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Bill C-17 reduced the statutory Unemployment Insurance replacement rate for most claimants from 57 percent to 55 percent but also introduced a higher rate of 60 percent for claimants with dependents with low insurable earnings. An analysis of who received the higher rate was conducted using the 1995 Canadian Out of Employment Panel (COEP). The analysis revealed that women claimants, those who previously had part time work and/or lone parents were much more likely to receive the higher rate than other claimants who had children (claimants with no children are, by definition, ineligible for the higher rate). A second finding was that significant numbers of those receiving the higher benefit did not `need' it. In particular, many recipients of the higher rate had an employed spouse who contributed substantially to household income. Finally, many low income households were eligible for Social Assistance. For households in this group who were receiving Social Assistance, the extra UI benefit did not lead to higher household income since Social Assistance is reduced dollar for dollar with higher UI payments.

2.1 Who experienced hardship?

The second half of the report deals with income support and living standards. Once again all of the analysis was conducted using the 1995 COEP. The first part of the analysis examined the responses to a question concerning whether the reference job separation lead to "economic hardship" for the respondent's household at some time between the separation from the job that represents the baseline for the survey (the "reference" job) and the first interview. It was found that respondents are more likely to report hardship if:

• The respondent has an extended spell of unemployment (over 5 weeks). In particular, three quarters of those who were unemployed continuously between the separation date and the interview date (an average period of nine months) report hardship.
• The household has zero or negative net assets at the job loss.
• At the interview date, the respondent was employed but had an unsatisfactory job (as compared with the reference job).
• The respondent brought in a high fraction of household income before the job separation. In particular, those who accounted for less than 25 percent of household income before the job separation were very unlikely to report hardship.
• The respondent is single or is a lone parent.

2.2 Changes in income and total expenditure

As well as the subjective measure of "hardship" discussed above, the COEP also contains `objective' measures of changes in (net of tax) household income and total expenditure (that is, monthly expenditures on everything including housing costs, groceries, clothing, entertainment etc.). Since these measures refer to the month before the interview relative to the month before the separation from the reference job they give a different picture to the hardship question which refers to the whole period between the separation and the first interview.

The main findings for changes in household income and household monthly expenditure were:

• Income changes fell into three groups. For those who are back in work at a job they report is better than the reference job, household income was about the same for most respondents although some reported a rise. For those who are back in work at a job they report is about as good as the reference job, household income is unchanged. For those who are either back in work at a job that is less satisfactory than the reference job or were unemployed at the interview, household income was unchanged for about one quarter of the group but three quarters reported a fall in income. For some, this fall was quite large; for example, over one quarter of those who are unemployed reported that their household income had fallen by more than 35 percent.
• Expenditure change patterns were somewhat different. Typically those back in employment at a job that was at least as good as the reference job reported no change, although about one quarter reported a rise. Those who were employed at less satisfactory job or were unemployed at the interview but had some job between the reference job separation and the first interview reported no change in expenditure on average, although about one quarter reported a fall and one quarter a rise. Very few of those who were continuously unemployed reported a rise but a large fraction reported no change. One quarter of respondents in this group reported a fall in expenditure of greater than 14 percent.
• The link between income changes and expenditure changes was strongest for those who are back in employment but even for this group expenditure changes did not mirror income changes one for one. Typically, a one dollar rise in income was associated with a rise in expenditures of 28 cents. For the current unemployed there is a significant but smaller response of expenditure changes to income changes - the estimated fall in total expenditure for a fall in income of one dollar was about 16 cents.
• There is a strong indication that amongst those who are not back in work at a job at least as good as the reference job there are some who are "making ends meet" by taking unsatisfactory and short term jobs. For this group expenditure changes are much the same whether or not they are in employment at the interview.

Our main finding is that for households that were unemployed at the first interview (that is, about nine months after the reference job separation) there is only a weak link between UI benefit levels and changes in monthly expenditures. All of the details given below suggest that some households in which someone becomes unemployed have mechanisms for increasing other household income or for drawing on saving or running up debt that effectively cut the link between earnings losses and expenditures (at least in the medium run).

It is extremely important to realise that whilst this may be true for our sub-sample of unemployed workers, it cannot be inferred from this that the household of a randomly selected worker who experienced a nine month spell of unemployment would be able to so effectively insulate expenditures from earnings loss. Clearly, households that faced a large expenditure fall were more likely to take any job (or to search for a new job more intensively) and hence to be employed at the first interview.

The following provides the details of the investigation into the incomes and expenditures in our sample.

3.1 Personal and household income

The findings presented above concern all workers who separated from a job in the time window covered by the 1995 COEP. To analyse the impacts of UI benefits we have to consider those who were unemployed at the time of the first interview. From an analysis of this group we find:

• For those who receive UI benefits, the actual replacement rate (the ratio of current benefits to earnings in the lost job) provided by UI benefits is,on average, about ten percentage points above the usual statutory rate of 55 percent. It also varies significantly across claimants. There are a number of reasons why the actual replacement rate might diverge from the latter: some claimants receive the higher `dependents' rate; insured earnings are not the same as earnings in the month before the job separation; high earners receiving the maximum UI benefit have lower replacement rates; the immediate tax treatment of earnings and benefits differ (even though the eventual tax implications are the same); pension and UI contributions are treated differently for earnings and UI benefits.
• Many unemployed respondents receiving UI report very little other personal income but for a significant proportion (40 percent) of those receiving UI, their personal income is reported to be at least double their UI benefit. Some of this is from earnings that are too low to reduce any UI benefit to zero.
• For about half of "single adult" households, household income comes mainly from UI benefits. For the other half, however, either there is no UI benefit or there are other significant sources of income than benefits.
• For married respondents with a spouse who was not employed at the interview date, UI benefit receipts are even less important; for only about one third does UI benefit constitute more than 75 percent of household income.
• For married respondents with a spouse who was employed at the interview date, UI is relatively unimportant; for only about 10 percent of these households does the UI benefit received constitute more than three quarters of household income.

3.2 Changes in total expenditures among
the unemployed

An analysis of the changes in total expenditure for the those who were unemployed at the first interview reveal:

• Lone parents had a bigger fall in expenditure than any other group.
• Single people and married respondents who had a non-employed spouse had a larger fall than married respondents who had an employed spouse.
• Those who had an intervening job had a lower fall.
• Older respondents had a larger fall.
• High earners had a larger fall.
• Those who had some assets at the reference separation had lower falls.

3.3 UI benefit levels and expenditure changes

Finally, we relate changes in benefit levels to changes in total expenditure. Given the relatively weak link between benefits and personal income, personal income and household income (for married respondents) and changes in household income and changes in expenditures, the following findings come as no surprise:

• variations in the replacement rate do not seem to lead to variations in the change in total expenditure for married respondents;
• for single respondents and lone parents, there does seem to be some effect from UI benefits to expenditures but it is very small. We estimate that an increase of ten percentage points in the replacement rate would lead to an increase of only 0.7 percent in expenditures.