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 characterise 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.

4 comments

  • It appears this election is not going to be about big ideas rather about each leader handing out token gifts to what it considers to be its core constituents.

  • It’s been a while since I took an econ class, but honestly I cannot see many small business owners being in a situation where a $1000 deduction would make the difference between expanding their business and not expanding it.

    At the very least, I assume that the number of businesses for whom it will not make a difference but who will pocket the tiny chunk of change anyways is substantially larger than the number of businesses for which this will actually make a difference. So it is quite indiscriminate for the supposed goal (more jobs), too.

  • Might be enough to entice some off book employees onto the books. Though I doubt it.

  • Im conservative, young in my twenties. The irony many in this blog, have done a very good job in attacking the rich, so much so, this is laughable.

    I find it funny, are we to only work in large corperations. I cannot wait till we have only one supra-multinational company for every industry, and only one union for every industry. Regulators will ensure the workers are protected. Union will own a shares of that consolidated company. Is not fascism great. I even got a name Industrial Reconstruction Institute (IRI), we could then have one of the largest industrial sectors, only positives.

    The economy will go into a never before seen age of prosperity, where commities of the heads of idustriesthe economy meet with regulators, who mediate for the unions.

    I wish to employ people. At this moment in time I can hire 2 worker, while I pay myself nothing, and afford to pay out 5$ an hour for two months. Should I spread the wealth around, or hoard?????

    ……or should I get a job for a rich oil company???? Why cannot us poor people at the bottom start businesses and compete with the rich.

    We have made it by our own decree, that only rich can people hire people. What kind a of society do you prescribe too!!! or would you like to remove the rich completly and have everyone employed, locally, provicially, and federally.

    Untill the poor upstarts like I can employ people like my grandfather who was not rich. we have those who are poor working two full time job watching incomes fall, requiring more hours of work then my parents or there parents for the same goods and services they had!!!!

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