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The research that has been performed under this contract and is detailed in this report addresses some of the effects of the move from Unemployment Insurance (UI) to Employment Insurance (EI) on individuals' behaviour. This move, which began in mid-1996 and was further implemented in legislative changes that took effect in 1997, is still underway in that several of the new provisions will take a number of years to become fully operational. Nonetheless, enough data is now available for an initial assessment of some of the behavioural effects of the UI to EI change.

This work has two main focus, consistent with standard patterns of analysis and the structure of past reports. These are the extent to which the move from UI to EI alters (i) the durations that individuals remain unemployed and (ii) the durations that individuals spend in receipt of UI/EI benefits. The present research addresses these two issues and examines how they have been affected by the C-12 legislation. The work thus fits naturally under the mandate of Sect. 3(1) of Bill C-12 that calls for monitoring and assessment of "how individuals, communities and the economy are adjusting to the changes made by this Act to the insurance and employment assistance programs under the Unemployment Insurance Act." It will also be of relevance to the issue of "whether the savings expected as a result of the changes made by this Act are being realized."

Conceptually, the types of effects we might expect on individuals' unemployment or benefit durations arising from different UI and EI program parameters may be the result of induced changes in the job search behaviour of workers. Additionally, such duration effects may also arise from the response of firms to changes in program parameters. These types of duration effects are important in econometric policy analysis for at least three reasons. First, there is natural interest in macroeconomic evaluation of the effects of UI/EI on the unemployment rate and on macroeconomic performance in general. Much past research has addressed the aggregate effects of UI legislative changes on the national unemployment rate, in addition to assessing the impact on unemployment rates of various demographic and regional groups. Duration effects are of course central to such issues since, jointly with the incidence of unemployment, they determine the effect of policy changes such as Bill C-12 on the macroeconomic performance of the economy. As the substantial Canada-US unemployment rate gap of the 1980s has persisted and even worsened into the 1990s, such economy-wide concerns must remain high on the policy agenda.

Second, from an efficiency standpoint, key questions concern the microeconomic effects of different unemployment and benefit durations; one example would be the de-skilling that may occur over the course of a long jobless spell. Thus, evidence of effects from UI and EI program parameters on unemployment durations may be important because of the microeconomic effects of lengthy unemployment durations. These types of effects might be central in the formulation of a policy response to longer-term unemployment, even if it were the case that there were little overall macroeconomic effects.

Third, evidence that UI/EI program parameters induced changes in unemployment or benefit durations would provide some indication of the importance of the worker moral hazard associated with subsidy of (largely unverified) job search. In the standard approach, UI/EI provides a valuable insurance function at the cost of the moral hazard associated with subsidy of (largely unverified) job search. When the heterogeneity of the job search behaviour in the unemployment population is recognized, this type of assessment is vital for appropriate policy response.