Toronto.
C.D. Howe Institute.
Gray, David. 2006. “Has EI Reform Unravelled? Canada’s EI Regime in the 2000s.” C.D. Howe Institute Backgrounder 98. Toronto.
C.D. Howe Institute.
Guillemette, Yvan. 2006. “Misplaced Talent: The Rising Dispersion of Unemployment Rates in Canada” C.D. Howe Institute e-brief.
Toronto. C.D. Howe Institute. July.
Guillemette, Yvan. 2007. “Chronic Ridgidity: The East’s Labour Market Problem and How to Fix it.” C.D. Howe Institute e-brief. Toronto.
C.D. Howe Institute. December.
Orr, Dale. 2006. “Moving to Where the Jobs Are: There Has Never Been a Time Like The Present.” Global Insight Commentary. June.
Vaillancourt, Francois, Dominique Lemay and Luc Vaillancourt. 2007. “Laggards no More: The Changed Socioeconomic Status of
Francophones in Quebec.” C.D. Howe Institute Backgrounder. No. 102. Toronto. C.D. Howe Institute. August.
Wannell, Ted. 2008. “Running a Census in a tight labour market.” Perspectives on Labour and Income. Vol. 20, No. 2. Summer.
This e-brief is a publication of the C.D. Howe Institute.
Colin Busby is a Policy Analyst at the C.D. Howe Institute..
For more information contact Colin Busby at 1-416-865-1904, extension 246.
This e-brief is available at www.cdhowe.org.
Permission is granted to reprint this text if the content is not altered and proper attribution is provided.
INDEPENDENT REASONED RELEVANT
| 6 e-brief

Fixing a Persistent Problem: Canada's Regional Pockets of Unemployment

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics