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This study examines the effect of the reforms to the Canadian Unemployment Insurance (UI) system enacted in Bill C-17. In particular, the study measures the impact of C-17 upon the quality of jobs in the long term. Long-term aspects of job quality include both wages and non-wage compensation such as medical benefits as well as job stability.

To accomplish this study, the Canadian Out of Employment Panel (COEP) survey data from 1993 and 1995 are used. These two surveys include random samples of persons losing a job both before (1993) and after (1995)

C-17 came into effect. In order to put the results into context, the findings from the two COEP studies are compared with those obtained in earlier work with the National Employment Service Survey (NESS) data. This latter study looked at job outcomes of a random sample of Canada Employment Centre clients during the period from 1986 through 1988^*.

The study first compares features of the two samples and examines relative successes in finding a job. Next, a sequence of possible effects of UI onlong-term job characteristics are examined: the probability of remaining in the labour force, the probability of finding a job for those who do remain in the labour force and finally the wage and non-wage characteristics of the jobs that are found. A summary measure of these results is provided by simulations of wage change effects in which changes in wage outcomes between 1993 and 1995 are allocated to effects due to changes in UI rules and effects due to modified individual behaviour.

The results show some significant responses of behaviour to the C-17 reforms. The proportion of job finders who exhaust their UI benefits rises dramatically between 1993 and 1995 from 19 percent of the sample to 43 percent. However, job-finding rates are actually higher in 1995. This points to a general pattern that is repeated several times in this study: C-17 rule changes did have definite impacts on the experience of the unemployed but these changes do not seem to translate into significant long-term employment effects. There is evidence of a higher number of large wage losses in the 1995 COEP, which may be due to some unemployed workers experiencing an unpleasant surprise regarding the length of their benefits. When this possibility is analysed in more detail, these large losses do not seem to be attributable to persons whose entitlement period was much shorter under the C-17 rules versus those previously in effect.

A finding of some importance for this study is that C-17 had a major impact upon the distribution of weeks of unemployment benefits among the unemployed. In 1993 the distribution of weeks of potential benefits was heavily concentrated at 50 weeks. A very small number of persons were scattered along the range of benefits below 50 weeks. This same pattern was found in data from the National Employment Services Survey (NESS) data collected in the 1980s. The 1995 COEP data represents a major break with this previous pattern. In 1995, benefit weeks were far more evenly distributed over the range of weeks and there was even a slight peak in the range between 30 and 40 weeks. This suggests that C-17 did achieve its goal of reducing benefit entitlements for persons who were eligible but did not have a high level of attachment to the labour force.

The impact of these changes to benefit entitlements shows up when the effects of UI benefits on wages are analysed. In the 1993 COEP and NESS data, persons' re-employment wages tended to rise fairly smoothly and continually with weeks of benefit entitlement. A very different pattern appeared in the 1995 COEP: while predicted new wages initially rose as the number of benefit weeks increased from 0 through to 40 weeks, further increases in the benefit entitlement above 40 weeks tended to lower expected new wages. This "inverted-U" shaped relationship has its peak at roughly 30-39 weeks, close to the same level for which we find the greatest concentration of numbers of benefit entitlement weeks in the 1995 COEP sample.

These apparently divergent results for 1995 can be reconciled with those for the NESS and 1993 COEP if it is noted that in each of these samples the most positive effect of UI benefit weeks on wages is found in the range of weeks where most persons are found. This observation invites several possible interpretations. One such interpretation is that persons with non-standard numbers of benefit weeks tend to also be less successful in their job searches. In this case, UI week effects on new wages may simply capture unobserved measures of job search skill correlated with the number of benefit weeks.

To quantify long-term employment effects of C-17 on wages, changes in average re-employment wages between the 1993 and 1995 samples were attributed to two separate effects: changes in the number of weeks of benefits available and changes in the wage-effects of given numbers of UI benefit weeks. The first changes are due to rule changes while the second reflect modifications of behaviour due to these rule changes.

It is a well-established principle in economic analysis that changes in behaviour can offset changes in policy rules and this is precisely what is observed in these data. While the C-17 rule changes have a negative impact on wages under either the 1993 or 1995 behavioural regimes, the change in behaviour from 1993 to 1995 actually reverses the effect of the rule change. Average wages actually rise for the persons in the 1995 COEP sample when we simulate the effect of going from the pre-C-17 to the post-C-17 regime. This is despite a fall in benefit entitlements for much of the 1995 COEP sample due to C-17.

Set against this hourly-wage increase is a fall in the number of hours worked per week. This fall is due to changes in behaviour more than to changes in the benefit entitlement rules under C-17. The source of this reduction in hours is not immediately clear. It may reflect an inability to obtain full-time work for workers due to trends unrelated to unemployment insurance policy. Alternatively, it is possible that reductions in hours worked represent a new method of job sharing in which workers share hours per week rather than weeks per year. The reforms of Bill C-17 would have made such a job-sharing scheme more attractive. To analyse this possibility further, data derived from evaluation studies of the Employment Insurance reforms will be useful. The incentive to exploit such hours-sharing schemes would been eliminated by the use of hours rather than weeks to calculate benefit entitlements under EI.

The bottom line from this study is therefore that there is evidence that changes in behaviour occurred at the time that C-17 was implemented. There is a possible reduction in transitions to seasonal career paths. The distributions of numbers of benefit entitlement weeks and the relationship between UI and wages were modified. There is, however, no evidence that C-17 had detrimental long-term employment-quality effects as measured by hourly wages. Hours worked per week fell but there is as yet no way to determine how, or even if, this was related to C-17.

Footnotes

*	A more detailed description of the NESS data is found in Crémieux et al (1995a).