Bracing for Downturn Sixteen years of almost uninterrupted job growth has produced an embarrassment of riches in Canada’s Employment Insurance account—a surplus, in fact, of $54 billion at current...

Bracing for Downturn


Sixteen years of almost uninterrupted job growth has produced an embarrassment of riches in Canada’s Employment Insurance account—a surplus, in fact, of $54 billion at current reckoning. But with economic storm clouds gathering south of the border, the Conservative government looks to be preparing for some turbulence ahead. It is creating a special cushion of $2 billion in a side account to help pay for any quick surge in payouts caused by an economic downturn. ...

a. Explain how Employment Insurance (EI) serves as an automatic stabilizer. How does being prepared for a “quick surge” impact the effectiveness of EI?

b. Explain how EI impacts the budget balance over the business cycle.

c. What is the potential supply-side impact of EI?