Employment insurance (renamed from Unemployment Insurance in 1996) refers to government benefit payments during a period of unemployment. In Canada, the employment insurance system is financed by premiums paid by employers and employees and by federal government contributions. As early as 1919 the Royal Commission on Industrial Relations had recommended a national program of unemployment insurance, but when the R.B. Bennett government tried to introduce the Employment and Social Insurance Act in 1935, the Supreme Court of Canada and the Privy Council of Great Britain declared the Act unconstitutional on the grounds that it was an infringement of provincial authority. The first compulsory national unemployment insurance program was instituted in August 1940 (it came into operation in July 1941) after a constitutional amendment gave the federal government legislative power over unemployment insurance. Unemployment rates in Canada reached levels of about 20% during the Great Depression and hastened the adoption of unemployment insurance, as did the mobilization effort of WWII. To aid the organization of the work force for war, employment bureaus were expanded and used to administer the unemployment insurance system.

To qualify for employment insurance benefits, applicants must show that they were previously employed for between 420 and 700 hours depending on the local unemployment rate. To receive benefits, they must file a claim stating that they are without work, are willing to work and are registered at the Human Resource Centre. Following a waiting period of 2 weeks (new claims only), individuals are eligible to receive 55% of average weekly insured earnings up to a maximum in 1997 of $413 per week. The number of weeks for which benefits can be claimed varies, depending on the length of previous employment, previous employment insurance claims, and the national and regional unemployment rate.

The employment insurance system is an important component of the economic safety net provided by government and there is little disagreement, in principle, that it has provided greater income security for Canadians. Among economists, however, there is substantial concern that specific features of the existing system may create unemployment. For example, it has been argued that the relatively short qualifying period may encourage individuals who would not choose to work, were it not for the prospect of also collecting benefits, to enter the labour force; and that unemployment is higher than it should be among those employed in seasonal industries because it may be easier to collect benefits than to look for other work during the off-season.

See also Social Security; Distribution of Powers; Transfer Payments.