The Small Change EI Premium Rebate

Prime Minister Harper today re-announced the 2011 Budget proposal to introduce a one year program to reduce EI employer premiums by up to $1,000 for small businesses which expand employment in 2011 compared to 2010.

I would characterize this as more of a token gift to the Canadian Federation of  Independent Business than a serious job creation measure.

The credit is very small – a maximum of $1,000 – and has an estimated total cost of $165 million. Total Canadian labour income is running at $856 Billion per year, so the rebate amounts to an employer cost reduction of only about .002%. (Not all labour income is subject to EI premiums, but this is approximately the total cost of payroll.)  While there may be some small impact on hiring at the margin, much of any incremental growth in employment in 2011 will take place irrespective of the new credit.

The premium reduction applies only to employers who expand employment in 2011 and paid under $10,000 in EI employer premiums in 2010. It would apply only to very small enterprises.

In 2010, the maximum employer premium for one employee was $1,075, levied at a rate of 2.4% of earnings to a maximum of 2.4% of $43,200 or just over $1,000. Thus an employer with just ten permanent, full time workers earning more or less the average wage would exceed the threshold.

Of course, small businesses with more part-time, low paid workers will qualify, but the cut off point is probably around 25 or 30 employees.

In re-announcing the measure Harper said:

“Small businesses are the engine of job creation in Canada, and are indispensible in their role as job creators and innovators …. Providing incentives to business to hire new employees creates jobs and creates economic growth.”

That line will go down well with small business, but small businesses are NOT the engine of job growth in Canada.

As I have noted recently in the PEF blog “Who Are the Job Creators?” small business does not contribute disproportionately to job creation. The share of all private sector employment accounted for by businesses with less than 20 workers was just 24.5% in 2010, about the same as 24.2% three years earlier.

I might also note that the EI premium reduction will be charged to the “new” EI account which is in deficit, so it will have to paid for by somewhat higher premiums for workers and larger employers down the road.

In sum, this is surely an inconsequential job creation measure.

Andrew Jackson

(Chief Economist with the CLC and CCPA Research Associate.)

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