Effects of employment insurance on unemployment (Canada) - Essay Example

policy is to increase the opportunity cost of those Canadian citizens’ who are unemployed and to reduce the cost of working by mobilizing the unemployed people to look for a job.1 It is believed that this policy will help unload the burden on low-skilled laborers as well as improving the Canadian public employment agencies. In the short term run, it is expected that there will be an increase in the unemployment rate because the employment insurance policy is expected to promote more people into job searching.

The number of people looking for jobs will continue to increase because of the job searching performance that is being monitored directly by the Human Resources and Social Development Canada (HRSDC). The increase in the supply of manpower will create an adjustment in the supply and demand curve of labor in the market. (See figure 1) The increase in the number of people looking for a job will eventually affect the supply and demand for employment in the sense that the bigger the supply of manpower available in the market force will give room for employers to select a prospective employee at a lower salary.

(See figure 2) Considering that the supply of manpower continuously increases, the demand for manpower decreases. This will give the company the privilege to select competent employees at a cheaper salary. Cheaper salary will result to a decrease in the operational cost per unit in production. A lower operational cost will result to an added profit for the company. (See figure 3) For example, a company is able to manufacture a toy that sells for $10 per hour. Given that there is no other production cost except for the salary of a worker, if the salary of a new worker is only $5 per hour as compared an old employee rate of $7 per hour, the profit per unit will be: Profit per toy (new worker) = Price – Cost per toy The same process applies in reverse.

Given that the selling prices fall but the input costs are relatively fixed, the profit margin will